Now before you dismiss the title of this blog as a joke, or worse, the ravings of an idiot, hear me out. It’s an unfortunate fact that many universities and for-profit businesses are perpetuating the myth that entrepreneurs have to create business plans before they start businesses. Potential entrepreneurs are spending up to 200 hours of their valuable time in pursuit of the perfect plan to present at a competition (don’t get me started on business plan competitions – I’ll save that for another post) or pitch to an investor, only to discover that investors are more impressed by a founding team that has gotten the business up and running, even in a minimal way, to prove the concept than they are by a nicely bound document.
For years, the traditional model of business planning for entrepreneurs involved carefully crafting a business plan and then sending it out to potential funders for consideration. Of course, much like a slush pile of manuscripts at a publishing house, these business plans sat stacked on the investor’s desk, rarely seeing the light of day. Today, submitting a professionally crafted business plan signals that you’re probably too frightened to actually go out and do the business and you’ve spent waaaaay too much time developing a document that is out of date the minute it’s finished. Creating a good-looking document is less important than demonstrating what the entrepreneur has accomplished in the way of starting the business and proving there are customers. Investors want to see that the venture has targeted customers in pain and has a track record of successful sales, however brief. They want to see that the business model actually works—after all, that’s what they’re investing in. Times have changed and the old rules no longer apply. Today it’s about action—show me what you’ve accomplished—I can’t invest in a document.
The economic environment for entrepreneurs going forward will be characterized by an increase in uncertainty, fewer available resources, and a need for more innovation. What this means is that startups have to move and adapt quickly. It isn’t possible to build out the entire business in advance of getting into the market and learning from real customers. This is not to say that entrepreneurs don’t need a plan—they do—it just needs to be a staged plan that allows for learning and changes along the way. And it has to focus on doing, not writing about. So what should you do?
If you’re getting ready to launch a business, stop and ask yourself some important questions that will answer whether your new business idea is even feasible:
- What is your compelling story? Does it grab attention in about 15 seconds?
- What pain is your business addressing and who has it? How big is the pain?
- How is your business curing the pain?
- How does your business stand out from the crowd?
- Do you have a way to make money? Will the business model scale?
- Can the founding team make this happen? Why
- Why is now the right time to launch this venture? What is the window of opportunity?
- What are you seeking from investors and where will it take the business? What is your funding plan?
If you can answer these questions and support your answers from the research you’ve done, it’s time to prove the concept, NOT write a business plan. I’m sure I’ll get flack from some people for downgrading the importance of the business plan, but the complaints probably won’t come from the people who invest in new ventures. They want to see results. I’ll talk about proof of concept in the next post.