Monday, October 18, 2010

Why a business plan really isn't necessary.

More than 14 million business plans are submitted for funding each year in the US (According to a Google Aardvark).

Of those, according to Adeo of 24,000 are selected for funding and 9,000 get built and only 2-3k are deemed "successful."

Let's face it, the largest companies on the planet did not get started, or funded, with a business plan. That list includes Google, Apple, and Microsoft, amongst others.

Many investors simply look at a term sheet, an executive summary, and perhaps a one-sheet. A serious investor may want to see a strategic plan at some point. A business plan can be derived from a strategic plan, if you ever need one, for some reason. The opposite is not true.

As blogger, Michael Trout, says, "The problem were business plans fail is that they try to predict outcomes... 20 years ago that was maybe easier (or not) to do because things were somewhat more predicable.

The fact is change is happening so fast now that at any moment a new innovation can make what you doing obsolete. So you need to be a heck of a lot more flexible and respond to you niche customer base fast and nimbly (something a business plan cant do for you). You have to define your very specific customer and provide them the stuff they want and do it very well. If you do so then your good to go!

As Eric Reis explains... the problem is unknown and the solution is unknown and all you really have is a vision of the utopia where you like to be. Another way to think about it is a business plan is like mapping a path down a river you have never gone down or have any information on. The old startup 1.0 method, that costs millions and took massive dev teams, was to plan for EVERY contingency. In the startup 2.0 method one roles out with a minimal viable product that then uses customers feedback metrics and a/b testing to test the usability of the product, validating every execution. And if you see a problem you pivot or change direction.

Business plans as they were envisioned are fast becoming obsolete. Are they useful to right as an exercise? Sure. Would it be at the top of my to do list? No. Rather at the bottom."

A successful entrepreneur by the name of Levi Thornton added, "With a handful startups behind me and 2 successful exits (Some invested / Some founded), the business plan can not keep up with the business. You will put more time into trying to keep up than getting value out of it. If you have an idea for a startup grab a notepad and work on your idea, ask others and see if they know something you don't about a service or sector, and do plenty of research before cutting a check. If you have nothing of reference for your local bank write a business plan, but I would recommend wining and dinning a couple bankers, that way you only have to sit in a chair and say you want some money for x business and you can skip all the formalities with a song and dance. As for investors, I have seen a 20 page power point presentation get a 9.5 million check cut. It's all up to who and how you are at working deals, do what works best for you and your business. "

If you do the maths, then that means if you rely on getting your startup funded with submitting a business you have a 0.0214% chance of success... If you are writing a business plan for funding you are are wasting valuable time... however, the leaches that want to sell you business plan services and solutions will not want you to know this simple fact.

A business plan can be a very useful tool for getting your thoughts down on paper and charting your 'what's next' or your sequencing plan. These are perhaps the most crucial use of a business plan.

If you do want to construct a business plan, there is no need to hire out and pay thousands to do so. There is a very comprehensive program on the market , by Jian. It will even create 5 year projections based on the data you use for your first year. The software has been rated #1 for the last seven years in a row so it is very, very good.

I prefer the old saying, "A business plan is as important as the drawer you keep it in."

Dave Phillipson, CP
CEO Space
The World's Largest, Oldest & Most
Successful Organization for CEOs,
Entrepreneurs & Visionary Investors

P.S. We help businesses thrive because of referrals from people like you. Thank you for referring me.


  1. Agreed, you don’t need to hire someone out to help you create your Business Plan. In addition to what’s mentioned in the article, the MS Small Business Center is another resource for ideas if you decide on a plan for your business. This link will help:

    Jodi E.
    Microsoft SMB Outreach Team

  2. Dave, the local small business development center just told me that in order to get funded I need to develop a full out business plan. Now I get to spend the next few weeks writing a book about my illustrated children's book.

    Gauging sales of a children's book will not be easy. Any ROI will be based on successful marketing which will be the meat of the biz plan. This I can then use as a flow chart of action steps.

    Do you have thoughts on getting around writing a complete biz plan when needing funding from the local SBA or some similar entity?


  3. Yes Tam.

    A Strategic Plan as mentioned.

    More importantly, an Executive Summary and a one-sheet.

    You are entering a challenge that many encounter when going to the SBA... the funds are limited.

    Marketing is not going to help you unless you have a solid Brand Identity. Brand Identity will run you $150k to do it right. Next is your marketing. You'll need capital for Marketing.

    To have a successful launch and campaign of your book, you will want to do it right, or you will simply have an expensive business card.

    There are specific strategies for successful books. If followed, they work. Because nothing is "add water and stir", these will also include some work, but are much easier than the path you are on.

    Feel welcome to contact me via