Mike Tyson famously said “Everyone has a plan until they get punched in the mouth.” Who knew that Tyson was talking about startup business plans? For startups, the value of the business plan is indeed questionable. In the earliest stages of the development of a new venture, the life-blood of cash is required but yet uncertainty abounds. In order to solve the cash issue, business plans are produced for the consumption of lenders and investors. These documents are chock-full of aspirational promises with detailed Excel spreadsheets that are nothing more than mathematical relationships between made-up numbers. In short, when it comes to startups, business plans are works of fiction.
So is there any point in producing a business plan for your startup? If the entrepreneur embarks on the quest to develop a plan that accurately reflects their venture’s prospects, then the reward is not in words and figures that make up the final plan, but in the lessons learned along the way. In other words, while the reader must accept that the representations made in the plan document are fictitious, there are two general criteria that are used to assess a startup’s ability to attract financing that can be derived from this work of fiction. Firstly, is the plan so well researched and constructed that it could be true in the current business climate? Secondly and more importantly, does the reader believe that the author of this work of fiction has the skills and capability to make it true?
As a result of this inherent uncertainty that surrounds startups, there is some spirited debate as to whether business plans should be written at all. Within the venture and angel investing community there is an increasing reliance on pitch decks for instance. However, regardless of form, those two criteria of feasibility and credibility remain and they can only be addressed through in-depth research, testing of hypotheses and using the results to project a possible future for a nascent venture.
Regardless of the form used to support a startup business’ fundraising, the following design criteria should be considered:
• Identify and clearly articulate your vision and purpose. Be very clear on the “why” of a business — the bigger goal at hand. What is the problem or unfulfilled need that only you can address for your customers?
• The team is more important than any idea or plan. The top three priorities should be people, followed by people and then people.
• Think big, start small, then scale or fail fast. Set the right first “start small” milestone; it will usually involve seeing people’s willingness to buy or at least try your product.
• Focus on a well-defined market sub-segment or niche. At least to start, think of where you can potentially be the best. This strategy is almost always more successful than being just another player in a massive market.
• Understand your business model. How you will make money is more important than pages of Excel showing financials that are simply too hard to predict at this early stage anyway. Understand instead the basic way you will make money — is it through transactions, advertising, subscriptions, etc.?
Business planning executed with the intent of validating assumptions and reducing the uncertainty surrounding a startup is a worthwhile exercise that could lead to very tangible business success. The level of depth, objectivity and self-evaluation that is applied to the exercise defines the difference between charting a realistic path from abstraction to reality instead of making yet another contribution to the field of entrepreneurship theatre. To paraphrase Dwight Eisenhower — plans are of no particular value, but planning is indispensable.
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