I’m afraid the current “don’t waste time creating a business plan” mantra is doing unintended damage. It’s leaving the impression on first-time entrepreneurs that they don’t need a plan of any sort. What I think advisors and investors are trying to tell them is that the 30-50 page written business plans of yesteryear that include long-range financial projections, exit strategies and extensive market research aren’t expected anymore, so don’t waste your time creating such a physical document. They are also trying to tell entrepreneurs that they barely know if they’re going to make it another 9 months, so why spend too much time detailing what the company will look like 3-5 years from now? The investors are right but the entrepreneurs aren’t hearing it that way.
Here’s my opinion on the subject. In order to get funded you’re going to have to come up with your “story”, which includes all of the typical content that’s included in a pitch deck and more. The pitch deck is in presentation format but it essentially follows an abbreviated outline of the old-day business plans (see related article titled “Pitch Deck Flow“). So if you have a solid pitch deck you’re already half way there and you do need a plan.
Do You Really Need a Plan?
Let’s start with a quote from former US president Dwight D. Eisenhower: “No battle was ever won according to plan, but no battle was ever won without one.” (He is also quoted as saying “In preparing for battle I have always found that plans are useless, but planning is indispensable”). What an appropriate setup for this article.
Here’s a common scenario. After pitching at a demo day (see related article titled “Why Participate in a Pitching Event?“), you then go into the mode of repeating the same pitch and Q&A ping-pong dozens of times with individual investors. They are looking to fill in the blanks that you weren’t able to cover during your 3-5 minute pitch and weren’t able to include in your 10 PowerPoint slides. So guess what happens? You answer the same 10-15 questions over and over and over until you already know what question the investor is going to ask after hearing just the first 3 words out of their mouth. You spend 75% of every single investor meeting on repeat questions.
Leverage Existing Work
Why not spend the time to take the content you created for the pitch deck and add to it the other things you discovered 90% of the investors also want to know and create a ____ document? I’m not even going to give the document a name. It’s just something that forces you to plan, at least a little. And it will save you a ton of time repeating yourself. You might just insert additional slides to each section of your pitch deck to provide the extra needed detail or place some of the slides in a Backup section. This newly expanded document essentially becomes your “business plan”. With this, after a successful first meeting with an investor prospect you can email the document to them so they can consume additional details you weren’t able to cover in your initial meeting.
Notice that I said “after” the meeting and not prior. Most startup advisors recommend not sending investor prospects too much information before your first meeting for fear the investor will make a independent decision solely based on the information, which doesn’t give you a chance to tell your story or handle issues and objections. Also, I don’t want to pretend that every investor is going to read the document but even if only a third of them do after a successful first meeting it can increase your odds of getting them excited enough to invest. I always digest this material for fundraising startups I’m at least moderately interested in because I want to be fully prepared for the second meeting.
In my opinion, thinking through the next level of detail for the various things included in your pitch deck is just good business sense. Forget the 5-year financial projections and detailed exit strategies (see related article titled “Answering the Exit Strategy Question“). But at least think through the next 12-18 months of establishing or scaling your business and hitting certain milestones (see related article titled “Strategy Horizons Versus a Timeline“). Doing this requires you to think about a lot more than just building a cool product that solves an interesting problem. Like former US President Dwight D. Eisenhower once said “Plans are nothing; planning is everything.” Show the investors that you have a plan.
If you are still in the pre-launch, idea development phase, your initial business plan will actually be a long list of assumptions. In fact, I wrote an article on just that to help you get started and to take away your excuse for not doing some amount of planning in the very early days.
One more thought. When trying to decide how much precision to incorporate into your predictions, think Compass more than GPS (see related article titled “Why Use a GPS When a Compass Will Do?”). In other words, directionally correct is enough to convey your intentions to investors and others that consume this planning document. No need for GPS precision because things will never work out that way anyway.