Honestly, I’m not a huge fan of business plans… at least not in the commonly understood and executed form. And by that I mean 20-30 pages of text, charts, and financial projections (guesses). I think its an interesting exercise because it forces you to think through some things, but beyond that I find little value in it. What would be way more valuable would be a fluid summary of things to use as a rough frame and guideline – understanding that success of your idea will depend quite a lot on the ability to learn, grow, and adapt to circumstances as they arise.
What’s wrong with common business planning?
There are a few things that I don’t like about old-school business plans, here are three…
- They’re usually way too long. With the level of detail included in a 20-30 page business plan, very few people are going to read through the entire thing. They’ll more likely read the headers and perhaps the first couple of sentences in each section to get the point. The reader might also slow down on some charts and images (that rarely have a ton of value in the grand scheme of things) and/or the reader might jump to whatever section directly applies to their interest (a marketing-focused person might read that one entire section).
- But they’re good for the entrepreneur to reference, right? They could be, but the reality is that few founders go back and reference the business plan once it is initially done. I’ve fallen into this trap myself and I’ve spoken with many founders who have expressed the same. So all that time and effort spent working on a business plan and it often winds up in a desk drawer somewhere. OK, this is the 21st century, so more likely it just sits and takes up space on DropBox or Google Drive, but still, it goes stale and often isn’t referenced again.
- And of course when you’re planning to start a new venture (or a new product at your existing company) you need to make a ton of assumptions, so large parts of the plan wind up being little more than guesstimates. And that’s okay to an extend. There ARE a lot of unknowns, and you need some basis and expectation (hypothesis), but spending a ton of time documenting page after page of detail for these guesses often isn’t useful.
So what’s a better plan for business planning?
Ideally you can fit your entire business plan on a single page, then have a couple of supporting documents (like pro forma financial statements). Really, the whole thing shouldn’t need to be any more than 3-5 pages. I’ve seen documents of this size – and smaller – that do a great job of communicating the business plan. In fact, fellow Angels and myself tend to be drawn to the shorter and concise business plans versus the overly-verbose and complicated ones.
What should you have in your business plan?
- Identify the customer problem and talk just a little about how big of a problem it is. Is it a headache? Or is it a migraine?
- Now what is your solution that is going to directly resolve the customer problem you’ve identified?
- Amazingly I’ve seen people forget this part – be sure to mention the business model (how you plan to make money). One-time sales? Subscription model? Advertising-supported? Freemium model?
- Make sure you understand who is in your target market. “Everyone” is not acceptable. Give a couple of demographics or other guidelines of who you will target as ideal consumers of your solution.
- I prefer to see some marketing points too – how will you reach this target market that you’ve defined? Word-of-mouth? Pay-per-click? TV advertising? There needs to be a plan to get to these ideal customers.
- Then, ever-so-briefly IMO, mention a couple of the biggest competitors and why you feel you have a competitive advantage over their existing solutions.
- Who makes up the management team? This mainly matters if you’re going to be seeking funding. For internal use its redundant of course – you know who you’re going to be bringing on to help out.
- A couple of pro-forma financial statements. I like to see a one-year monthly statement that reflects revenue ramp-up and milestones, along with costs through the first year. Then I think it is also nice to have a three-year projection thats (of course) rougher and less detailed. You have no idea what is going to happen beyond the first year anyway (sometimes, not even beyond the first few months) but this at least shows some scale potential and that you’re thinking big.
- And of course if you need to raise funding to make this work out, you need to mention specific funding required and what those funds would be used for.
Does that sound like a lot? It really isn’t. If it weren’t for the financial statements, the rest can often fit onto a single page, and certainly onto just a couple of pages —- no need at all for any 20+ page document (that no one will read).
As the founder and creator of this document, understand that this is a rough framework. Creation of this document is going to help you organize your thoughts but it isn’t a rigid plan. Make changes when needed as you learn things and be flexible. A rigid startup with no flexibility or willingness to pivot always struggles and often fails. Don’t be that venture.
Hopefully this is useful and at a minimum will save you hours of headache and many pages of paper. :)