The business plan is commonly, and mistakenly, thought of as the Holy Grail or template for success. It’s more than often the direction you’re pointed if you have an idea and talk to any old-school business person, corporate lifer or institutional banker — at least when it comes to getting your startup idea off the ground.
It’s simply a default response or knee-jerk reaction: “Sure, send me your business plan, and I’ll take a look.” The reality is, if you’re taking advice from these people early on, you’re barking up the wrong tree, because that formal plan you’re going to spend an inordinate amount of time putting together is going to do more harm than good.
Here are four reasons you’re wasting your time.
1. The formal structure doesn’t apply to the real world.
The traditional business plan is typically made of around eight sections: an executive summary, company summary, products and services, market analysis summary, strategy and implantation summary, management summary, financial plan and an appendix — all of which have somewhere between three and 10 subsections. This creates a document that runs upwards of 40 pages and takes weeks, or even months, to create.
Guess what? People as whole are now accustomed to getting short bursts of information, because our attention spans have been shortened over time, so this epic novel of a plan is going to do a great job of occupying space on your intended reader’s hard drive or collecting dust on their desk — but it’s not likely to get read.
2. It’s going to change on day one.
Here’s another problem: The second you go to implement this magical plan that you spent countless hours (or weeks or months) preparing, nearly every single detail is going to fly out the window — literally, all of them. The reason for this is because there is no way to get a true understanding of how your potential customers or the overall markets are going to respond to you, your product or your company, until you go and begin to execute and gather feedback. From there, you’ll need to pay attention to the response and quickly adjust to it to improve.
3. Those conservative projections you came up with are insane.
I’ll admit that there is an aspect of the business plan that is valuable: the financials. This is one of the very few areas that require some in-depth understanding prior to launching into a new venture so that you don’t get months, or years, down the road to find that the business you’ve been working to build isn’t financially viable.
With that said, the financial projections that you’re going to create beyond six months out is a complete fantasy. You’re going to call them conservative, but in reality, they’re going to be a pipe dream of the riches you intend to accumulate. They’re nice to have and ogle at, but they mean almost nothing until you accomplish them.
This is important, because new entrepreneurs have a tendency to value their companies based far too heavily on projections — which is a true sign of a rookie. Here’s another rookie move that often makes its way into projections: “Our market is worth over a billion dollars annually, so this is what we’ll generate by capturing just 1 percent of the market.”
Tell an investor that you only need X percent of a huge market to make a zillion dollars and watch them run for the hills.
4. If you’re using it to raise money early on, you’re talking to the wrong people.
When you start a new business and are interested in raising some funds to help build it, there are a number of places you can go, such as family or friends, angel investors, crowdfunding or a traditional bank. The difficulty is that only one of these potential investors will even read your epic novel of a business plan, and it’s the least likely to actually give you a loan — the bank. Even if you have exceptional credit, the likelihood of receiving a startup loan or line of credit from a bank without personally guaranteeing it — which you should never ever do — is pretty much zero.
Having your ideas and how you intend to execute them in writing is certainly important, as it helps to hash out the potential pain points and pull the business concepts together. But going through the structured ritual of creating a traditional business plan, which takes an insane amount of time, is a process that has little relevance to today’s fast moving startups. So, instead, create a 10-page pitch deck, which is a more concise and visual version of your plan, and you’ll be better prepared to raise some funding and accomplish your early goals.