Over the past year, I’ve spent some of my time mentoring new startups. It’s one way for me to stay connected to the entrepreneur community in Boston, and the new ideas I hear from other entrepreneurs helps me with my own thinking.
In these advice sessions, I’ve often been asked by new entrepreneurs, “Do I need to write a business plan?” Every time I hear this question, I think of old school business men who once read a book about how to start a business back in the 1950s. Ask your father about how to start a business and he might say “First you need to write a 50 page document that covers every possible pitfall of the business. Then you need to find investors who will provide you feedback on that business plan. Then you’ll be ready to start a business.”
I’m here to tell you that you don’t need a business plan. I wish someone had told me that back when I started Punchbowl. I remember very clearly wrestling with this fundamental question. If I’m starting a business, surely a need a business plan… right? Isn’t that what makes it legitimate?
As I started telling people that I was in the early stages of building a startup, about once a week someone would ask me to see a business plan. “Send me your business plan” was a refrain I heard all too often. Yet in my gut I knew that writing a traditional business plan didn’t make sense. I had broad concepts, not an articulated plan to “go to market.” I had notions about how the company might make money, not a specific “business model.”
But in the back of my mind, I still felt like I should probably write a business plan. I had just finished my MBA at the University of North Carolina, and the entrepreneurship that they teach is centered around writing a business plan. Numerous times in the early days I sat down to try to write a business plan. But it didn’t feel natural at all. I struggled to write sections about “the market” and “the financial model.”
During this early idea creation stage, it felt a lot more natural to me to tell the story in a few Powerpoint slides. So that’s what I did. I spent many, many hours trying to develop the story, researching aspects of the business, and using Powerpoint to jot down thoughts and ideas.
Months later, I started pitching Punchbowl.com to potential investors. Once in a while, I would still get the question “can you send me your business plan?” And once in a while I would think about writing a 20 page plan– and then realize what a utter waste of time it would be to write a plan about a startup idea that was evolving so rapidly. It didn’t feel right to me, so I didn’t write one. Again and again, I would be asked for a business plan (yes I would question myself each time I was asked) but I stuck with my instincts.
Over time, I have developed a set of documents that I use to pitch Punchbowl. Here’s a quick list:
1) One page overview of the business concept (includes info about team, market opportunity, competition etc.). If you can’t fit it into one page, then it’s not important enough.
2) Powerpoint Presentation (no more than 10-12 slides)
3) Pro Forma Financials (2 year model). Anything longer than 2 years is bullshit anyway.
4) The actual working, live product (with a great demo)
Now that I’ve raised three rounds of capital and two rounds of debt financing, I can tell you with some authority: you don’t need to write a business plan. The reality is that anyone who is worth their salt as an investor doesn’t read business plans. Paul Kedrosky points out that VC’s are professional nit-pickers. Give them a business plan and they’ll find a million faults with it. I agree with this — although I’ve yet to meet a VC that would actually take the time to read a written business plan.
KEY TAKEAWAY: You don’t need a business plan – so stop beating yourself up about it and don’t bother! Work on getting a product out the door and getting real users. Focus on your Powerpoint pitch and 2 year pro forma business model. For any investors worth their salt, that will be enough.