The Real Secrets to Writing a Successful Business Plan
Believe it or not, a formal business plan is usually a waste of your time. In this article, you’ll discover a simple template for winning over investors and partners. We’ll also review three common myths about business plans.
Conventional wisdom says that every startup or project needs a business plan. According to Wikipedia, a business plan is: “a formal statement of business goals, reasons they are attainable, and plans for reaching them. It may also contain background information about the organization or team attempting to reach those goals … When planning a new venture, a three- to five-year business plan is required, since investors will look for their investment return in that timeframe.”
Did you notice the word required in the last sentence? A business plan is something that you must have in order to get investors? Really? No! Here’s the real deal:
According to Stanford University professor of entrepreneurship Chuck Eesley, who characterized a business plan as the “quickest way to look like a rookie.” Robert I. Sutton, the bestselling author of Scaling Up Excellence and The No Asshole Rule, agrees “Biz plans are dead in the valley.”
According to Kawasaki, rather than a business plan, investors want to see a 10-slide, 20-minute presentation built around a demo or prototype. “If a picture is worth 1,000 words, a prototype is worth 10,000 slides,” he quotes. Guy Kawasaki, author of numerous bestsellers, including the Art of the Start.
So despite what you might have thought, most business plans are a waste of everyone’s time. Here’s why:
First, for a startup, three years is in a galaxy far, far away, 99% of startups pivot into a different direction if they have any cash left over.
Secondly, nobody wants to read a formal document, especially one that follows the typical template of a mission statement, personal background, and pie-in-the-sky assumptions.
Similar to Kawasaki, serial entrepreneur Henry Wong (founder of CNET, among others) also recommends a minimalist approach that hits five key points:
- special connections (people you know who can help).
Similarly, in the book The Startup Pitch: A Proven Formula to Win, author and entrepreneur Chris Lipp says your pitch must communicate only four simple points:
Stanford professor Eesley says that a successful pitch today can even be a “one pager” and recommends that would-be entrepreneurs look at the minimalist online application that resulted in the funding of Dropbox.
Here’s the real secret, simplify your ideas so you can describe them on a few slides or even on a single page or short video, watch Shark Tank for some great ideas.
Your time is better spent doing something useful: such as making your idea work in the real world.
3 Common Business Plan Myths
Myth 1: Every business plan has the same format and is 40 pages long.
The 40-page business plan is the template found on many websites—the classic one-size-fits all approach. But this is totally inaccurate.
The stereotyped 40-page plan is often associated with applying for traditional bank loans. However, these types of loans occur in less than 1 percent of the 565,000 start-ups launched each month. So your needs are likely different.
A one-person business, which does not need third-party funding, may only need a one-page business plan that focuses on the messages and marketing. As mentioned above Dropbox was successfully funded with just a one pager.
Also, there are effective two-page, graphic-centered business plans used for established businesses that want to focus on a particular area, like marketing, and just need to make sure goals and actions plans are aligned.
You need to know your audience and what decisions you want them to make, so you know what information to provide. Is the plan just for yourself, your team, a banker, a vendor to obtain credit on purchases, etc?
Myth 2: Once written, a business plan does not need to be updated.
Believe it or not, your business plan is probably out of date the day you finish writing it. This is due to the changing nature of your business, competitor actions and reactions to your entering the market, changing market conditions, use of estimates, your accomplishments and your decisions to take actions. Remember, that 99% of businesses pivot, change or morph into a completely different business usually within 24 months.
You should review, update and customize a business plan at least once a year. Often, you and your team’s attention are focused on solving the daily business challenges, so once a year, take a pause and look ahead. This becomes the information for your business plan update. You can connect this review with an annual budget process.
Myth 3: A business plan with lots of financial information will get the bank loan needed to start or grow your business.
A business plan is just one of several criteria for getting a loan officer to review your bank application. Other criteria, and probably with as much weight, are your personal credit score, your ability to collateralize the loan, your ability to provide about 25 percent of the needed capital in cash and your experience in the business area.
In addition, if your two-page executive summary is not well done, your banker might not read any further.