Posted by Darrell Lerner
I am not a fortune teller. And, assuming you aren't one either, then time spent writing a comprehensive business plan is time wasted that could be better spent getting to work on advancing your ideas.
The tried and true approach to starting a business is to begin with a business plan. Conceptually, it makes sense. The more you plan, the better prepared you will be. Think the business through, research competitors, hone your financial metrics, refine your hiring plans and there will be fewer surprises. Sounds logical enough, right? WRONG! Start up life brings new challenges and opportunities every single day. I'm in the early stages of a new start up and I can barely predict what's going to happen next week with accuracy, let alone plan out the next 4 years in fine detail. And anyone who thinks they can accurately project what their revenues and expenses will look like in 2016 for a business that doesn't even exist yet either has never done this before or is smoking some really powerful stuff.
Before I launched my first start up, I too thought that you planned out a business in painstaking detail, put it on paper in the form of a business plan, and then got right to work. I believed that it was a linear process - meaning you came up with an amazing idea, followed the playbook step by step, and success would inevitably follow. But here's the thing - the start up path isn't linear at all and there isn't any particular playbook to follow. From Day 1 in a start up there are decision points. They occur each day, sometimes multiple times per day. Some are larger than others, but they all represent potential paths that the business will take and each decision point slightly alters the course of the business going forward. It's like those "Choose Your Own Adventure" books that many of us enjoyed as kids. There are, in fact, millions of potential paths a start up can take and each decision point is a product of the previous ones – a sentiment conveyed quite well by my favorite band Rush in “Ghost of a Chance:”
Like a million little doorways
All the choices we made
All the stages we passed through
All the roles we played
For so many different directions
Our separate paths might have turned
With every door that we opened
Every bridge that we burned
With so many potential paths that a start up can take, and so many different variables influencing its path, there's simply no way to chart an entire course for a business so far in advance. Business plans represent a starting point, nothing more. That's because where a company starts is very rarely where it finishes. Just ask Groupon and Twitter and Instagram along with countless others whose initial business plans bear little resemblance to the companies they ultimately became that we know and love.
This is certainly something I experienced personally at SNAP Interactive. When my brother and I co-founded the company, our initial business plan was to build an online dating site targeted toward busy urban professionals. After many months of planning and iterating, we launched IamFreeTonight.com in Fall 2006. The site performed extremely well and we signed up tens of thousands of users and achieved significant national press coverage in the first few months. Fast forward to May 2007 and Facebook opens up their app platform. We ventured into the unknown and built an app called Meet New People whose primary purpose was to drive traffic to IamFreeTonight.com. All of a sudden we were getting thousands of signups each day. Meanwhile, other new apps with unheralded backgrounds were ballooning to millions of users virtually overnight. We sensed that this was a once in a lifetime opportunity and, with only a single programmer at the time, made the very difficult decision to abruptly stop all work on IamFreeTonight.com in order to further explore the Facebook opportunity. A short time later we launched "Are You Interested" on Facebook which ultimately grew to tens of millions of installs and a $20 million annual revenue stream. We never worked on IamFreeTonight again. I don't think there's any question we made the right call, but certainly the way the company looked by the end of 2007 was a far cry from the business plan we launched with a year earlier.
So, if business plans are such a waste, why do VC's and investors still ask for them? Partly out of tradition and partly because they want to see that you've really thought about your business before they invest in you. Even if they know the 4-year financial projections are useless, they at least demonstrate that an entrepreneur understands the model and financial aspects of the business they've set out to pursue. Neverthless, VC's and investors have continued to shift away from the 30-page business plan in favor of shorter power point decks covering only the most important topics.
So, if not a business plan, then what? Well there's one thing that investors like A LOT more than a good business plan and that's results! Attaining revenue or traction (ie - proof of concept) is much more meaningful than some fantasy on paper. And the only way to achieve those items is by getting started. So stop writing that business plan (write an executive summary if you must) and get to work! Prove your ability to execute and that will say volumes more than any 30 page business plan ever will!