Why Business Plans are Not as Important as you Think
I remember my first business plan too well. It was such an unforgettable document for two reasons. First, it took nine painful months to write. And second, I found out that no-one ever read it.
Despite that, I managed to raise both business angel and bank funding for my fledgling company. And my plan? I filed it away when I started the business – only to look at it again a few years later and discover that it in no way resembled how my company had actually developed and grown.
Later on in my career, when I was running a business angel network, it began to dawn on me that my experience wasn’t unique.
Although huge amounts of time and cash are spent churning out detailed business plans for potential investors, I found that very few were getting read.
Curious, I asked the business angels, VCs and bankers I came into contact with: “Do you actually read business plans?” As it turned out, most of the investors I spoke with said they made their decision to meet an entrepreneur on the basis of a well-written executive summary. They would then decide to invest in a company after a series of meetings with the founding team which tested how they interacted with one another and how they responded to probing and often very challenging questions.
So does that mean you don’t have to write a business plan when seeking investment for your business?
Sorry – I wish I could say yes. Investors still want to see some reassuring figures and words that demonstrate you have thought through your market, the need you are trying to meet and how people will find and pay for your services. But here is the good news: your plan does not need to be the soul-searching, nine-month, 100-page ordeal it was for me – and for many entrepreneurs seeking funds for their new ventures.
There is a plethora of business planning books, business plan consultants, software programmes and websites that will tell you how very important and crucial your business plan is when raising investment. Follow this path by all means, if it feels right for you, but the evidence shows that your search for capital might well turn into a long, frustrating and rather dull experience with a very limited chance of success – less than 1% in fact.
Sure, you need some kind of plan.
But before you begin, save yourself time, effort and possibly money by considering the following three points:
- Accept that your business plan is unlikely to get read. With this in mind, keep it focused and concise (no more than 20 pages).
- Do your research thoroughly but don’t spend more than a couple of weeks on your plan. After that, focus more on doing than planning.
- Remember that the most important part of your plan is the executive summary, which will get read by anyone who is interested enough to invest in your business. So spend most of your planning time creating one that gives the facts and shows your business in its best light.
There are thousands of entrepreneurs looking for capital, doing the rounds of investors with a beautifully bound, phone-directory-sized business plan in hand.
Meanwhile, entrepreneurs who spend just a few weeks creating a concise plan with an outstanding executive summary have spent their time more wisely. They are giving most investors what they want: fewer attempts at planning the unpredictable - and more evidence of the action they have already taken to build or sell something of value.
Paul Grant is founder of The Funding Game and is running a series of workshops on the topic of raising capital for start-up. The next workshop: How to find an Angel Investor will be held at the British Library on Tuesday, 31st August 2010 from 4.30pm-6.30pm. There is a special 25% discount for all The Next Women readers. Enter “nextwomen” when booking, or click on the link below:
For the latest Funding Game events for UK entrepreneurs follow @thefundinggame on Twitter
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