An alternative view on Business Plans

My friend, Mithun SRIDHARAN (Twitter), argues that the business plan is a waste of time and encouraged me to look at this article from the Inc. website.  I agreed with the article, and Mithun, that the focus should be on getting started (an approach I recommended in an article in this blog a while back), on the team, and especially on getting initial sales. However, it sometimes help to find a way to articulate those ideas, and to get input from others. OK, full disclosure: for may years I made most of my income, and still get some, from advising start-ups, and re-ups (my term for firm looking for a new start). For many of these, seeking external funding, a business plan of some sort is usually a requirement. However, my preferred initial approach is mid-way between the 'no business plan' approach that Mithun suggests, and the full BP beloved of entrepreneurship classes. I suggest the Concept Paper. This is a short - maybe two pages long - document that articulates the key points of the business idea, the business model, and, (here I agree with the article from Mithun) about the people that will make it work and why them. Whatever they may say publicly, most 'investors' are essentially investing in the people - the founders - of the business; looking to see what drives them, and how they will react when things go wrong (as they will). So, rather than pushing you to another link, here is my original article in full:

So, you want to start a new business?

Don't write a Business Plan (yet!)

1. Do not create a business because you want to create a business. Create a business because there is something that you want to be involved in and the only way you can do that is to create a business. And, make sure that you are fascinated by the business. The first years can be hard, and the rewards few. If you do not love what you are doing it will be too easy to give up. Success with a new venture requires passion and persistence.

2. Do not start by creating a Business Plan. Start by creating a two page Concept Paper: two pages is too short to be a Business Plan, but too long to allow you to BS.  In the Concept Paper, be sure to include the following:
(a) The Big Idea (what is it that you want to do)
(b) The business model (how do you make money)
(c) Why you? (What expertise to you have, or plan to get that will ensure that you have the knowledge of the business/industry)
(d) Who are the customers? (who will buy the product or service that you are offering, at the price you want to charge?)
(e) Why will they buy? (where is the gap in the market that suggests you might have the chance to actually get customers?)
(f) What will be your legal structure? (Different countries have different rules. We will have information by country for freelancers - check it out.  In any case you need to have an idea about how you will operate from a legal and fiscal standpoint)
(g) What will you do for resources while the new business is building to a point where you can be, at least, self-supporting?)

Write out your concept paper. Get down as much of this as you can, then share it with a mentor. Someone who will give you honest feedback. Sorry to say, but family members are often not objective enough. Find a professional coach, or mentor.  The idea is to use the Concept Paper as the basis for dialog between you and one or more mentors. Let them ask questions: "What do you mean by . . . . ?". "How does this work in practice?". The idea of the dialog is to get inputs that will allow you to refine, improve, clarify, your ideas to the point where everything seems to hang together, and to make sense. This may take three or more rewrites of the Concept Paper. Frustrating, perhaps, but better to have the frustrations now before you commit, than to go forward with vague ideas, and have mega frustration later.  Once the Concept Paper makes sense, with no missing links, that is the time to draft a Business Plan, with some financial stuff to help validate your ideas in operational and financial terms.

More on concept papers

Discussing the concept paper approach with one of my students today (M) we agree that sometimes it helps to jot down some numbers in the concept paper just to see if the concept hangs together. We were discussing an internet idea where the revenue stream depended mainly on the click-through rate from ads. A few quick numbers showed that the original concept was a non-starter. This one of the key rationales for the concept paper. Dialog and work towards a working solution. Your comments?