Updating a classic writing a great business plan
The answer to the first question is an emphatic yes; the answer to the second, an equally emphatic no.
All new ventures—whether they are funded by venture capitalists or, as is the case with intrapreneurial businesses, by shareholders—need to pass the same acid tests.
And sometimes, in fact, the more elaborately crafted the document, the more likely the venture is to, well, flop, for lack of a more euphemistic word. As every seasoned investor knows, financial projections for a new company—especially detailed, month-by-month projections that stretch out for more than a year—are an act of imagination.
An entrepreneurial venture faces far too many unknowns to predict revenues, let alone profits.
These questions relate to the four factors critical to the success of every new venture: the people, the opportunity, the context, and the possibilities for both risk and reward. As for opportunity, the plan should focus on two questions: Is the market for the venture’s product or service large or rapidly growing (or preferably both)? Then, in addition to demonstrating an understanding of the context in which their venture will operate, entrepreneurs should make clear how they will respond when that context inevitably changes.
The questions about people revolve around three issues: What do they know? Finally, the plan should look unflinchingly at the risks the new venture faces, giving would-be backers a realistic idea of what magnitude of reward they can expect and when they can expect it.
The model should also address the break-even issue: At what level of sales does the business begin to make a profit?
Countless books and articles in the popular press dissect the topic.
A growing number of annual business-plan contests are springing up across the United States and, increasingly, in other countries.
Both graduate and undergraduate schools devote entire courses to the subject.
Indeed, judging by all the hoopla surrounding business plans, you would think that the only things standing between a would-be entrepreneur and spectacular success are glossy five-color charts, a bundle of meticulous-looking spreadsheets, and a decade of month-by-month financial projections. In my experience with hundreds of entrepreneurial startups, business plans rank no higher than 2—on a scale from 1 to 10—as a predictor of a new venture’s success. Most waste too much ink on numbers and devote too little to the information that really matters to intelligent investors.
Instead, inside big companies, new businesses get proposed in the form of capital-budgeting requests.