Quickie: Business Plans, Do They Matter?
I have had several conversations in the last couple weeks with entrepreneurs and VCs about whether early startups should write business plans. The topic first came up a few weeks ago when I was helping to recruit companies to participate in the local round of the Venture Capital Investment Competition (VCIC) at UC Berkeley. In the VCIC entrepreneurs come pitch to teams of MBAs, and the MBA teams then emulate VCs by choosing one to invest in and creating a term sheet. To make the VCIC work you need entrepreneurs who are actively raising Series A or substantial seed financing and who are willing to come pitch and share their business plans because the competing teams need enough material to evaluate the businesses in a very short amount of time. A number of the companies I talked to about the opportunity to participate simply don’t have business plans, and when I asked some folks at VC firms they agreed that most early deals these days get done without a full business plan ever being written.
Having been through the writing of a few business plans, I was happy to see Susan Wu’s take on the topic. I definitely understand that in the early days of a company time is in extremely short supply, so the time-intensive process of creating a written plan can seem like a waste of effort. But, I agree with Susan that the act of creating the written document can be a profoundly valuable way for a new team to come together in their thinking around a new idea, even if they know things will change (most business plans are at least somewhat dated the day they are “finished”). I think the more experienced the team is and the more clear in their collectives heads the plan of action and the vision are the less the need for a lengthy tome, but for any startup team that hasn’t worked extensively together and/or is working on a concept/plan that isn’t fully baked (in other words, the vast majority of startup teams) the act of going a level or two deeper than the bullets in your pitch deck is time well spent.
I mentioned to a colleague that I was hearing from VCs that “nobody is writing business plans these days”, and he got worried. “The last time I heard that,” he said, “it was late 1999.”