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While I realize much of the capitalist world still operates this way, I'd be hesitant about anyone who asked for a business plan. While a business plan isn't en

While I realize much of the capitalist world still operates this way, I'd be hesitant about anyone who asked for a business plan. While a business plan isn't entirely a waste of time, there's just so much of it dedicated to pulling meaningless numbers out of your ass as to be an exercise in futility, and it gives them something to be pissed at you about later if you miss your fictional quotas. And if I even heard the phrase "pro forma" I'd run.

mseebach 18y ago
The purpose of a business plan is to show that you've given some thought to how you'll run and grow the business. Anyone who thinks that's an exercise in futility will have a hard time getting funding. If you have an idiot investor, sure they might be pissed at you because of missed quotas, but you can also use them to look at your cash flow. If miss my Q4 quota by 30%, does that cause me to go bankrupt in Q2 this year? If I've spend the time setting up a cash flow budget, I'll know ahead of time, and can plan accordingly, if not, some day you're just going to hit a wall. A business plan is basically a collection of things that are pretty smart to think about and write down. Things can change, and should change, but that is also easier with a business plan - you'll update it, and that'll give you an idea what else you need to change to accommodate the new environment. Taking things as they come may work reasonably well for a 1-2 person setup, paying the bills with on-the-side consulting, hoping to go bootstrapped some time, but once someone is ready to dump real money in your lap, I'd be very hesitant about anyone being quite so lax about the sense in putting to paper what you're going to do with that money, and how the investor can hope to get paid.
- mattmaroon 18y ago
  The purpose of part of the business plan is to show that you've given thought. A business plan is basically a collection of things that are pretty smart to think about and write down, plus a whole bunch of other crap you pulled out of your ass to try to impress investors. Smart investors have their own ass from which to pull numbers. I know lots of people who got funding with no business plan, in fact few tech companies have them at all anymore. Giving thought to what you're doing does not necessitate a business plan. Rather than making you waste days or weeks of your time writing one, smart investors simply ask you all of the key questions. Who are your competitors and how can you differentiate was asked in every meeting I've ever been to. I couldn't have raised funding once, let alone the multiple times we have, without having given thought to that and being able to answer.
  - mseebach 18y ago
    > Giving thought to what you're doing does not necessitate a business plan. No, it IS a business plan, just not written down. It's not a given that a business plan need to have 15 pages of black magic numbers pulled out of anyones ass.
  - skmurphy 18y ago
    "I know lots of people who got funding with no business plan" I don't dispute your experience but would caution that 2005-2008 may not be a guide for 2009-2012
    - mattmaroon 18y ago
      Tech investors don't ask for business plans because they know they're worthless. In fact, they're worse than worthless, they're a possible negative indicator of success. If anything, they've been burned by the companies that did have them. Polished MBAs with great business plans start stuff like Pets.com and GovWorks. Nerds with no business plans start Google.
- webwright 18y ago
  Everyone has different experiences and needs, but I'll tell you my experience: 1) Most investors of internet startups don't ask to see a business plan. Maybe half want a short (1-2 page) narrative about the business-- an executive summary. 2) I've written formal business plans for two businesses in the past and they sat on the shelf collecting dust thereafter. In 6 months they were sorta obsolete. In 12 months they were freakin' hilariously wrong. New companies change to fast to do that much formal planning. A good investor will recognize that. They won't ask for a business plan-- but they will ask a bunch of hard questions to make sure you've thought about the important issues.
webwright 18y ago
+1 We talked to about 20 investing entities (maybe 5 or 6 VC firms, a mess of angels, and a few angel groups). Exactly 1 asked for a business plan and they were the lowest quality entity with the least success/experience. Fred Wilson (one of the top consumer VCs in the world) said that 17 out of 26 of his "successful" investments (with exits) utterly changed their business model between investment and exit. In other words, a business plan has a roughly 60% chance of being obsolete. Planning is good. You should rough out some numbers. Build a spreadsheet or two. If it's ad supported, get a sense of CPMs in your market and try to figure out how many ad views you'd need to support a real business. If it's a B2B offering, rough out what you can charge, investigate low cost distribution angles (SEO, SEM, etc). In short, prove to yourself (and others) that your business has some legs to stand on. Write this down in an executive summary and be able to talk about it in some more detail... But writing a formal business plan? Chances are you don't know what business you're really in yet. And if you think you do, there are pretty good odds that you're wrong. Of course, if you have a mature startup (a year or two old, a pile of customers), then some more structured planning might be appropriate.
- tptacek 18y ago
  What are the top 3 things you'd want to have handy in Excel when you sat down to a second meeting with a strong-sounding investor, webwright?
  - webwright 18y ago
    I didn't have any spreadsheets handy, but I think the best spreadsheet you could have would be growth/traction data rather than prognostication. Without _some_ traction (or a gold plated team), I think fundraising for web startups is a waste of time for the most part. I think the data you should have at your fingertips varies wildly based on what biz you're in and how mature your business is, but off the cuff, I think you should be able to answer (with some supporting wag numbers): - How are you going to make money? What if that revenue model doesn't bear fruit... any other ideas? - How are you going to reach your customers? How much will it cost to reach your customers? - Roughly, how big is your market? Is there a lot of demand? - How big a team do you need to test your initial theories and roughly how expensive is that going to be? - Are there any other significant expenses aside from people? - How many sales/pageviews/whatever would it take for you to be cash flow positive? I don't good investors ask these questions to test your planning powers... I think they ask them to test how smart you are and how much you've thought about this stuff.

mseebach 18y ago

The purpose of a business plan is to show that you've given some thought to how you'll run and grow the business. Anyone who thinks that's an exercise in futility will have a hard time getting funding. If you have an idiot investor, sure they might be pissed at you because of missed quotas, but you can also use them to look at your cash flow. If miss my Q4 quota by 30%, does that cause me to go bankrupt in Q2 this year? If I've spend the time setting up a cash flow budget, I'll know ahead of time, and can plan accordingly, if not, some day you're just going to hit a wall. A business plan is basically a collection of things that are pretty smart to think about and write down. Things can change, and should change, but that is also easier with a business plan - you'll update it, and that'll give you an idea what else you need to change to accommodate the new environment. Taking things as they come may work reasonably well for a 1-2 person setup, paying the bills with on-the-side consulting, hoping to go bootstrapped some time, but once someone is ready to dump real money in your lap, I'd be very hesitant about anyone being quite so lax about the sense in putting to paper what you're going to do with that money, and how the investor can hope to get paid.

mattmaroon 18y ago
The purpose of part of the business plan is to show that you've given thought. A business plan is basically a collection of things that are pretty smart to think about and write down, plus a whole bunch of other crap you pulled out of your ass to try to impress investors. Smart investors have their own ass from which to pull numbers. I know lots of people who got funding with no business plan, in fact few tech companies have them at all anymore. Giving thought to what you're doing does not necessitate a business plan. Rather than making you waste days or weeks of your time writing one, smart investors simply ask you all of the key questions. Who are your competitors and how can you differentiate was asked in every meeting I've ever been to. I couldn't have raised funding once, let alone the multiple times we have, without having given thought to that and being able to answer.
- mseebach 18y ago
  > Giving thought to what you're doing does not necessitate a business plan. No, it IS a business plan, just not written down. It's not a given that a business plan need to have 15 pages of black magic numbers pulled out of anyones ass.
- skmurphy 18y ago
  "I know lots of people who got funding with no business plan" I don't dispute your experience but would caution that 2005-2008 may not be a guide for 2009-2012
  - mattmaroon 18y ago
    Tech investors don't ask for business plans because they know they're worthless. In fact, they're worse than worthless, they're a possible negative indicator of success. If anything, they've been burned by the companies that did have them. Polished MBAs with great business plans start stuff like Pets.com and GovWorks. Nerds with no business plans start Google.
webwright 18y ago
Everyone has different experiences and needs, but I'll tell you my experience: 1) Most investors of internet startups don't ask to see a business plan. Maybe half want a short (1-2 page) narrative about the business-- an executive summary. 2) I've written formal business plans for two businesses in the past and they sat on the shelf collecting dust thereafter. In 6 months they were sorta obsolete. In 12 months they were freakin' hilariously wrong. New companies change to fast to do that much formal planning. A good investor will recognize that. They won't ask for a business plan-- but they will ask a bunch of hard questions to make sure you've thought about the important issues.

webwright 18y ago

+1 We talked to about 20 investing entities (maybe 5 or 6 VC firms, a mess of angels, and a few angel groups). Exactly 1 asked for a business plan and they were the lowest quality entity with the least success/experience. Fred Wilson (one of the top consumer VCs in the world) said that 17 out of 26 of his "successful" investments (with exits) utterly changed their business model between investment and exit. In other words, a business plan has a roughly 60% chance of being obsolete. Planning is good. You should rough out some numbers. Build a spreadsheet or two. If it's ad supported, get a sense of CPMs in your market and try to figure out how many ad views you'd need to support a real business. If it's a B2B offering, rough out what you can charge, investigate low cost distribution angles (SEO, SEM, etc). In short, prove to yourself (and others) that your business has some legs to stand on. Write this down in an executive summary and be able to talk about it in some more detail... But writing a formal business plan? Chances are you don't know what business you're really in yet. And if you think you do, there are pretty good odds that you're wrong. Of course, if you have a mature startup (a year or two old, a pile of customers), then some more structured planning might be appropriate.

tptacek 18y ago
What are the top 3 things you'd want to have handy in Excel when you sat down to a second meeting with a strong-sounding investor, webwright?
- webwright 18y ago
  I didn't have any spreadsheets handy, but I think the best spreadsheet you could have would be growth/traction data rather than prognostication. Without _some_ traction (or a gold plated team), I think fundraising for web startups is a waste of time for the most part. I think the data you should have at your fingertips varies wildly based on what biz you're in and how mature your business is, but off the cuff, I think you should be able to answer (with some supporting wag numbers): - How are you going to make money? What if that revenue model doesn't bear fruit... any other ideas? - How are you going to reach your customers? How much will it cost to reach your customers? - Roughly, how big is your market? Is there a lot of demand? - How big a team do you need to test your initial theories and roughly how expensive is that going to be? - Are there any other significant expenses aside from people? - How many sales/pageviews/whatever would it take for you to be cash flow positive? I don't good investors ask these questions to test your planning powers... I think they ask them to test how smart you are and how much you've thought about this stuff.