I know this post may be controversial, but in most cases business plans are a waste of time. College courses and MBA programs teach every business person that the first step in starting a business is to write a business plan, which is typically 10-50 pages. The school where I got my MBA even has an entire class about business plans and how to write them. So sad. There are some cases where a brief business plan may come in handy and I’ll mention that at the bottom of this post in small, nearly unreadable font.
As an investor, would you prefer to invest in a business that has a business plan with rosy numbers but has no sales, or would you rather invest in a business that has sales?
Everyone thinks their business is going to make millions of dollars and revolutionize the world. And while there are a lot businesses that do turn their idea into a profitable business, according to the Small Business Administration more than 66% of businesses last longer than two years, while only 44% are still in business after 4 years. That means that more than 50% of those entrepreneurs that believed their stay in business longer than 5 years, some of which fail to ever turn a profit.
The first question to ask when thinking about writing a business plan (and I suggest you don’t think about it), is “Who is this plan for?” If it’s for yourself, then make it short. If it’s for investors, don’t write it at all until you have some sales. Giving an investor a bunch of ‘pie in the sky’ numbers showing how much the company is going to make in the first few years is meaningless to any savvy investors.
The problem with business plans is that they take a lot of time, which takes away from actually running your business. A business isn’t legit until it has sales and a business plan won’t get you sales. It’s the difference between working “on” your business and “in” your business. Too many entrepreneurs spent weeks and months writing a plan, doing market research, deciding on the logo, etc. and not enough time actually selling and validating the idea.
Your fancy logo is meaningless if no one will buy your product. Sales is a validation of your idea. The business plan is not, which is why if you’re looking for investors, you shouldn’t waste your time. As an investor, a sales report is much more compelling than a very well thought out, comprehensive business plan of a business that hasn’t yet made any money. Making money is why you start a business and why investors invest. That’s all they care about.
While a business plan can be a time-consuming and less-effective exercise, I am not suggesting that you jump out of the gate without any strategy and planning at all.
Putting your ideas down on paper may help you organize your thoughts. If you do that, make it short – 1-2 pages. Make a very minimal plan or at outline which is a living document that you can come back to as you make updates.
Here are the sections to include in both a business plan and/or a slide deck to investors (again, outline it in the fewest words possible):
1. What’s the problem?
2. How it’ll be solved
3. Assumptions & how they’ll be tested (affirmed or denied)
4. Sales – what are the channels I can leverage, who are the people to contact, what’s my pricing?
5. Operations – who does what
6. Funding – how will I pay for this and how much will it cost?
Notice there’s no section for market research. Why? Because it’s a waste of time. The only market research necessary is to make a sale. Market research takes a lot of time and is completely theoretical. Sales are real and you get paid for them.
Instead of a business plan, write a list of tasks to be completed and goals for the next 30 days. Stick to that and get your business off the ground much faster.
You’ll also save some trees.
CFO & former Wall Street analyst helping your reach financial independence.
Download my eBook “20 Ideas to Earn Extra Money from Home.”
Take my financial planner course to learn the secret to building wealth that they never taught you in school