January 12, 2014

The Business Plan: Indispensable, and Instantly Irrelevant

Join me in considering a conundrum:

For more than half a century the essential first step to do a startup is to write a Business Plan. This Plan would take the form of a thick binder filled with pages of words, numbers, designs, etc. showing the ideas and projections for the new business.

The binder is copied and handed out to a small number of people involved in the startup who would then put it on a self and ignore it.

Investors will require a business plan, but they will ignore it.

How can this be?

The answer is that the value of a Business Plan is in the critical thinking that you need to do in order to create the plan, not in the plan itself.  The plan tries to explain what the parties intend, but once the venture is launched, the plan becomes obsolete.

No battle plan survives first contact with the enemy. 

The above words are the wisdom of a great military strategist of the 19th century.  Can you imagine going into a battle without a plan?  That would be suicide.  Yet, at the first shot, the plan is obsolete.  

The value of a Business Plan is the critical thinking that has created it.

And you can not be lazy and just do the valuable part, the thinking, you must follow through and do the thing that will be ignored, the Plan itself, the document, the pitch deck.  You must create the evidence of your critical thinking.  

Can it be Delegated?
Writing a business plan gives birth to a new life form.  As expected with birthing, it is painful. Can this pain be delegated, as to a surrogate?

Some people have trouble with the discipline that is required to create the Business Plan, and they will want to Delegate this step.  The common wisdom is that this is a mistake.  However, if the Plan (and therefore the startup) will not exist without getting help to create the Plan, then it must be delegated.

It still requires Work. The founder(s) must be fully involved in lengthy discussions with whoever is preparing the Plan, and review and approve the several versions of the Plan as it evolves.

How I create a Business Plan
The final form of the Business Plan could be a 3-ring binder, or a PDF file, or a PowerPoint pitch deck.  It doesn't have to take any particular form, but it must be written.  See Commandment #4: Write It Down.  Tables, charts, graphs are helpful.  Color helps get ideas across.   

For me it usually starts out with those old-school yellow note pads and a ball point pen, medium point, blue.  I never use a pencil, probably because they are dirty, the point is ever-changing, needing maintenance, so it's a distraction from the process itself.  To make corrections, I simply cross out and rewrite.  It looks ugly at first, but it gets better looking as I move through the process.

To start, I make one page for each major section of the Business Plan. At the top of the page I write the section heading, such as Executive Summary, Financials, People, Technology, Competition, Legal, Product/Service Definition, etc.

Then I attack the Executive Summary. If any part of the Business Plan is read by anyone, ever, it will be the Executive Summary. This should be a maximum of 2 pages, and at the very front of the document.  It should be written in a language an idiot could understand, describing in general terms what the business is all about, and why you are going to do this thing.

Then I just start writing about each of the other sections in the outline. It is typical that I will write a few lines about one section, which will spur a thought that I'll want to write down for another section, and then I'll return to writing more on the previous section. 

This hopping around will produce sections that will need to be edited later so they are organized in a logical form rather than the original sequence. The edit step is essential.

Once I have enough written so that it becomes disorganized, then I start using the computer, preferably Word on the Mac, and type out the stuff I have written, with page breaks and sections as on the original notes. People who really know what they are doing with Word can make easy work of creating an Index, table of contents, links, and proper fonts, sizes, headings, etc.  I don't get too involved in that level of detail at this stage, and usually delegate the final cosmetics of the Plan to a talented assistant. 

After the Plan has gone through a few rounds of review and update by the founders, it is ready for final printing and distribution.  And eternal obscurity.  

Separate plans are created for the follow-on documents such as Pitch Deck, website, apps, etc. These plans will drive the creation of these essential outputs, but the plans themselves will also become irrelevant very quickly.

Welcome to the wacky wonderland of startups!