Business Plans: Don’t Supersize Me!

The well-quoted adage “if you fail to plan then you plan to fail” might sound right and it may be the accepted wisdom of the masses. But excessive planning might be wrong, at least according to experienced angel investors and venture capitalists. In fact, what investors need is concise information, not more information.

In his blog Failing Point, blogger and former investor Brandon Watson describes his time in business school when he poured his heart and soul (and copious amounts of ink) into robust business plans that would rival War and Peace. But reality, Watson points out, is different. His lengthy business plans never amounted to anything. This was confirmed for him later, as an investor working at Soros Private Equity, where he invested over US$70 million in technology-related businesses. He found that “the length of the plan seldom dictated the decision to invest in a company.”

He’s certainly not alone in his thinking. How many business planners write a huge, forest-destroying business plan that no one reads, only to also create a separate documents (like an Executive Summary or Investment Memo) which might actually get read by someone? As an angel investor, you want to make a thoughtful decision based on quality information but do you really have the time to read the entire plan?

Of course, planning itself is vital, Watson is quick to point out, and no investor wants to put money into an idea that isn’t backed up with some kind of preliminary thinking. The problem is that the quality can be buried in the quantity, making it a challenge for you, as the investor, to determine whether a business is worthy of investment.

Minimum Viable Plans

Watson goes on to say that business planning (to the excruciating degree that it is normally done) is merely a procrastination effort to avoid the real work of the business. As a potential investor in a business, you should encourage the businesses that are going to pitch to you to forgo their expensive time wasting plans and instead focus on what Watson calls a “minimum viable plan”. His minimum viable plan is a simple, straightforward, hold-the-bull, bullet-point review that contains the following points:

•    Who is the business?
•    What is the problem the business is going to solve?
•    What is the solution?
•    Why will the market accept that solution?
•    What does the competition look like?
•    Who are the business’ customers?
•    What are the details of the product?
•    How will the business acquire customers?
•    What is the best approximation for the financials of the business?
•    What are the risks/challenges?
•    What’s the timeline?
•    What’s the exit plan?

This is a good exercise for the businesses that are approaching you for money. You’ll save yourself time and help get them to market (and save a small forest) if you stop them from creating War and Peace-sized plans and instead just deliver the facts!