Step away from the crack pipe, I mean business plan, step away

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The process to create a business plan, in any format, is an invaluable exercise.  But the tool created by the business plan process is largely useless.

Clearly, the thought process involved in sorting and planning and considering the business’ potential progression cannot be underestimated for preparing someone to meet the myriad of challenges ahead.  Yet, the typical, static plan created by this process, will be broken and outdated faster than an office March Madness bracket sheet after the first two major upsets of top seeds on the first day.  

So should we stop writing or reading business plans?   Yes, and no. I would argue that we should stop taking the traditional, narrative document form approach and no longer write them.  In their place, we need a next generation -- inter-relational and organic --plan or tool as I discuss below.  The business plan today isn't useful enough as a tool to qualify as a crutch in most usages.  The business plan of tomorrow is a tool, useful from its inception forward, and never a waste of the invested time.

For traditional business plans, it is inevitable that  the plan will not have anticipated major and usually immediate events that change the future contemplated in the document and which require major course corrections.   Most businesses, successful or otherwise, don’t resemble the founders’ original conception or plan with great fidelity.   But, a thoughtful, detailed strategy will better prepare the author to make those course corrections since they’ve already deliberated as many alternatives as time allowed.

So should we keep the business plan just because it prepares an entrepreneur for change?  No, we should change the business plan.  A next generation business plan will not be a static word processing document and it certainly won’t be a spreadsheet (best creative media since pallet and paint by the way).   The next generation business plan should look more like a GANTT chart or database application than a Word doc or an Excel spreadsheet, and it should be a collaborative, living document.   It should outline tasks as well as the relationship of tasks to each other.

In fact, as a venture capitalist, I ask start ups to give me a project/task oriented view of the first 100 days after funding.   This view is better than the prepared business plan for my purposes and infinitely more useful for the entrepreneurs as well.  Do they know what needs to be done?  Are they aware of the steps to accomplish that?   What things will cost on a stand alone basis and what are the inter-dependencies are critical insights.

What I need to know, is what management knows and doesn’t know what within its growth plans. And do they really know what they don't know. What are the key unknowns in their opinion, for example, or key operating metrics that drive economics?  If they plug in those insights as discovered along the way, they get new understanding of the current status and emerging challenges.  With the task view of the first 100 days,  I get insight into if they’re ready for the challenges ahead.   To find that out, I assess how thoughtful they are about immediate possibilities as well as potential responses.   For that matter, the listing of what is unknown and the estimate of the cost to know the unknown -- is the best summary of both the challenges and risks at hand.

It used to be that a business plan was the best way to reflect that thoughtfulness.  It isn’t the best way any longer.  Today, we need something that constants re-adjusts to new inputs and understandings about existing variables.  If a new, major customer wants specific product modifications and that new, major customer is materially important, the issue is how giving the customer what they want effects the enterprise's plan.  You can't get that insight from a traditional business plan.  You can get it more readily from a project plan.

And the one final coffin nail for business plans should be the penalty associated with wasting an entrepreneur's most valuable resource -- time.    Anything that an entrepreneur does with a start up must have cumulative value.  Meaning that every product improvement, marketing/sales effort or generic step forward must have immediate, stand alone value as well as be a stepping stone to the next improvement or effort or step forward.   Dead ends or too many dead ends are death to a start up.  Wasted or ineffective efforts lead to failure.  When you're building from scratch, you can't afford to cover the same ground twice.  And that limited time functionality of the narrative business plan may be the single best reason to discard it. 

A plan which is a tool that improves in usefulness and utility with the time invested in it is the only real choice.  And in the final analysis, it is about having a real plan -- regardless of the form the plan. 

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Comments

[Hgadhia]

Don,

Thank goodness that most VCs have come around to this line of thinking now! You are spot on that the traditional business plan has limited shelf life in today's entrepreneurial environment. The metrics we use to measure our success are so different, why shouldn't we change how we plan for that success?

And btw, keep up the great blog! Sometimes it feels like the whole "Netplex"/tech innovation days in DC are waning with the slow demise of AOL and some of the early companies that made this region a hub for startups (see http://is.gd/dNr8o). But your blog is a clear sign that there's still entrepreneurial activity happening here!

[William Taylor]

Excellent advice. Of course, this means working with extremely flexible entrepreneurs who can bob and weave with what the "real" market throws at them based on a delivered prototype or beta. So what questions do you ask the entrepreneur to find if they have this attitude?