Brian Seidman has over 20 years’ entrepreneurial and Foreign Direct Investment (FDI) experience in the US, Ireland and Europe successfully creating, managing, advising and assisting private and public (NASDAQ and LSE) companies, particularly in the technology, software and Internet sectors in a wide variety of markets, with an emphasis on the start-up, early and growth stages of development.
I recently attended a start-up pitch featuring 6 companies. The 6 companies, at various stages of development and commercial traction, had all participated in the start-up “boot-camp” of the consulting firm, that we’ll call the “Consulting Firm,” that sponsored the event. All 6 teams had used the consulting firm’s self-described “unique” “business modelling” analytical tools and methodologies to “help establish a road map for the years ahead,” and upon which their pitches were based.
The pitches were all well-presented, though I certainly did not leave thinking each of the start-ups had a commercial future.
What was most interesting were the opening remarks of the Consulting Firm, in which they stated, categorically, that:
- “Business Models” (particularly theirs) are fluid and useful in developing your business and moving it forward, in all regards: from developing your products/services to identifying and winning customers to securing investment; while,
- “Business Plans” are static, useless, and a waste of time.
The Consulting Firm is wrong.
Empirically wrong. There as so many myths regarding entrepreneurship, among the most persistent and often repeated being: “you don’t need a business plan because no one ever follows a business plan.” As Prof. Scott Shane of Case Western University notes in his book The Illusions of Entrepreneurship, where he uses statistical studies to separate entrepreneurial facts from myths, the statistical evidence regarding Business Plans shows that, though:
[m]any entrepreneurs never write a business plan, …writing a business plan enhances product development, improves the organization of new ventures, increases the likelihood they will obtain external funding, increases the level of venture sales, and reduces the likelihood that the venture will fail, particularly if the plan is developed before the entrepreneur begins marketing or talking to clients. (p. 117)
Why might that be? Each of the 6 presenting companies provided their version of the “unique” Business Model as a slide in their presentation. There were a lot of bullet points. And the remainder of their presentations were highlights of certain of those bullet points. What the Business Models presented were conclusions in a vacuum, while leaving out a great deal of information that others would find important in evaluating it. Entrepreneurship, unlike god, abhors a vacuum.
A Business Plan allows you first and foremost to fully and coherently develop, think through and relate all aspects of your business – the who, the what, the why and the how, and the assumptions upon which all of that is based. How does a Business Plan accomplish all of that? Among other things, and this list of benefits is not exhaustive, unlike a Business Model, a Business Plan:
- Creates a reality for your project. It is a tangible thing you can hold in your hands.
- Allows you to initially develop your plans for that business in as consistent, complete, coherent and fully thought out a manner as possible. You can’t do that in your head or verbally (and then provides the basis and assumptions upon which a Business Model can be developed – that cart before horse thing).
- Allows for every aspect of your business concept – from its ideas and assumptions to its business structure and anticipated funding needs – to be vetted and critiqued by others, which cannot seriously or effectively be done verbally and is not the purpose of a Business Model. Such feedback, and there will be constructive feedback, will allow you to avoid mistakes or miss potential opportunities from the start.
- Allows you to provide authoritative support via cited sources for the assumptions upon which your business will be built. from development and productions costs to operating expenses and margins to the size and growth of the market for your products.
- Is the only way to seriously share your vision with others, whether potential business partners, investors, initial employees – even initial clients – and have them take you and your new business seriously. Whether it is a friend you want to convince to join your project or a potential investor you meet in that proverbial elevator, your verbal pitch, no matter how well rehearsed, is not going to relate the full story and well thought out and supported assumptions of your idea and how and why you will make it happen; it is also transient. Your Business Plan does tell the full story, and it allows you to leave that story with anyone you meet and allow them to read and review it on their own schedule.
That a Business Plan is not important or necessary, that it does not give the entrepreneur a better chance of success, is one of many myths regarding entrepreneurship that entrepreneurs are bombarded with and are sadly accepted as true, but which lessen an entrepreneur’s odds of getting their project off the ground, let alone being successful. Rather than searching the Internet for entrepreneurial advice, much if not most of which are based on myth, I highly recommend that anyone thinking of starting a company read Prof. Shane’s book – or simply the chapter on the statistically proven steps that an entrepreneur can take, including writing a Business Plan, to improve their odds of success.
— Brian Seidman (@SeidmanCo) December 11, 2016