Are Business Plans Dead?

I recently participated in a global entrepreneurship conference attended by entrepreneurship academicians, entrepreneur “wannabees”, and a few “real” entrepreneurs. A vigorous discussion emerged about the value of business plans at the university versus the usage of business plans in the “real” world.

The general consensus was that angel investors (i.e. angel networks), private equity investors, and venture capitalists seldom, if ever, read business plans. Most investors are buried in unsolicited business plans and most never get read. End of story.

It is true that executive summaries (one to two page overviews) may get read, but only if genuine interest is expressed by the investor. Rather, PowerPoint presentations (ten pages with 30 point font including photos and video) are the most common tool in the fund raising process. This plays to the funder’s “Twitter-like” preference for brevity and the need for compliance with the typical investor’s review process.

In a soft market like today, this review process entails a seemingly endless review by the investors resulting in endless action items for the entrepreneur. These homework assignments result in even more presentations and, ultimately, no funding. Sorry, this is the current sad state of affairs in the start-up financing community. The only deals getting funding today have rock solid proof of concepts, strong cash flow, and a back log of orders. Risk is just not in the equation for the new ultra conservative investor.

Yet, at the university, lengthy business plans thrive as a teaching tool. The typical business plan with 30 or more pages challenges the students to define the business from concept to funding to exit strategy. The academic typically challenges the student answer questions like:

1. Does the plan describe the offering and how it solves the customer problem?
2. Does the plan describe the target market and the unique value proposition?
3. Does the plan describe a sustainable competitive advantage and the offering’s intellectual property?
4. Does the plan describe the pricing strategy and the competitive environment?
5. Does the plan describe the channel of distribution and sales strategy?
6. Does the plan include operational plans detailing business operations with logical milestones and actions steps?
7. Does the plan describe the management team and their fit with the business?
8. Does the plan provide for reasonable use of resources (staffing, facilities, and equipment)?
9. Does the plan include how technology will be manufactured (with process flow charts)?
10. Does the plan describe the technology development, testing, trial, and approval process?
11. Does the plan include pro-forma profit and loss statements for the first three years?
12. Do the pro-forma statements tie to the plans for operations and marketing?
13. Does the plan specify the assumptions made in the financial statements and are the assumptions reasonable?
14. Does the plan include a capitalization table?
15. Does the plan identify a road-map of the capital needs, timing, ROI and exit?

In my opinion, these are very reasonable and very important questions. If an entrepreneur (student or otherwise) cannot answer them, they don’t deserve to get funding. If the investor is uninterested in the answers to these questions, I wouldn’t want their advice or their money.

Long live the business plan. Make them lengthy, detailed, and complete.

John Bradley Jackson
Director, Center for Entrepreneurship

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0 responses to “Are Business Plans Dead?”

  1. Better idea!

    In my opinion here, as the common reasons to make a business plan:

    1. To articulate our thoughts in a viable
    2. To organize the deployment
    3. To convince others and oneself
    4. For support
    5. For funding

    All this in order to plan, organize, schedule, track, measure and learn.

    But where does one speak of the reaction to the customer or how to deal with unforeseen realities?

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