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Business Plan – A Necessary Evil

Business Plan – A Necessary Evil

Over the past few months I have been doing a lot of business planning work for technology companies looking to raise finance. Lots of research, lots of analysis (and paralysis), lots of decisions…and lots of stress.

Here’s the only thing that you really need to know about business plans. And that is, that as soon as you have done them, THEY ARE WRONG!!!

A business plan is just that – a plan. It’s not a promise, it’s not definitive, it’s not set in tablets of stone, it’s not something that you will achieve no matter what. It’s a well-researched plan of action, based on the best information available to you at this point in time, and you will do your best to achieve what you have said you would – if in six months time that is still the right approach.

It’s a big pet hate of mine how much importance some people place on fancy business plans, especially on the numbers. Weeks and months spent poring over complicated financial models, when, in reality, you don’t know much at all yet about pricing, costs, customer numbers, uptake, etc. etc. The truth is that most start-up companies don’t even come anywhere near having realistic financial projections until they have been up and running for about five years – only then do you get a real sense of what is going on. When I started out in venture capital investment, I wasn’t even allowed to look at the numbers because investors knew they would be a lot of nonsense!

When you are preparing your financials, a good rule of thumb is to look at them again when they are FINALLY DONE! And then, redo them, this time with a lens that says it will take twice as long, it will cost you half as much again, and you will make half as much money. And that will probably be what will happen…It won’t be nearly as attractive, but it will be much more realistic. Of course, there is a fine balance between coming across as overly optimistic or overly pessimistic, and it takes a bit of skill, especially when discussing with investors, to get that balance right.

Don’t get me wrong, you need a plan for raising money. The plan needs to be well researched and thought out, it needs to be concise, flowing, and presented well with great design. My point is that what is even more important than the actual plan is the thought processes – the planning – that goes into the developing the plan. Be able to show you have done your research and know your market. And sell your products – better to have actual people buying actual products early on, rather than just a beautiful business plan and a killer pitch.

I’ll talk through more aspects of business planning in later posts, but for now, just be aware that it’s the planning that is important, whatever you do will be wrong, and know that you will adapt!

 

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