Business Plans Entrepreneurs

Business Plans Murder Entrepreneurs

by Nicholas Tart on October 22, 2010 · 27 comments

I used to be gung-ho for business plans. They help you figure out if your idea is viable. You can’t get funding without one. It gives you an easy-to-follow roadmap to success.

Since figuring out how entrepreneurship really works, I’ve realized these are all lies.

I put in my five months. I did my due diligence. I wrote my 35-page business plan with five years of pro forma financial statements. And I’m here today to make sure you don’t make the same mistake.

Business Plans Kill Your Motivation

The first time you walk in to your local Small Business Development Center (SBDC) or sign-up for your school’s “Entrepreneurship” program, they’re going to tell you how important it is to start with a business plan.

More than likely, this advice comes from someone who has never started a business. Or maybe they had one 20 years ago when business plans were still relevant.

As soon as you hear this, your entrepreneurial drive gets a flat tire. You want to make money now, not six months from now. And the longer you have to wait to see a return on your time, the more likely you are to quit.

Business Plans Waste Your Time

Don’t get me wrong, I think planning is valuable. You should have a good idea of what you need to do before you do it. But spending months of action writing a document that you’ll never use is idiotic. (I haven’t touched mine since the business plan competition.)

Why not spend that time testing your idea and learning first-hand what works and what doesn’t? I’ve learned more in the last year-and-a-half from working on my business than I learned in four years of academic research at college.

We learn from doing, failing, and trying something else.

Business Plans Don’t Raise Money

Business plans don’t make money. Businesses don’t make money. The only way to make money is to actually sell something to someone. Once you’ve proven that you can sell, investors will give you money so you can sell more.

If you’re not spending your time to make money, your chances of getting a real investment are slim to none.

Banks invest in money-making businesses

Emil Motycka started a lawn mowing business when he was eight years old. He got an $8,000 loan at the age of 12 because he took real financial statements to the bank proving that he was already making money. What do you think his odds of receiving that type of loan would have been if he were a 12-year-old walking into the bank with only a plan for making money?

Angels invest in people

23-year-old Andrew Fashion made and lost $2.5 million in two years. Getting a bank loan for his next venture was impossible. So he put together a simple executive summary and a few financial models with numbers based on his real-life experience. Then he blogged about it and landed a $145,000 investment for BeModel, a social networking website for the fashion industry.

The angel investor invested in Andrew, not a business plan.

VC’s invest in profitable companies

Juliette Brindak is the 21-year-old founder of Miss O Friends, a by-girls-for-girls website. Procter & Gamble invested in Juliette Brindak’s company at a valuation of $15 million because Miss O was already a very successful business. Rarely do venture capitalists invest in startups with just business plans.

Neil Patel has 30 friends who raised venture capital and none of them had business plans.

Why do they Still Teach Business Plans?

So why do SBDC’s and business schools still preach and teach the almighty business plan? Two reasons.

1. They used to work.

Before the internet, you needed a loan to open up a shop or purchase equipment, so planning was all that you could do. Now you can test your product or service online for less than $100.

Before the financial crisis, banks invested in whimsical ideas and fancy plans. They’ve learned their lesson.

2. It’s easy.

I might be a little cynical here, but it’s much easier to teach someone how to write a business plan than how to start a business. Business plans have a structure that can be repeated from student to student. There’s no magic formula to starting a successful business.

What Should You Do?

Since you won’t be spending the next five months writing a business plan, how should you go about starting your business? Five steps:

  1. Figure out what you want to do.
  2. Find other people who are doing what you want to do.
  3. Do what they’re doing.
  4. Land three customers.
  5. Scale up.

There’s your business plan.

Do you disagree?

Good. Leave a comment below with one example of an entrepreneur who wrote a business plan and was better off for it. I’ll be happy to respond ;).

World’s Biggest Companies didn’t Start with Business Plans

How World’s Top 25 Brands Got StartedFind out how the world’s top 25 brands got started without business plans:
How World’s Top 25 Brands Got Started >>

Photo by: xchanttelx

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