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

{ 25 comments }

1 Buntu Redempter October 22, 2010 at 8:54 am

Nick, I think this make a lot more sense.

2 Nick Tart October 22, 2010 at 10:32 am

I’m glad, Buntu! Like I said, there’s still a lot of value in planning but the actual plan is useless.

3 Buntu Redempter October 22, 2010 at 5:15 pm

True!

4 Jonathan Romig October 22, 2010 at 8:56 am

I really liked this article! I’ve always known I’ve hated business plans deep down. Now I know why.

5 Nick Tart October 22, 2010 at 10:36 am

It’s because they murder entrepreneurs! This culture has grown to hate murderers because they are bad. No matter if they are a document or a person.

6 Peter Olins October 22, 2010 at 9:55 am

You raise some great points, Nick! Clearly business plans are not for everyone, but it depends what the plan is for. I would argue that the primary value is the PROCESS of planning—analysis, debate with co-founders, engagement with potential customers, etc. Generating a business plan is a good way to evaluate how well you can work with a partner. A business plan also represent a best-case scenario; when complete, it may become clear that the business is not worth the risk. Even if the plan looks solid to you, sharing it with a trusted mentor will probably uncover many assumptions that you are unaware of. Finally, written documents are a more rigorous way to transform fuzzy thoughts and verbalizations into concrete words, a process which harnesses a different part of the brain.

I suspect that the thing a business plan is actually least useful for is as a roadmap for action; indeed, you probably need a completely sepatate, detailed document/process for mapping out and tracking activities, especially when these involve several people.

P.S. Would you be interested in being part of a panel discussion on this topic? I bet that we could create a lively discussion that would be beneficial for all.

7 Nick Tart October 22, 2010 at 10:43 am

First of all, I would love to be a part of a panel discussion on this topic. I feel very strongly about this opinion.

I certainly came at this topic from a young perspective. When a young entrepreneur starts a business, we have very limited knowledge and experience in the niche that we’re going into. So we need to get our feet wet in that industry before we can reasonably expect to plan how our business will go.

Seasoned entrepreneurs, on the other hand, have a great grasp on the industry they’re entering. Since they know how the niche works, they are much better suited to benefit from the business planning process.

Personally, I didn’t know anything about how the internet works when I wrote my business plan. For example, my marketing strategy was social media and I didn’t have a clue what that meant. I would be better equipped to write a business plan at this point, but I’d rather not set myself back another six months.

I agree that the value is in the planning. I learned a lot from planning my business. But I learned much more from actually working on it.

8 Rob Bryan October 22, 2010 at 5:44 pm

So you’d start a business without planning it? What??? Or maybe you’re talking about raising money, which you DO NOT use a business plan for. I think it may be that the “business plan” has taken on numerous meanings to different perspectives. I was telling someone about my business a few weeks ago and the first thing they asked for was my business plan. I said no of course. Our business plan is for our planning purposes. For instance, it is worded too optimistically for a disclosure document for investors. There is no way a business could succeed if they use the same document for investors and planning. Who could even get up in the morning!

So I think the “business plan” needs to used for exactly what it is and only what it is, and that is a document where you keep your (regularly updated) plans for your business.

9 Nick Tart October 22, 2010 at 10:47 pm

Rob, I’m not advocating starting a business without planning. Planning your business is a critical first step. However, writing a traditional, full-fledged business plan is unnecessary. A one-page executive summary with your mission, vision, values and a simple strategy for how you’re going to do it is plenty. Don’t let planning get in the way of taking action.

How long did it take to write your business plans?

Writing a business plan is like planning out every turn and pit stop on a cross-country road trip. You don’t update your itinerary every time there’s a detour or unexpected potty break. You improvise and move on. All you have to know is your destination.

Stop updating your plan because as soon as you do, it’s going to change.

10 kagiso jackbuddha timela April 17, 2013 at 7:24 am

Rob and Nick, thank you for the insights.you in developing countries we were given an opportunity by governments of today to venture into businessess due to the process of privatization.with all this we have to draft business plans and that came to be a challenge because its time consuming and most of us end up losing interest.

these articles and comments helps me to look in a different direction,just to plan in my head and implement and then if all else is viable then keep record and set targets.

11 Christophe Attard October 22, 2010 at 10:02 am

I also heard: ‘You plan to fail if you fail to plan’ so a business plan should definitely help to get more organized but should not be a time waste!

12 Nick Tart October 22, 2010 at 10:46 am

Dwight D. Eisenhower said, “Plans are useless, but planning is invaluable.” and I agree wholeheartedly. However, planning can only get you so far. Spending a week figuring out what you want to do and how you’re going to do it is sufficient. Thanks, Christophe!

13 Brandon W October 23, 2010 at 8:53 am

Hi Nick,
I wrote a book, published last year, about leadership in entrepreneurial ventures. I’m not recalling the source at the moment (it’s somewhere in the bibliography), but one important finding was that business planning was very important. However, the LENGTH of the business plan made no real difference. To put it simply: an idea scribbled out on the back of a napkin is as good as a 35 page business plan.

Further thought on this says to me that the point is to spend some time (but not TOO much time) thinking through what you want to do and how you want to do it. Look at what other people are doing for ideas (and an idea of your competition). Then scribble some notes on a couple of 3×5 cards, stick them on your wall, and get to work.

As you point out, until you sell something, you don’t have a business.

14 Nick Tart October 23, 2010 at 12:38 pm

That’s perfect, Brandon! Just the research I was looking for to back up my wild opinion! I think the business planning process should take no more than a week.

Did you write a business plan for your consulting service?

15 Brandon W October 24, 2010 at 8:01 am

A business plan? Absolutely not! My “plan” consisted of a few notes scribbled on a page in my Moleskine notebook.** Your point is correct that writing long business plans kills the entrepreneurial drive. I went to biz school. I spent years trying to write big business plans, bought books on it to help “guide” me through it, bought software that was supposed to make it easier. The result? Not ONE of those businesses ever even got off the ground. As soon as I started jotting notes in a notebook for a few days and then >>making it happen<< is when I finally got some profitable businesses off the ground.

** I know it's snobby and trendy to use a Moleskine, but I have to say, a cheap notebook just doesn't lend the gravity to your ideas that a nice, hardcover notebook does. Maybe that's just me. Your results may vary.

16 Nick Tart October 24, 2010 at 10:39 am

Haha!! I want a Moleskine! Alex Maroko, one of our interviewees, bought a $100 planner for that very reason. If he paid $100 for it, he’s going to use it every week. I asked him if he had done something yet and he said, “Haven’t begun yet – just added it to the famous planner though for next week…if it goes in there, it’s happening.”

Since that comment, I’ve really wanted one of those magic planners!

17 Kristina Thorpe October 23, 2010 at 8:46 pm

Nick,

You think like a true entrepreneur! I attended a UC Berkeley Business Class taught by Mark Kvamme of Sequoia Capital. At that time, all they wanted was a one page business plan. That was enough to fund many familiar names, YouTube & Funny or Die, among them.
I agree with Brandon, scribble the plan and then get to work!

Thanks for the blog post, as usual, great information.
Kristina

18 Nick Tart October 23, 2010 at 10:29 pm

Hey Kristina! Good to see you here again… That is awesome!! Man, this gets me fired up. Nick and I are going to be speaking at the Collegiate Entrepreneurs Organization Conference in two weeks with 1600 college entrepreneurs. I think I’ll be changing up the speech a bit after the responses here ;).

19 Mark Taylor @ Holiday Cottages Warwickshire October 25, 2010 at 7:00 am

Hey Nick, thank you for posting some informative tips and idea’s of a business plan. I used to find this the most difficult procedure of all. Now I think I’m more confident in going through it with help of you.

Much appreciated, look forward to your latest posts.

Best Regards,
Mark

20 Nick Tart October 25, 2010 at 10:14 am

Hey Mark! The post started because I had a strong opinion on the matter and I’m glad it ended up providing something useful to you. Not sure if you saw, but Brandon’s comment above referenced a study in which a few quick notes on a napkin was just as useful as a 35-page business plan when it came to starting a business.

Let me know if you have any questions and I’ll try to answer them on here! Thanks.

21 Kristina Thorpe October 27, 2010 at 12:12 am

Make sure you post a YouTube of your Conference speech! I’ll be looking forward to checking it out.

Where is the Conference being held, btw?

22 Nick Tart October 27, 2010 at 12:25 pm

I hope to… It’s going to be about an hour, so it might have to go on another site. It’s in this city they call, “Chicago”. I guess it’s pretty big.

23 Deji November 4, 2010 at 7:44 am

Nick, i cannot agree with you less on this issue. I have always had the same opinion and thought i was alone here. I also thought it was wild and ‘unprintable’. I attended a business school where we were thought how to write business plans, this lasted for months but i had to pull out at some point because i already got a break in my business. I have been in business successfully for 15 years now and never needed a business plan. My business has always funded itself steadily and even helped fund expansions into other areas of business. The key thing is to get started. If writing a thorough business plan was so critical to business success then professors and business school teachers will be the richest in the world – but they aren’t.

24 Nick Tart November 4, 2010 at 9:17 am

Great to hear, Deji! I’ll be giving a speech to several hundred collegiate entrepreneurs this weekend and this is going to be one of the main points that I want to make.

I think business plans have their place, but that place is in corporations where you have to convince your superiors that you’ve done enough due diligence to take on a project within an existing company. Even then, full-fledged is unnecessary. Thanks for the comment.

25 kev@ aerial installation Birmingham April 21, 2011 at 8:46 am

Business planes are required howeer I agree that to some point business planes are time consumng and ver go to plan neway. Thesewould only work in large corporate franchise type of companies.

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