The Importance of a Business Plan.
Since I have become a VC at Prime Ventures, various people and friends tend to pitch their ideas to me in a bar, restaurant, the gym, or supermarket. It is the next big thing and Facebook, Google and Apple should be worried! Truth be told, I love these conversations and I get very excited about them myself. At least until I realize the cockroach has wings..
It turns out that some of them have already spend considerable time and money in these ‘side projects’ and/or are considering to hand in their notice. Some of them have even engaged with an expensive software design and development agencies to build an MVP. Yet at the same time, they couldn’t even answer some very basic, obvious questions about competition, brand positioning, and funding requirements, whilst valuing their company at $2 million (‘do I?’). It always amazes me. Now I don’t want to discourage people to start their own business, but I do highly recommend them to write a business plan. Why? Because it diminishes risk, both for yourself and (potential) investors, and increases your chances to succeed (of raising funds).
Ask yourself the following question- Did I just start writing my your dissertation? Or did it go along this line: you did a lot of research about the subject, you put together an outline of the research, discussed it with your supervisor, rewrote the outline again, before signing off with your supervisor. You put a lot of time and effort in it, without having put a single word on paper, didn’t you? Whereas still a lot of work had to be done, chances were high(er) that you end up with a good grade! A similar way of thinking applies to the process and objective of writing a business plan.
A business plan is basically a roadmap for your business that outlines the goals and details how you plan to achieve those goals. For an entrepreneur, by putting your thoughts and ideas down on paper, it forces you to carefully think about some of your believes and assumptions. For instance, by describing the competitive landscape you are likely find out that there are dozens of other companies doing the same. And if that is not the case, it might make you wonder why not? Maybe there is simply not a market for your ‘next Facebook’.. And if you ask for a $500k investment in return for 20%, you might realize that you valued your company (or ‘man+plan’) at $2 million!
I know that a startup sounds romantic and a lot of people hate writing a dissertation, but to both the following applies: Success is the result of preparation and hard work. If you want to successfully launch your startup or raise funds prepare yourself. In my opinion, at least for all the first-time entrepreneurs, it starts with a business plan. It is your manual that tells you why, how and with whom you intend to build your business. Besides that, it helps an investor to feel confident in you and in the thoroughness with which you have considered and will deal with future scenarios. Chances are higher that you raise funding, I promise you that.
Recently, I came across a business plan that I have written a few years ago, a 47-pager. It made me laugh! Me and my partner spent endless nights and weekends on it. Finally, our finished business plan gave us the believe that we were onto something big and our investors enough comfort to make a positive investment decision. 1–0 man+plan!