Over the past few years, business plans have become controversial. Some investors fall into the Lean Startup camp and think a business plan is a waste of ink; other investors still demand a business plan before they will even take a meeting.
Both sides have merit. I think a lot of confusion comes from the name itself: a business “plan.” People expect the document to be like it sounds: a plan, or roadmap of the future. The anti-business plan camp are entirely right with their criticism that at early stages, the future is so unknown that forecasting is a futile exercise, likely to be pure conjecture and wildly inaccurate.
Just because forecasting is futile, doesn’t mean the “business” part of the business plan isn’t useful.
Your average business plan has a lot of non-forecasted information about the business itself, which matters a great deal to investors. Two sections in particular stand out, both of which are required in greater detail than can be covered in an executive summary or slide deck:
1. Team: it is very useful to see a whole page about the team. A team is much more than management: you want to know everyone involved in the company, and exactly what they do.
Employees, contractors or advisors all bring something to the table, but don’t always merit mention on a slide deck. It’s also very illuminating to see how people describe themselves, and how their background fits with the business they are doing, which you can’t always get from LinkedIn.
2. Competitors/Market (Industry): even if you are at a very early stage in the business, and you don’t even know exactly what you are selling and which needs it fits, you will know what general market you are in (e.g., renters and real estate). Having a page each on the market and competitors is a great way to show people what you know about the industry, and that you have been actually looking to see what is going on in your market.
It’s especially important to have a page on competitors. One quick thing investors do, if they get even mildly curious, is to google terms related to your product or service (e.g., apartment rentals website), see what comes up and click through to the webpages of these (perceived) competitors. It’s very reassuring as an investor to see that the entrepreneur has already identified the same companies, and is building a business and strategy with knowledge of who is already in the market.
The other thing that is important at even early stages is a financial model, as even many Lean Startup proponents would argue. Although this model is almost certainly pure conjecture, it serves more as an intelligence test and communication tool about your aspirations, as described in this blog post.
So by all means, feel free to go light on the product/service and strategy sections of your business plan, if you are still trying to figure them out. Heck, under strategy feel free to state “we are at too early a stage to know,” if that is the answer.
We still want to know who is in the company, and what you know about the market and competitors. Give us this, in a document that tells us about the business: by any other name, this part of the ‘plan’ is still valuable.