Business planning

Deepak over at MNDoci links to Guy Kawasaki’s blog. I browsed through it and found this post. Basically it questions whether or not a formally constructed business plan is needed.

Ok, this is an oversimplification. The basic idea is that you need to be able to communicate your ideas concisely, to be able to convince others that the ideas have merit, and that you have more than a snowballs chance on a sunny July afternoon in Florida of actually making it work. A “formal” business plan is simply one vehicle for this. One of several. Another is your 30 second elevator pitch. There are of course others. But the point is that a business plan is a communication vehicle. Not one that is often read, or well understood by others, but a vehicle for you to help transport and elucidate your ideas. A fair number of VCs have told us they read the first few lines of the executive summary and skip to the financial section. The idea being that they shouldn’t be pursuing “bad ideas”. Well, that still happens, and we see things that have absolutely no hope of maturing into real companies or value getting funded, in part due to their “in” nature. Try to guess what the “new black” is by watching what they fund. A friend of mine runs a company that makes an awesome product. He has to turn away customers, as he cannot produce more of his product. Because he can’t get money for this. His product is unique, it is incredible, lightyears ahead of the competition. It could, with some marketing effort, a little re-engineering, turn into a huge market opportunity … every single gamer would gladly sell their mothers for one if it were in the $5k price range (which we have suggested, and my friend agrees would be an excellent goal). Yeah, its that good. And he can’t get money to do this stuff. To build out his market. He has paying customers. He has been told privately that his market is just not sexy enough. As we have been told about HPC. Sexy enough? Gimme a break. The only viable and likely route to getting capital for companies with good ideas, great products, and a growing customer base appears to be organic growth. For this, you do need a plan. A good plan, not one you spend a year on, but one where you ask yourselves hard questions, build reasonable models, and do some “what-if” planning. Run it by some good critical friends (I do this regularly, and ask them to shoot holes in it). If you can execute and have a bit of luck, well, you can build a company. You do need a plan. Sketched on a napkin, written in small 6 point fonts, whatever… You need to think things through. Flying by the seat of your pants is a sure way to lose your pants. Doesn’t have to fit a particular format unless you want it to be viewed (and mostly ignored) by VCs. It helps you in the hard times. The last thing you want to do is to lose your head when times get tough. A good plan is a flexible plan. It enables you to be nimble, enables you to react quickly, to be opportunistic. To turn an open door into a business. I agree with the authors and Guy’s conclusions: Don’t build the plan for the plan’s sake. Build it to be a framework for guidance and flexibility. Alter it as business conditions dictate. Doesn’t have to be formal, I can’t tell you how many ideas my business partner and I had sketched on napkins (yeah, so I am a parallel entrepreneur) that we developed further. The idea has to be good or it doesn’t matter how the plan is presented.