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April 25, 2005
Business Planning The Future
Michael Moritz, a general partner at VC firm Sequoia Capital and an early investor in Google, recently told the crowd at the VentureOne conference that start-ups shouldn’t bother with a detailed business plan. He’s quoted in the BusinessWeek DealFlow blog as saying, “The longer the business plan, the worse the prospects for the company.”
“Maybe, but startups should not come into that first meeting with a potential investor with nothing but a nice smile and a firm handshake. The point of a business plan is simply the intellectual exercise of crossing the t's and dotting the i's. No investor really believes that it's a rigid plan, but investors do want to have confidence that you have figured out the moving parts and have a well formed idea of the direction you need to go in. I don't get detailed business plans for any of the deals we look at, but we do expect to see evidence of detailed planning behind the great teams.”
I think that the perceived difference in opinion comes down to the style of the individual investor. Different VCs look for different attributes and characteristics in the companies that they invest. And how they evaluate potential companies is a reflection of that difference.
A business plan isn’t a prediction of the future, but a demonstration that an entrepreneur is thoughtfully preparing for the future.
All VCs know that whatever the current plan is now, it is definitely going to change. Yet all VCs want to know that the entrepreneur is seriously considering and planning for the future, given all of the information that’s currently available. How this thoughtfulness manifests itself varies. Some VCs will want this preparedness to come through in a series of conversations and meetings. Some will want to see it in an articulate business plan and/or thoughtful financial model.
I disagree with Businessweek’s Justin Hibbard’s conclusion, “So here's a tip for entrepreneurs: unless you're a fiction writer, put away the financial-modeling spreadsheets. While you're at it, spare us the PowerPoint presentation.” Instead, do as Jeff suggests: don’t “come that first meeting with a potential investor with nothing but a nice smile and a firm handshake.” Bring a presentation and be prepared to walk through it. You might or you might not. Likewise, have a written document and a rough financial model ready as well. A VC might want to see it on the first, second, or fifth meeting. Or never. You should be ready either way.
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Comments (1)
I'm wondering if the comment about "the longer the business plan, the worse the prospects for the company" has anything to do with the entrepreneur's openness to change. Like you pointed out, whatever the plan is now, it will change. But if months have been invested writing a 50 page detailed plan, that person may have blinders on when it comes to altering the plan even if market reaction is dictating a change.
I think the balance is in planning enough so that it makes sense to move forward, building enough for concept validation, and then being flexible enough to improve upon, often changing the plan based on real user feedback.
Interesting post David. Thanks for writing about this.
Posted by Caren | April 25, 2005 3:37 PM
Posted on April 25, 2005 15:37