Garbage In, Garbage Out

Bankers and entrepreneurs explain why business-plan software can never deliver what it promises.

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They might be best-sellers, but business-plan software programs can never deliver what they promise

Entrepreneurs come in all shapes and sizes, but Nancy Russell notes one universal trait: "They all roll their eyes when I tell them they have to do a business plan," says Russell, business-development officer at the Irvine, Calif., branch of the Money Store, a leading Small Business Administration lender with offices in every state.

Why is writing a business plan such a chore? Because business plans are like term papers: you're never sure what information is supposed to be in them, how it's supposed to be arranged, and whether you've caught all the mistakes. Indeed, bankers and investors complain that the business plans they get from hopeful entrepreneurs often are sloppy and missing information. "A lot of the plans that come across my desk are pretty pathetic," says Michael Carter, managing director of Carter & Co., an investment-banking firm in Southport, Conn.

But if you've ever glanced through the ads in any in-flight magazine, you know that business plans don't have to be sloppy or difficult to write. For $50 to $100, the ads promise, you can buy computer programs that will help you create professional, "winning" plans. But do they?

Business-plan software, its manufacturers claim, is fairly flying off the shelves. Two leading vendors, Jian Tools for Sales, of Mountain View, Calif., and Palo Alto Software, in Eugene, Oreg., both report 50% sales growth over the past three years. According to PC Data, a Reston, Va., company that tracks software sales, $12 million worth of business-plan software was sold through retail channels in 1995.

Of course, the marketing hype for business-plan software runs a bit ahead of what the products actually deliver. No amount of automation can turn a lousy idea into a winning business. The garbage in, garbage out maxim still applies. Nor can any of the available software relieve you of having to think hard about how you intend to execute your idea. Furthermore, the software doesn't deliver anything fast. Many users report working full-time for more than a week to draft a computerized plan. You can expect to spend even longer if your business opportunity has "a lot of moving parts" -- several partners, for example -- says the Money Store's Russell.

Another thing the advertising copy doesn't warn you about: business-plan software can actually hurt your chances of raising money. Although it may generate a glossier plan than most entrepreneurs would be able to create on their own, fill-in-the-blank software by definition is going to produce a pretty generic business plan. The question: Can a much-like-the-others plan effectively sell a business and its management? That's what most authorities say the first goal of a business plan should be. Timothy Dineen, founder of Leprechaun Capital, an investment-advisory firm in Lilburn, Ga., believes that investors can spot "canned" plans a mile away. "The most important thing a venture capitalist is looking for is quality of management. You can sabotage your credibility with some of those packages," he says.

So maybe Jake Holmes, owner of Stowe Canoe Co., in Stowe, Vt., did the right thing recently when he whipped up a business plan on his own, using a word processor and a spreadsheet. Holmes, formerly the president of a subsidiary of a Fortune 500 company, says he's never had much trouble getting loans. "As long as you put your ass on the line and commit personal assets, they'll give you the money," he says. His experience may not hold for all entrepreneurs, but it does indicate that sometimes a plan's polish isn't as important to bankers as the CEO's background, personality, and presentation -- and the fact that he or she has skin in the game.

The Softwareless Program
Stories abound of famous companies whose founder never wrote a formal business plan: Reebok, Mrs. Fields, Pizza Hut, and Crate & Barrel are notable examples. But at some point many small companies -- perhaps when they want to expand or need working capital -- are forced to develop a business plan. Or maybe the need arises when it begins to dawn on a founder that the business is headed either nowhere or everywhere, but in either case it needs a new and better-analyzed strategic focus. There's no inherent reason why software shouldn't be able to help entrepreneurs write a good business plan, improve the plan they have written, or at least make the writing easier. But not all business-plan programs are alike, and none of them can take raw data as input and spit out a polished finished product.

In fact, once they tear off the shrink-wrap, buyers may be surprised to discover that many business-plan packages aren't really programs at all. They're a collection of boilerplate text, charts, and spreadsheets that you modify using your own word-processing and spreadsheet programs. When you install Jian's market-leading BizPlan Builder, for example, you're simply dumping six or seven word-processed documents and spreadsheet files onto your hard disk. There's no executable software at all.

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