Conventional wisdom says that every great startup needs a formal business plan. According to Wikipedia (that great repository of predictably conventional wisdom), a business plan is:

"a formal statement of business goals, reasons they are attainable, and plans for reaching them. It may also contain background information about the organization or team attempting to reach those goals ... When planning a new venture, a three- to five-year business plan is required, since investors will look for their investment return in that timeframe."

Did you catch the word required in the last sentence? A business plan is something that you absolutely must have in order to get investors? Balderdash! Here's the straight skinny:

  • "No business plans any longer," says Stanford University professor of entrepreneurship Chuck Eesley, who characterized a business plan as the "quickest way to look like a rookie."
  • "Biz plans are dead in the valley," agrees Robert I. Sutton, author of the bestsellers Scaling Up Excellence and The No Asshole Rule.
  • "The reality is that you don't have to write a business plan anymore," says entrepreneur Guy Kawasaki, author of numerous bestsellers, including The Art of the Start 2.0.
  • In other words, despite what you might have heard (or read on Wikipedia), business plans are a waste of time. Here's why:

    First, for a startup, three years is the distant future and five years might as well be in another geological epoch. It's ludicrous to pretend you have any idea what you or your firm will be doing in five years.

    Second, nobody has time to read a formal document, especially one that follows the typical template that wastes pages on irrelevancies like corporate mission, personal background, and pie-in-the-sky projections.

    Finally, the fact that you wasted--what? maybe an entire week?--writing a formal document that nobody (including you) wants to read is a certain signal to savvy investors that you lack a sense of priority.

    According to Kawasaki, rather than a business plan, investors want to see a 10-slide, 20-minute presentation built around a demo or prototype. "If a picture is worth 1,000 words, a prototype is worth 10,000 slides," he quotes.

    Serial entrepreneur Henry Wong (founder of CNET, among others) recommends a similarly minimalist approach that hits five key points: 1) team, 2) market, 3) technology, 4) customers, and 5) special connections (people you know who can help).

    Similarly, in the book The Startup Pitch: A Proven Formula to Win, author and entrepreneur Chris Lipp says your pitch must communicate only four simple points: 1) problem, 2) solution, 3) market, and 4) business.

    Stanford professor Eesley says that a successful pitch today can even be a "one pager" and recommends that would-be entrepreneurs look at the minimalist online application that resulted in the funding of Dropbox.

    So regardless of what conventional wisdom says, writing a formal business plan is a huge waste of time. Simplify your ideas so you can describe them on a few slides or even on a single page.

    What's ironic about this is that one of the worst kept secrets of the corporate world is that three- and five-year plans are a joke even in huge companies where momentum might make the future more predictable. It's been that way for decades.

    So, no, you don't need a formal business plan to get your startup off the ground. And you don't need to spend precious hours polishing and updating it. That time is better spent doing something useful: such as making your idea work in the real world.

    Published on: Jul 29, 2016