A prevailing opinion in the tech community is that business plans are for dinosaurs and nimble startups no longer need them. When I started Fundastic about a year ago, I listened to this advice and jumped into incorporating my company and started building the product. In the process, I also recruited two co-founders who were on payroll. We found ourselves in a mess only 4 months into the venture. Our originally idea of helping business owners obtain low-cost funding through community sourced capital wasn't really viable. The company was undercapitalized. The legal fees were piling up. One of my co-founders quit. We ended up pivoting. All our actions didn't lead to actual progress. We last until today due to sheer determination. If we had planned better, so many mistakes could have been avoided; so much money and agony could have been spared.
Business plans are not about the 200-page document with beautiful graphics. It's about planning. It's about business planning and life planning of the entrepreneurs.
Business plans are about putting down the following thoughts on paper
- What is the company doing?
- Why do I want to work on a company like this?
- Why am I the right person to start a company like this?
- Who are my customers and how do I market to them?
- How big is the market? Who are the competitors? What's my company's competitive advantage? What's the end game if things work out?
- What are the startup costs? What does it take to bring my product to the market?
- How do I obtain the capital before my business generates enough cash flow to fund itself?
- How do I support myself before the company can afford to paying me a living wage?
Even the lean startup movement doesn't free businesses from this planing process because it takes time and money to bring something to the market people are willing to pay for. Before you quit your day job to work on your startup full-time, you should really go through the list and do some planning. At the very least, figure out how long you can afford not having an income to build your company. It's all about not flying blind.
"What about Facebook, Yahoo! and Google? I don't think they had a business plan when they started?", you might ask. Well, these are companies that are started as students' side projects and the founders went full-time only when their projects started to take off and investors offered to fund them. They didn't have a family to feed or a certain lifestyle they need to support. Their risk tolerance is high compared to most other people.
"What about WhatsApp?". The founders had enough savings from their Yahoo! days to last a number of years and they hit the traction for Sequoia Capital to fund them two years later. If you are doing something as risky as these big consumer internet companies, you need to have the personal capacity to last long enough to see the fruits of your labor. You might still fail in the end. It's good to mentally prepare yourself through planning.
As for my company, it is in a much better shape now. We went through the planning process and figured out a long term plan. Things are going to change and we understand it's a tough long journey to become financially sustainable. But my team and I are on board with all the challenges. That's the beauty of business plans. It's all about planning and being mindful of the costs, efforts and uncertainties of starting a successful company. It is so necessary that business planning will never be out of fashion.