Hey, Lazy Entrepreneurs: You Don’t Need to Write a Business Plan
- Image by K. Sawyer via Flickr
Good news for startup founders with writer’s block. Apparently, you don’t have to write a business plan. A story in the New York Times reports on a study showing that venture capitalists don’t really bother reading those documents:
GO ahead and write that 50-page business plan about your fledgling venture if it helps you to focus. Just do not bother showing it to venture capitalists, because it will do nothing to improve your chances of getting financing.
That is the surprising conclusion of a new study by researchers at the University of Maryland’s business school.
Researchers found that venture capitalists, who screen hundreds or thousands of solicitations each year, pay little or no heed to the content of business plans. Instead, the study said, because they make decisions “under conditions of high uncertainty,” venture capitalists rely on instinct and their expertise in ferreting out information by other means to evaluate the prospects of a business.
The study corroborates something I’ve written about, that VCs these days care more about “validation” of a business than a written plan. That means such things as looking at the entrepreneur’s track record and references. It also underlines the need for startup founders, for-profit or not-only-for-profit, to concentrate on building a network of connections, instead of producing a brilliantly polished document.
Still, entrepreneurs who don’t write a plan are at a disadvantage, because the exercise is pretty important for fine-tuning the details of their operation. Also, how many small businesses as a percentage of all startups out there seek VC money? And, more important, how many companies that aren’t in high tech do so? The answer is, not that many. So, in most cases, it’s just a bad idea for entrepreneurs to chuck the whole effort. Sorry.