As a mentor to startups and new entrepreneurs, I continue to hear the refrain that business plans are no longer required for a new startup, since investors never read them anyway. People cite sources like this Inc.com article “5 Reasons Why You Don’t Need a Business Plan,” or my own blog discussion on this subject, “Situations Where A Business Plan Does Not Add Value.”
Let me be clear – business plans are never “required,” they should never be written “just for investors,” and if you sold your last startup for $800 million, most investors will not ask for a written plan for the next. On the other hand, if you are a first-time entrepreneur, the discipline of building a business plan will dramatically improve your success odds, and your odds of finding an investor.
For aspiring entrepreneurs, or if your last startup failed, it’s all about standing out above the crowd of others like you, and demonstrating your readiness. There is no crowd of successful entrepreneurs. Here is my outline of key deliverables that could convince me that you are a cut above the “average” entrepreneur that approaches me with nothing but a dream and a prayer:
- Personal video introduction with elevator pitch. Successful startups are all about the right people with the right stuff. In a two-minute video clip, you can introduce yourself, show your passion and the engaging personality you need to win over customers, partners, and employees. Net out the problem and your solution in the first 30 seconds.
- Executive summary glossy. For the more traditional investor, or for that chance meeting in a real elevator or meeting, you need a two-page brochure (two-sided page). The challenge here is not to see how many words you can get onto each side, but how you can make this so engaging in layout and content that an investor will ask for more.
- Investor and strategic partner pitch. A perfect size is ten slides, with the right content, that can be covered in ten minutes. Even if you have an hour booked, the advice is the same. I’ve seen a lot of startup presentations, and I’ve never seen one that was too short – maybe short on content, but not short on pages. Pitch your company, not your product.
- Written business plan. Disciplining yourself to write down the plan is actually the best way to make sure you actually understand it yourself. Would you try to build a new house without a plan, if you have never done it before? In simple terms, it is a 20-page document which describes all the what, when, where, and how of your new business.
- Financial model. Most new entrepreneurs tend to avoid the financials of the business, and as a result are badly surprised by cost realities, and can’t answer investor questions. I suggest a simple Excel spread sheet loaded with your revenue, cost, and margin targets covering the first five years of your business. Investors will expect it for due diligence.
Thus you see the business plan is only one of five elements of a package that every aspiring entrepreneur needs to build to stand above the crowd, in your own level of understanding of your business. You need it for communicating to your team, finding strategic partners, or soliciting investor funding from friends and family, angel investors, VCs, and crowd funding.
The ability to communicate effectively is critical to standing above the crowd. Good communication is not talking louder and longer than others, but practicing active listening, and providing a package of other elements to effectively to back up your words. Make yourself unforgettable, in a good way. This means adding value before, during, and after every interaction.
Believe it or not, there are many people in the entrepreneur crowd with outstanding ideas, but building a business is more about execution. If you have built a successful business before, you don’t need all the components above to convince anyone, including yourself, that you can do it again.
Even including repeat entrepreneurs, statistics continue to show that the overall failure rate for startups within the first five years is greater than 50 percent. The real objective of “standing above the crowd” is to give you as an aspiring entrepreneur every chance to end up in the winning group, rather than the crowd of losers.
Starting without any written plan elements may seem easier, but is not the way to win.