The Business Plan Fallacy

As I'm reviewing business plans from college grads I'm mentoring (as an alumnae mentor at Brown Univ ) and from Glengary , the VC firm I'm a partner in, this whole business plan process is getting to me.   So much of what I see in biz plans (and strategies) is, pardon the phrase, BS.  We all know none of us believe any of the numbers is the proformas, the market growth, etc., so why do we bother with all this stuff when we know it's a joke?  I don't know, but here's what I'd like to see in a biz plan for a change.

  1. The current, accurate, realtruthful view of the world - market(s) as it exists and will exist. If it doesn't yet, why, what are the real needs, current and potential competitors (in/out of your market space).  What have others tried and what has succeeded or failed and why. Tell me a TRUE story of the world you're going into - you can use spreadsheets, analysis, should give me #'s, but tell me how this world really works, not how you'd like it to work.
  2. Clearly state your assumptions and hypotheses (e.g., if we do x, then y will happen; we can make A with $X in T months, we will take C to market and the market will do S) - how will these impact the market you're going after or creating - and ideally, do it in a way that you can change the assumptions so they automatically change the outcome.
  3. Delineate your plan ‘management/mitigation' story - since we know you'll make mistakes in #2 above, what are you going to do when this happens?  This has 3 critical areas: 1) how flexible is your management - can you adapt and shift if necessary? 2) how flexible is your product or service? Can it adapt or is it a binary choice? 3) if things really don't happen as planned, are you done? Do you have other ways to go to market?
  4. People - you need the required resumes of course, but what matters more is their level of passion, commitment, heart/soul into the biz, attitude, abilities, history of executing, of doing, of making things happen.
  5. Money - how much do you need, what are you going to do with it, cash flow, P&L, balance sheets, margins, exits etc. - the usual stuff.  But, what are you doing while you're waiting for the money - are you still moving ahead? Are you able to straddle ramping up based upon funds? Investors want to see that you can still make progress while you're waiting for funding or if you don't get enough.

Treating Start-ups like Adults? Wait!

Humans are one of the few mammals whose babies are not fully developed at birth. Unlike horses, whales, etc., human babies can’t stand, walk or forage on their own at birth. They are totally dependent upon adult humans for constant, continual support just to live.  We are used to this, we accept it, we don’t expect anything different.

Yet, when we discuss the birth and development of innovations and companies, it’s totally different. We expect an accelerated path from birth to adolescence to adulthood. It doesn’t need to as long as human development, but it’s rarely Google-speed.

We know innovation and entrepreneurs need nurturing and support, but usually just pay lip service. The similarities, and therefore lessons learned, between newborn babies and innovations/ideas are seldom applied.

Within companies, many innovations aren’t given the time or support (e.g., prototyping, experimenting, testing) to ‘prove’ their worth – they are subjected to processes (e.g., stage-gate) and reviews prematurely and are not given a chance to try to crawl let alone walk. While vetting is critical, vetting too early can be fatal to the company as a whole longer-term.

For startups, entrepreneurs usually have to grow up (too) fast if they want to get the funding to nourish their growth. As a mentor to startups, my role is paradoxical - to nurture and advise but also help push out of the nest.

As a partner in Glengary LLC, an early-stage VC firm, we provide the necessary support and network AND hold them accountable for milestones, without asking for meaningless data in business plans. It is always a balancing act.

So, as you are involved in innovation and with entrepreneurs, apply some of the lessons learned from raising your kids, if you have. Provide a path providing sufficient nurture and nourishment for growth that teaches self-discipline and self-sustenance for independence.

It isn’t easy to do as parents, and it isn’t easy to do in business, but few rewards are easy.