While networking, people often asked me « How to write a (good) business plan? », « what are the keys of success facing VCs ». There are no one answer as it depends on your business, the sector you adress and the type of investor you want to deal with. I think there are
some tips to keep in mind, and the man/woman, the entrepreneur you are is far most important than being graduate of a business school. Even if you are trained to make such documents.
Guy Kawasaki (Art of Start) and Tim Berry (Palo Alto Software) provided us some keys in this interview held on July 2007.
« Question: Who even reads business plans anymore?
Answer: How about “Who should read a business plan”? It’s not about whether venture capitalists read plans, it’s about planning to make your business better. So here’s who should read a plan:
First, you the owner, manager, author of the plan–and you’d better be the owner of the plan too—not some consultant. The plan is by you and for you and if tracking it, reviewing it, managing and executing it aren’t important to you, then you don’t understood planning. Planning isn’t about the document; it’s about controlling your destiny, running your business better, setting goals and tracking progress, and keeping your eyes on the horizon while not tripping over potholes in front of you. If you’re not going to read it regularly, then don’t ask anybody else to.
Second, team members, boards of directors, and collaborators. A business plan is a way to coordinate, communicate, and collaborate with accountability and tracking. It should get all the key people on the same page. Nobody can execute a plan they don’t know about.
Third, relevant outsiders. Banks, investors, boards of advisors, key consultants, and even occasionally—but only with caution—vendors or prospective new high-level employees.
Question: What’s the most important qualities of a plan?
Answer: First, a plan should set priorities with the understanding that you can’t do everything. After all the buzzwords and analysis, strategy is focus. What can you do better than anyone else? What’s your core competence?
Second, specifics. What’s going to happen, when, how much it’s going to cost, and who’s responsible for it.
Third, cash flow. Growth spurts in a company are good things, meaning more sales, and presumably more profits, but unplanned growth can suddenly sucks up liquidity and in the worst cases kill the company. Growth without prior planning can be as fun a hard kick in the stomach.
Here’s a story to illustrate the concept growth versus cash flow: Willamette River runs through Eugene where I live. More people drown in the slow deep portions of the river than in the rapids because people think they’re okay when it’s slow. Cash flow is like that, you think it’s okay when you’re growing and profitable. Profits are good, but cash and profits aren’t always timed together.
However, when you do have a “business plan event,” as we call it—meaning loan application, investment, or review for board of directors or advisors—then give your readers a break. Include charts to illustrate numbers. Use easy to read bullets. Use 12-point fonts for people over 50. Make an easy outline to follow. Include an executive summary that could stand alone if it has to because it will. Have chapters describing the company, what it sells, the market, the plan specifics —strategy, tactics, and programs, the management team, and the financial projections. Don’t be afraid to use PDF documents, they travel well and are convenient for all concerned. And let your readers decide whether they want hard copy.
Question: How can you project numbers for a new business with no history?
Answer: Aim for the educated guess. Educate the guess with back-up information laying out assumptions for how many potential buyers, what sort of penetration process through the market you’re projecting, and what experience shows in other industries. Look for indicator factors you can tie your numbers to, like web traffic and click-through and conversion rates for one kind of web business, or page views and ad views and ad revenues, on another.
Don’t sit around debating projections—start selling. Prove your sales projections with sales. One of the best things about working with Philippe Kahn during the early days of Borland International was how he jumped out of the planning and into the sales at a moment’s notice. Nothing made the projections more credible than the $90K bundling deal from a computer manufacturer that also put dollars in the bank account (and $90K bought more in 1983 than it does now). There’s no data substantiation better than actual sales.
Always try to get data you can pull apart into assumptions. I just used a web example, but even in the less data-rich world, you can project a restaurant sales by breaking it into meals per sitting and sittings per table and people per sitting and tables available and sittings per hour and peak hours and other hours, all of which helps to educate a guess.
Always try to add experience. People who know a business understand general scale in a way that’s extremely hard to duplicate from scratch. I understand that we’re talking about a new business here specifically, but new businesses are usually derivative. If you don’t have the experience yourself, find somebody who does, and entice them into sharing and listening a bit. Buy lunch. Use flattery. That’s why boards of advisors were invented, as a forum for lunch and flattery.
And remember: Start the planning process immediately. You’re projecting a new business only until you’ve finished the first month, and then you have plan versus actual to deal with. You’re laying down a plan so you can track the difference between plan and actual results. Your plan will always be wrong, but you’ll be tracking where, why, and in what direction.
Question: How do you know when you’re done?
Answer: A good business plan is never done. You’re going to be circling back around it for as long as you care about your business and want to manage it better. If your business plan is done then get out of that business, it’s dead. You’re always moving towards the horizon, and you’re business plan is always there to track where you’re going, mark the steps, and help you steer.
The absolute worst business plans ever, anywhere, are those plans in a drawer somewhere. If you’re not keeping it alive, it’s not planning; it’s just a plan. It’s history. It’s of no business value.
Question: What do you make of these “Web 2.0” entrepreneurs who say that the world is moving too fast for anything as “1.0” as a plan?
Answer: They’re referring to the the big fat “Business Plan” when what they need is planning. Planning is vital because it keeps you on track and mindful of important long-term strategy and objectives. A plan, on the other hand, a plan taken by itself, is only as good as the implementation it causes.
Planning is exactly what you need to deal with the speed of change. You have to remember that your business plan is always wrong—it has to be because it’s predicting the future and we’re human, we don’t do that very well. But it’s still vital because it’s the way you lay down tracks so you can follow up on the constant difference between plan and assumptions.
Without a plan, when assumptions are wrong you don’t even know what they were, how were they wrong, in what direction, and what can you do about it. With a plan, you use plan versus actual all the time to manage the difference between what you thought and what actually happened.
That’s what I love most about having a GPS unit in a car. When I screw up and take the wrong turn, the GPS still remembers where I wanted to go and tells me how to change my course. That’s what good managers do with a sound planning process. »