Business Plans Don't Matter?

Courtesy of a tweet by All Day Buffet, I came across a set of great posts about business plans by Sam at LeveragingIdeas.com. As someone who tends to write 40 page concept documents that are outdated within the month, the post really resonated.

Asking whether Business Plans still matter, his answer is "Yes" and "No." He thinks that the biggest shift is that investors are more interested in a demonstrated concept than in a stack of pages about theory. As so much of business has moved online, the cost of experimentation and proving an idea has been reduced. The greatest need that organizations have in this context then is validation, not concept.

Especially for first-time founders, the struggle is often to figure out what’s missing or what can be done to convince an investor to take a chance and invest. Validation is also significantly more difficult for non-technical founders (see Paul Graham’s point #6). Whether looking for funding, or convincing a prospect to become a customer, or locking down a key engineer hire, founders must provide outsiders with ‘reasons to believe’.

It makes sense to me that I discovered this through All Day Buffet. Their big idea is that people matter more than ideas. Basically the hierarchy of validation above is a proxy for asking "how do you know if this person can make the rubber hit the road?"

A great example of building validation rather than just talking about concept is Lend4Health. They saw the promise of "micro-loans" through platforms like Kiva, had a specific need they wanted to address - support for people dealing with autism spectrum disorders - and just used a blog, Paypal, and ChipIn to make it work. They're working slowly, but actually demonstrating that there is interest in support for this type of action. You can follow their progress on Twitter @lend4health

Sam does come back to the value of business planning on the entrepreneurs side however and hits the nail on the head:

What has not changed, however, is the objective of traditional business plans. The real goal of any business plan process is to force entrepreneurs to put pen to paper and critically evaluate their concepts. The business plan is a framework that gives structure to unstructured thinking and helps guide an idea into actionable steps that metrics can be put against. The business plan is also a unifier around the team: a document that should emphasize the team’s ability to execute against it and not vice versa.