As a former investment banker turned internet entrepreneur, the first thing I did when I decided to start my company was make an outline for my business plan. I was used to writing offering memoranda back in banking, so I was excited about the process and was ready to make it thorough. Well, thorough it was. It ended up being 46 pages long (just shy of 26-36 pages longer than anyone wanted to read) and the financial model was around 10 tabs strong (just also shy of 9 tabs longer than anyone wanted to analyze). I didn't really know this superfluous length was a concern though. Instead, I felt like I covered our entire basis.Armed with a comprehensive business plan, I was ready to enter the world and raise some money on the idea. I sent it out to all of my wealthy friends from my banking days and even a few childhood friends to take a look at it. A few got back to me. However, bottom line -- we didn't raise a dime! It wasn't until nearly 9 months later that we raised some financing. How? It definitely wasn't because of the business plan. It was because we completed a prototype with users. That was the key.
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Advice -- build a prototype of your idea immediately. Don't get caught up with the business plan for now. Get some people using it and test to see if they would use it or not.
The Founder of The Founder Institute tweeted:
The key is to always focus on the product. It's the single most important thing you can do in the early days of establishing your company.
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There is a time for writing the business plan and this should be when you've figured things out and know that this is definitely the direction in which the business will go.
The reason my business plan ultimately didn't work was because it wasn't based on anything but an idea. A business plan should be based on a business. A prototype / product should be based on an idea. At the beginning, since you don't even know if people are going to use your product (i.e., buy into your idea), it doesn't make sense to fabricate the business (i.e., write a business plan) for it.
Serial entrepreneur Wil Schroter of Go BIG Network also wrote a blog post a month ago entitled "Get Customers First and Then Write a Business Plan" that was very much in line with my experience and point of view as it relates to Business Plans and Startups. (Note: This is a link to my blog as I could not find Wil's blog post on his blog. Wil - I have reached out to you via email to see if you were cool with me posting your blog as a guest post on mine. I hope you don't mind ;))
Contrary to what Mark Suster, General Partner at GRP Partners (who btw, I respect and recently enjoyed watching his interview with Jason Calacanis on This Week in Startups), wrote in his post entitled "Are Business Plans Still Necessary?", I would go as far as to say that even modeling out the opportunity extensively (key word: extensively) at the idea stage is somewhat a waste of time. You can build an impressive model based on seemingly realistic assumptions that shows a great output, however, if no one is willing to pay the price that you've based your model on, then the effort is pointless at the end of the day. Now, please don't me wrong. I believe there's a time to build a comprehensive model as well. You should know that the market opportunity you're going after is a big one in general, however, this should be figured out at the idea stage (I suggest how to do this below).
I ended up changing my business three times (read story here), with the third finally slated to gain the traction we are looking for. Why? Because we have a real product based on real users.
Conclusion:
Step 1: Have an idea? Flesh it out with as many smart friends, family, mentors, etc. that you know. Understand the market opportunity and fundamental economics that you're going after.
Step 2: Build a prototype and get friends and family / early users to test drive it and see if they would use what you created. Ask for a range in which they would pay for it.
Step 3: Once you've figured out which product they really like (as you will undoubtedly have to iterate upon and change a couple of times), then write your business plan and build your comprehensive model.
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Mark Suster -- I just wanted to say, in general, I agree with your viewpoint, however, especially for consumer internet plays, I believe that a business plan / model should be timed appropriately, and I think that it should be completed after a prototype has been built and vetted.
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What do you think?
Cheers,
Andre
http://andrecharoo.com
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