As I answered on Quora, an angel investor who asks you for a business plan for a seed stage Internet start-up doesn’t know what they’re doing.
An entrepreneur needs a clear vision, clear projections (18-24 months) of cash burn and an estimate of how the business model will work on the revenue side.
There must also be a vision of how the business will scale both in terms of human capital and technical resources, but this is, as we say in trading parlance, “not held” (read: a best-guess that is subject to change).
At the earliest stage, it is the entrepreneur and the vision that are key.
Too much time spent on business plan means too little time iterating on the product or spending time with potential customers. It also means that the entrepreneur is likely too old school to adapt to the fast-changing start-up environment.
If an entrepreneur in a seed-stage venture plopped a 30-page (or more) business plan on my desk I would take that as a very negative sign. I don’t even want to see a deck during our first meeting. I want a substantive two-way conversation. Business plan? Puhleeze…
The following was a note of exception to my comment:
“…For one, it strengthens an already existing silo in tech that is stifling innovation and squashing diversity because it rewards companies who present ideas that conform to the investor’s preconceived notions and places companies who think differently at a disadvantage.”
Except in a small number of cases where I do believe I understand a market extremely well, I approach a new investment opportunity with an open mind and a desire to learn. I specifically look for those who are approach a market differently; this is where the potential for true disruption exists. But I believe you are mixing up “business planning” with “business plan.” In my experience, there is so much uncertainty around seed technology investing that a detailed business plan at this stage is not only a waste of time, but indicative of a mind-set that assumes perceived thoroughness and detail conveys a measure of control. It doesn’t. What is really indicative of control is the ability to get an early product in the marketplace, to iterate on the product, to spend time with actual customers soliciting input for making the product better, implementing these changes and seeing and measuring the improvement. This is what I call business planning. Product, product, product, not plan, plan, plan.
Detailed planning that culminates in a plan (not a specific document but elements of which are actually used to drive and measure the business, not sit on a shelf) is appropriate for a Series B business, where the product is in the market, the team is ready to scale and having a detailed plan of product, technology and organizational evolution is key. But to spend time doing this at the seed stage is, in my opinion, a fool’s errand. The mere presentation of a market opportunity in 30 pages will not convince me of its existence. I can be strongly influenced through a conversation and convinced by the response to a rudimentary offering in the target market.
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