May 7th
The real point of a business plan
Lots of startups hit the scene with the impression that creating a business plan is a waste of time; just an exercise to appease potential investors, like filing provisional patents and signing NDAs. “Come up with the idea and strategy first, then make the business plan” right?
What isn’t shared often enough is the true value of a business plan: the process of creating it. If you’re going to come up with an idea and define the strategy, you owe it to the idea to go through the process of developing a business plan. It forces every potential issue to be confronted head-on, leading to a much more well-rounded strategy.
No business plan has ever been 100% accurate, nor should it. That’s not the point. The creation process helps you digest exactly what your requirements, dependencies and risks are before you waste time barking up the wrong tree. If you’ve done your job, every move your company makes will be intuitively linked to a bigger picture.
A good business plan isn’t something that should be made once and forgotten, either. Redoing a business plan from scratch every year is a great way to process what you’ve learned and use it to move forward productively. You may even realize what you thought you were making turned out to be something completely different.
The best framework for figuring out how your idea is going to work, and how you’re going to grow a business, is sitting right in front of you.
Instead, the startup scene is going in the opposite direction. Y Combinator recently announced their weird “No Idea” initiative: funding entrepreneurs who don’t yet have an idea. In their words, “if the only thing holding you back from starting a startup is not having an idea for one, now nothing is holding you back.”
The logic: if they fund a person, that person will then come up with an idea, then create an all-star team to execute on the idea, which then generates tons of profit, which then exits.
I get it. Investing in the team, not the idea. The problem is, it’s taking something that is already risky and making it even riskier. I guess Y Combinator isn’t disappointed enough in their sub-average 8% company exits.
Plus, correct me if I’m wrong, but don’t you need to have an idea to be an entrepreneur?