Traveling the globe preaching the death of business plans, I was stopped for the umpteenth time by a very bright entrepreneur saying yet again, “but will investors give you money without a business plan?” The two-part answer: (a) some money, sometimes; and (b) avoid investors as long as you can.In the euphoric bubble period that was the late 90’s, when investors were throwing money at startups like drunks at a casino, business plans were required and the smartest entrepreneurs were cranking them out in a few days and grabbing the cash. That euphoric period was so crazy that poopinabag.com got funded (in fact I think I wrote a check). Those days are absolutely GONE.
Today’s investors don’t want to hear this pitch any more:
- we have a great team
- we are chasing a $billion market
- if we only get 2% of it, boy are we gonna be rich
Today, investors want to hear about customer traction, uptake, and non-vanity metrics all pointing steadily in the right direction.
The smartest startups do all this without a “serious” fundraising. Maybe they self-fund the first $50-100k or find an angel quickly who believes much more in the team than the idea, and feels his or her seed capital will fund not the business, but the search for the repeatable, scalable, (ultimately) profitable business model. Those searches are painful and exhausting, and sometimes take a while…but they are not costly. The inputs are brains and sweat and blood and shoe leather as you to talk to customers, channel and marketing partners, and as you pivot and iterate toward a harmonious, sustainable business idea. Small, agile staffs motivated by equity, not payroll, drive the Customer Development process. Not blockbuster fundings.
I still remember a mid-90’s pitch for a content/commerce/community site I lost a pile supporting…”we need $8 million now…2 for hardware, 2 for software, 2 for staff and 2 for advertising.” Bright investors wrote the checks (and a B round later) on a detailed plan full of numbers and fuller still with fantasy about how great this company was going to be, how fast customers would rush to purchase its goods, and what revenues would look like–to the penny, of course–in the second quarter two years down the road.
Use Alex Osterwalder’s fabulous, simple business model canvas to identify and write down your fantasies and guesses about what the repeatable, scalable, profitable business might look like. And use the two months you save by not writing a business plan to “get out of the building” and replace your guesses with real facts based on feedback from real customers. At that point, you’re ready to raise some “serious” money to at least test your idea’s scalability. For that you often do need a business plan, but it’s no longer written in the fiction department, it actually contains some facts. After that, at least some of the time, it’s onward and upward!
Bob Dorf speaks with, coaches and trains startups in lean customer development all over the world. He blogs at dorfonstartups.com and tweets @bobdorf.