Pretty Business Plans Don’t Lead to Venture Capital Funding
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The latest advice to entrepreneurs from the finest minds in academia: stop worrying about your business plan and get to work on your business!
The Role of Business Plans in VC Decisions
According to a study by the University of Maryland’s Robert H. Smith School of Business, a business plan has no value as a fundraising tool. Researchers suggest that would-be moguls spend time perfecting their business rather than its representation on paper.
“Spending time and energy tweaking your business plan is a waste of resources,” said researcher David Kirsch, associate professor of management and entrepreneurship. “It’s a limited-use document that will in no way substitute for the hard work of actually building a business. You’re better off investing in your idea, your social network, finding potential investors, potential customers — the intangibles around your business that are going to make it more likely you succeed. Invest your time in any other business-building activity but working on your business plan.”
Kirsch and others pored over the business plans of more than 700 dot-com companies from the late-1990s to early-2000s boom era. They compared objective characteristics of each business plan such as its contents, team make-up and business model, and whether or not the plan ultimately received venture capital funding. This research, “Form or Substance? The Role of Business Plans in Venture Capital Decision Making,” appears in the May 2009 issue of Strategic Management Journal.
What Kirsch and his colleagues founds was that the content of the business plans didn’t predict which businesses got funded. They don’t actually recommend scrapping the business plan completely because it has value as and organizing tool. But they warn that there is no evidence that either the content or presentation of the plan influences venture capital funding decisions.
The Business Plan: Not Quite Useless
Just because the business plan won’t determine your business’ success or failure at raising start-up funds, you still have to have something to show the venture capitalists. Why?
“I think VCs like the plans because they skim them to see what people are doing — to get a sense of what entrepreneurial activity is happening,” Goldfarb said. “But an interested VC will learn the details of a business whether it is in the plan or not.”
This is bad news for all the perfectionists out there who just know if it looks pretty, it must be good. But it’s great news for the real entrepreneurs, the men and women who just want to get out there and dive into their passion. This research confirms that hard work, intuition, and a good dose of luck beats out perfect-on-paper any day.
Knock Out Your Business Plan in a Weekend
Want to get your whole business plan down on paper in a single weekend? You can do that and more at a Startup Weekendevent. This unique business environment is ‘no talk, all action’. Startup Weekend recruits a highly motivated group of developers, business managers, startup enthusiasts, marketing gurus, graphic artists and more to a 54-hour event that builds communities, companies and projects.
Founded in 2007 by Andrew Hyde, the weekend is a concept of a conference focusing on learning by creating. It is known for its quick decisions, unique facilitation technique, and letting business founders show off their talents. There have been events in Boulder, Toronto, New York, Hamburg, Houston, West Lafayette, Boston, DC and on June 5-7 they’re coming to a city near you. If your town isn’t on the list, you can start your own.
When you attend a Startup Weekend you decide what you want to work on over the weekend and come out at the end with several developed companies or projects. Can you start? It’s worth a weekend to find out!
Startup Weekend World #2 Challenge from Andrew on Vimeo.
