Lots of entrepreneurs ask me if they need a business plan. I always give the same answer: No.
I’ve raised and participated in dozens of angel and venture rounds, and the only time a business plan was ever involved was my very first start-up.
I’ll bet the experienced investors who gave me their money saw my carefully crafted 50-page plan and thought, “Rookie!”
I’m glad I can now now cite a real study from the University of Maryland’s Smith School of Business to support my intuition.
The group studied business plans of more than 700 dotcom companies from the late-1990s to early-2000s. They compared characteristics of each business plan – including the contents, team make-up and business model – and whether the plan received venture capital funding. Their conclusion is that the content of the business plans does not predict which businesses get funded. “We kind of thought we’d find something,” he says. “We thought it would at least matter if you submitted a plan, or if the plan kind of looked right. The evidence is pretty strong that [VCs] don’t pay attention at all.” So what does matter? Social connections trump business plans by a long shot, says Goldfarb. Thus it is that people who already know VCs and angels have an easier time raising money.
Alas, many folks continue to waste their time writing business plans, or even worse, paying someone to write a plan for them. Save your time and money, folks, and focus instead on building relationships.