The Zen Of Business Plans
Originally published: 03.01.07 by Guy Kawasaki
Even if you aren't looking for investors or to borrow money, a business plan is a must.
In my day job, I not only hear a lot of PowerPoint pitches, but I also read a lot of business plans. The PowerPoint pitches explain my Ménière’s disease, but the business plans explain my recent need for reading glasses. One of my goals is to reduce the external factors that are causing the degradation of my body, so this entry’s topic is the Zen of business plans.
1. Write for all the right reasons.
Receiving (and possibly reading the business plan is a mechanical step in due diligence when seeking investors or borrowing money. The more relevant and more important reason to write a business plan, whether you are raising money or not, is to force the management team to solidify its objectives (what), strategies (how), and tactics (when, where, who). Even if you have all the capital in the world, you still should write a business plan. Indeed, especially if you have all the capital in the world because too much capital is worse than too little.
2. Make it a solo effort.
While creation of the business plan should be a group effort involving all the principal players in the company, the actual writing of the business plan — literally sitting down at a computer and pounding out the document — should be a solo effort. And ideally the CEO should do it because you will need to know the plan by heart. Take it from an author, for writing to be cogent and consistent, there needs to be only one author. It’s very difficult to cut-copy-and-paste several people’s sections and come out with a good plan.
3. Pitch, then plan.
Most people create a business plan, and it’s a piece of crap: 60 pages long, 50-page appendix, full of buzzwords, acronyms, and superficialities such as, “All we need is one percent of the market.” Then they create a PowerPoint pitch from it. Is it any wonder that the plans are lousy when they are based on crappy pitches? Write this down: A good business plan is an elaboration of a good pitch; a good pitch is not the distillation of good business plan. Why? Because it’s much easier to revise a pitch than to revise a plan.
4. Put in the right stuff.
Here’s what a business plan should address: Executive Summary (1), Problem (1), Solution (1), Business Model (1), Underlying Magic (1), Marketing and Sales (1), Competition (1), Team (1), Projections (1), Status and Timeline (1), and Conclusion (1). Those numbers in parenthesis are the ideal lengths for each section; note that they add up to 11. As you’ll see in a few paragraphs, the ideal length of a business plan is 20 pages, so I’ve given you nine pages extra as a fudge factor.
5. Focus on the executive summary.
True or false: The most important part of a business plan is the section about the management team. The answer is False. The executive summary, all one page of it, is the most important part of a business plan. If it isn’t fantastic, eyeball-sucking, and pulse-altering, people won’t read beyond it to find out who’s on your great team, what’s your business model, and why your product is curve jumping, paradigm shifting, and revolutionary. You should spend 80% of your effort on writing a great executive summary.
6. Keep it clean.
The ideal length of a business plan is 20 pages or less, and this includes the appendix. For every 10 pages over 20 pages, you decrease the likelihood that the plan will be read, much less funded, by 25%. When it comes to business plans, less is more. Many people believe that the purpose of a business plan is to create such shock and awe that investors and lenders are begging for wiring instructions; the reality is that the purpose of a business plan is to get to the next step: continued due diligence with activities such as checking personal and customer references. The tighter the thinking, the shorter the plan; the shorter the plan, the faster it will get read.
7. Provide a one-page financial projection plus key metrics.
Many business plans contain five-year projections with a $100 million top line and such minute levels of detail that the budget for pencils is a line item. Everyone knows that you’re pulling numbers out of the air that you think are large enough to be interesting, but not so large as to render drug testing unnecessary. Do everyone a favor: Reduce your Excel hallucinations to one page and provide a forecast of the key metrics of your business — for example, the number of paying customers. These key metrics provide insight into your assumptions.
8. Write deliberate, act emergent.
I borrowed this from my buddy Clayton Christensen. It means that when you write your plan, you act as if you know exactly what you’re going to do. You are deliberate. You’re probably wrong, but you take your best shot. However, writing deliberate doesn’t mean that you adhere to the plan in the face of new information and new opportunities. As you execute the plan, you act emergent — that is, you are flexible and fast moving, changing as you learn more and more about the market. The plan, after all, should not take on a life of its own.