The Zen of Business Plans

ORIGINAL: LinkedIn
Guy Kawasaki
July 15, 2013

Before you dedicate your life to crafting a business plan the length of a book, read this quotation from an article called “Enterprise: Do Start-ups Really Need Formal Business Plans“ from the Wall Street Journal.

Plans are worthless, but planning is everything.
Dwight D. Eisenhower

A study released by Babson College analyzed 116 businesses started by alumni who graduated between 1985 and 2003. Comparing success measures such as annual revenue, employee numbers and net income, the study found no statistical difference in success between those businesses started with formal written plans and those without them...

“What we really don’t want to do is literally spend a year or more essentially writing a business plan without knowing we have actual customers,” says the author of the study, William Bygrave of Babson College. He advocates that entrepreneurs “just do it.” He also cautions that entrepreneurs are apt to stick with a flawed plan they spent months drafting.

Don’t conclude from this study that analysis, planning, vision, communication, and teamwork are not necessary. This isn’t true. What is true is that a business plan should not take on a life of its own. It is a tool but not an end in itself. In order effectively write a business plan, you now need to learn the Zen of writing business plans.

• Focus on the executive summary. The executive summary, all one or two pages of it, is the most important part of a business plan. If it isn’t fantastic, eyeball-sucking, and pulse-altering, investors 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. Even if the plan is purely for internal use, you should still spend 80 percent of your effort on writing a great executive summary. Most people spend 80 percent of their effort crafting a one-million-cell Excel spreadsheet that no one understands much less believes.
• Write for all the right reasons. Most people write business plans to attract investors, and while this is necessary to raise money, most venture capitalists made a “gut level” go/no go decision during pitch. Receiving (and possibly reading) the business plan is a mechanical step in due diligence. The more relevant and important reason to write is a business plan, even if you’re not raising money, is to force the management team to solidify the 
  • objectives (what), 
  • strategies (how), and 
  • tactics (when, where, who).
• Make it a solo effort. While creation of the business plan should be a group effort involving the management of a company, one person, ideally the CEO, should do the actual writing of the business plan. Take it from an author, it’s very difficult to cut-copy-and-paste several people’s sections and come out with a coherent document.
• Pitch, then plan. Most people create a business plan, and it’s a piece of crap: sixty pages long, fifty-page appendix, full of buzzwords, acronyms, and superficialities like, “All we need is 1 percent of the market.” Then they create a pitch from it. The correct sequence is to perfect a pitch and then write the plan from it. A good business plan is an elaboration of a good pitch; a good pitch is not the distillation of good business plan. {click to tweet} Why? Because it’s much easier to revise a pitch than to revise a plan. Give the pitch a few times, see what works and what doesn’t, change the pitch, and then write the plan. Think of your pitch as your outline, and your plan as the full text. How many people write the full text and then the outline?
• Keep it clean. The ideal length of a business plan is twenty pages or less, and this includes the appendix. When it comes to business plans, less is more. For every ten pages over twenty pages, you decrease the likelihood that the plan will be read, much less funded, by 25 percent. Many people believe that the purpose of a business plan is to shock and awe investors into 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 people will finish reading it.
• Limit yourself to 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. Do everyone a favor: Reduce your Excel delusions 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. For example, if you’re assuming that you’ll get 20 percent of the Fortune 500 to buy your product in the first year, I would suggest checking into a rehab program.
• Write deliberate, act emergent. I borrowed this from my buddy Clayton Christensen, the author of The Innovator’s Dilemma (Harvard Business School Press, 1997). 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.

Here are your marching orders. Take your pitch and give yourself one week to write a plan from it. Consult with your team as you write it (you’ll find how different your perspectives of the business are). Consider it a working document and don’t let it run your business. If you do these things, you’ll have a better business plan than 90% of your competitors.

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Guy Kawasaki is the author of twelve books including APE: Author, Publisher, Entrepreneur — How to Publish a Book, What the Plus!, and Enchantment: The Art of Changing Hearts, Minds, and Action. He’s the former chief evangelist of Apple and current advisor to Motorola. Guy shares enchanting stuff on the topics of marketing, enchantment, social media, writing, self-publishing, innovation and venture capital.

This is an excerpt from Reality Check: The Irreverent Guide to Outsmarting, Outmanaging, and Outmarketing Your Competition.