If you took a business class in university they probably told you you'll need a business plan. They were probably wrong.
To answer the question right off the bat... No, we don’t think it is. Not for the purpose of fundraising anyway. For an early stage business that is constantly evolving, and lacking resources (namely time) a business plan is an unnecessary document for the purposes of fundraising, and most investors don’t tend to look at them (right off the bat anyway).
What’s The Purpose of a Business Plan?
A business plan isn’t just an external document for the purposes of fundraising. It is primarily an internal document for your business as it grows and develops.
Writing out your business plan makes you review everything at once: your value proposition, marketing assumptions, operations plan, financial plan and staffing plan. You will end up spotting connections you may have otherwise missed. A well-written plan can also be great for attracting talent and onboarding new employees — when a prospect or new hires needs an overview of your business, you can hand them a plan that has all of that in one place.
However, for early-stage businesses the exercise of writing a business plan isn’t necessarily the best use of your time, energy or sanity as things change rapidly and most of the content are assumptions and nice-to-haves, or become out of date almost immediately.
What Should I Do Instead?
We’re glad you asked. There are a few things we suggest to companies depending on the audience.
For Pitching To Investors
What you really need is a pitch deck and a financial model with 3 to 5 year projections. Yeah, we know.. if business plans have a lot of assumptions, so does a financial model. However, the financial model paints a picture of the most critical element of any investment and what the return might look like upon exit.
The pitch deck is the most important fundraising document for early stage startups – a clear concise deck can get your foot in the door with potential investors, with the goal being to get a meeting with them in person. The best pitch materials won’t lead to investment on their own — for early stage businesses, investors are backing people and so will want to see the whites of your eyes before they part with a big cheque.
For Your Internal Roadmapping
Instead of writing everything down across many pages, you might think about doing a business model canvas instead. This is a lean startup and management tool for documenting and developing business models, with focus on developing and describing:
Partners
Activities
Resources
Value propositions
Customer relations
Channels
Customer segments
Cost structure
Revenue streams
This allows you to get under the hood of your business model in a leaner and more iterative way. It’s all on one page so you see everything in front of you. Plus, you don’t have to write out long paragraphs of text to get your point or message across.
Helpful Links
Canvanizer // Business Model Canvas tool
Alexander Cowan // The 20 Minute Business Plan: Business Model Canvass Made Easy
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