Do you really need a business plan?

Twitter announced a round of funding last Thursday, from Union Square Ventures and a few others. Michael Arrington did some digging and is fairly certain the amount was $5 million on a $20 million pre-money valuation. That’s not too bad, especially when you consider that Twitter is perhaps most famous for not having a business plan.

No business plan?! It’s true. At least no formal business plan. Biz Stone tried to assure everyone last week that the company has in fact thought about a business model, but I am not sure how many people bought it. The investment started a small “you don’t need a business plan” meme in the blogosphere, and it really got me thinking…do you need a business plan or not?

Paul Kedrosky says you don’t need one, and thinks that “business plans are overrated, and profits perhaps even more so.” Don Dodge says that “investors invest in people not business plans.” Fred Wilson, one of the investors, admits that they “don’t know yet” what the business model will be for Twitter. He claims they have time to figure that out. Charles Hudson says the meme is “crazy talk” and thinks it is worth writing some ideas down. Robert Scoble says that “if you REALLY think you can get funded without having a business plan you’re probably smoking something illegal.”

After reading dozens of these posts, and looking back at what I learned from the business plan competitions we competed in last year, I’ve come to the following conclusion: I think business plans are useful for internal use, and mostly a waste of time otherwise.

I think what Charles says in his post makes a lot of sense. There are certain questions that entrepreneurs should answer and write down. Really though, no one needs to see those pieces of paper. When it comes time to market your business or your idea to someone else, you’ve got to tune your message. And you’ve got to market yourself more than anything else. That’s why it’s a waste of time to have a complete, polished business plan (unless you’re in a competition I guess). If no one is really going to read it but you, does it matter what it looks like?

I think the trick is to remember that investors are people too. You need to relate to them, and you need to excite them. A heavy, thick document is probably not the best way to do that.

We haven’t really updated our business plan since the competitions in 2006. That’s partly due to the fact that it’s tedious, and partly due to the fact that we haven’t had a need to. A smaller executive overview, a quick slide deck, or an actual conversation are far more useful.

There’s a difference between a business plan and a business model, however. I still think it’s important to have some ideas about how you are going to monetize your product or service. And it’s important to know that there really is someone out there willing to pay for whatever it is you’ve created. Even better if you know who that someone is.

The realization that a traditional business plan is useless simply reinforces the idea that getting face time with investors is important. And for technology, that generally means the United States. Or perhaps BC or Ontario, but definitely not Alberta.

Anyway, just some thoughts. Congrats to Twitter on the funding!

Read: Twitter

One thought on “Do you really need a business plan?

  1. In my experience, a business plan is necessary only in so far as it should pass the ‘weigh-in’ test, and that one has used it to (at some point, but not necessairly up to date) dump out a refined output of your internal revenue making strategy. It’s like a filtered log file of your thoughts – or rather proof that you can think these things through at least once.

    It believe it is extremely unlikely that an investor will read your whole business plan. As with most business documents, the executive summary and communicated vision along with key facts and illustrations, are the parts that must ring true.

    What’s more important is that you can sell and present your storey in person, and can answer the questions that are no doubt buried in your plan. The fact that you have to present should be a big enough clue that no-one has read your brain dump thoroughly, and even if they had they probably aren’t very good investors if they can’t still think of something else to ask you.

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