Business Plans are for Losers.
Go ahead and write one if it helps you to organize your thoughts, but don’t write one thinking it will get you funded.
Yesterday Paul Graham (co-founder of Y Combinator) tweeted that he has “never read a business plan or a balance sheet”. Of course, Twitter being Twitter, it spawned a long thread of comments and rants.
The first thing to remember, of course, is that PG’s career has been immersed in investing at the pre-seed stage, when a startup is really just a passionate founder and an idea. Investing at that stage is more art than science.
He goes to say “The reason I don’t care about business plans is that I can learn more from 5 minutes of interrogating the founders than from 10 pages of fluff they’ve written”. And a balance sheet, of course, is just a list of assets and liabilities — an early stage startup typically has very little of either.
“No business plan has ever survived first contact with actual customers”. -Steve Blank
So let’s unpack this into what seed stage founders need to understand, with regard to being prepared for fundraising meetings:
- At the seed stage, the investment is in the founder. So the most important thing for you to communicate in a fundraising meeting is why you are exactly the right entrepreneur for this venture?
- A balance sheet or pro forma financial statements (projections) are meaningless, because they are just a random set of numbers that will turn out to be wrong. But it has to be plausible that there is an economic model by which your venture can create, deliver, and capture value for customers. A great entrepreneur can talk about that high-level economic proposition without needing a spreadsheet.
- Storytelling skills are what matters. Every great entrepreneur has the ability to tell a crisp, clear, and compelling story about what she’s working on, and why it matters. If you can’t do that in three minutes, you won’t be able to do it in a 100 page business plan.
So don’t overcomplicate things. All you need is to be solving a real problem that customers have, the discipline to figure out how to do it profitably, and the passion and tenacity to successfully make it happen. That’s it. If you can’t articulate those things clearly in three minutes, then all the slides, spreadsheets, and business plan pages in the world aren’t going to help you one bit.
Note: Paul also wrote this essay on how writing can organize your own thoughts. So if writing a business plan helps you, then go for it.