Startups, ditch your business plan!

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By: John Caddell

The business plan is an entrepreneur’s lifeline. It has near-mythic qualities–the ability to distill an entire business into one short (or long) document, the ability to attract investors, the ability, even, to predict the future. (Want to know what a startup’s EBITDA will be in 2010? Check Exhibit K.)

In addition to all these things, according to today’s Wall Street Journal, it may also be a waste of time. Referring to several studies of startup performance, reporter Kelly Spors cites a study from Inc. magazine showing that nearly two-thirds of fastest-growing startups had rudimentary business plans or no plan at all.

Why is that? One explanation cited is that startups have to be nimble, and if you are too wedded to a business plan, you may stick with a failing concept too long. Or that spending lots of time writing the perfect business plan can cause you to miss the business opportunity.

You must understand the financial model for your business–how will you charge customers? What are your expenses, fixed and variable, and how will your prices cover your costs? What working capital will you need? But, as stated in the Journal article, "it’s not always crucial to have the 60-page plan."

If you’re considering ditching the business plan, remember one thing. If you’re going to ask any institutions for money (VCs, banks, etc.), you’re gonna have to have one. But keep it small and simple–and be prepared to change it.

(Picture from broker via stock.xchng)

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