Will the Endless Business Plan Debate Ever Stop?

There is the endless debate about whether a technology start-up company should write a business plan. There is one side that says few successful start-ups have ever had a business plan when they started and one isn’t needed, and there is the camp that says one is necessary because it forces the fledging company to think about what they are doing, where they hope to go, and to plan how they will get there. Which is right?

The confusion stems from the general notion of planning a project and executing the plan, which most people would agree is a good idea for any task.  Would you start building your home without a detailed blueprint? The term “general” doesn’t work with well on a case by case basis, no more than “average” can be found within any population, no one person ever exhibits all the qualities of average.

Business plans work really well for businesses that operate within well-known set of parameters and in an existing market. A restaurant is a perfect example.  The start-up costs, operating expenses, and the market for a restaurant are well-known.  Likewise, when I worked for IBM, every product had a business plan associated with it.  These business plans were handed down from one product generation to the next and across seemingly disparate product lines. Always the parameters were well-known. In these cases, business plans are easy to define and make sense. It’s simply a matter of number crunching and information gathering.

A technology start-up doesn’t necessarily operate in the known world. Their ultimate goal is to forge new frontiers – to develop a new product for a new market.  Start-ups are more like explorers venturing into new territories. It’s anyone’s guess what lies ahead. Would it have made sense for Christopher Columbus to have brought with him blueprints for a new governor’s house on his voyage to the new world, having to build it from local resources, when he did not know anything about what he would find at the destination?

So does it make sense to have a business plan? No, not one in the textbook or traditional sense.  It does make sense to have a concept plan.  A start-up still needs to have a beginning notion of what it wants to achieve, how it plans to get there, and what assumptions and unknowns need to validated.  A traditional business plan is an execution plan; a tech start-up’s plan is one of discovery and improvisation. It’s more of an experimentation plan.

The most common mistake with tech start-ups is to realize some sort of plan is needed, but they are not all the same. Some tech start-ups are more akin to restaurants than to explorers seeking new worlds. It’s important for the founders to know the difference.  A new company can have a technology product and target a well-known market, in which case much of the traditional business plan applies. However, Twitter is still exploring new territory, there is market traction but how will they make money. I have seen many start-ups fail because they didn’t write any plan, believing the proof points provided by companies like Twitter and Facebook showed them one was unnecessary.  Founders often procrastinate on the plan because they dread wasting their time on a traditional business plan that they know is meaningless, but what they should do is write one that is appropriate for their start-up, one that has meaning, and then it won’t be drudgery.

Discovery isn’t free, and this is what makes many investors nervous. Experimentation just sounds bad and risky, and maybe nothing ever comes of it. For the most part, investors want this experimentation phase to be completed and this is when the more traditional business plan is needed.