Yes, You Need a Business Plan -- A Pitch Deck Isn't Enough

Posted in Executive Direction by Brent Butler

It’s become quite trendy for bloggers to try to shake things up by bashing business plans. “Skip the Boring Business Plan. Focus on This Strategy Instead” on Entrepreneur. “The Secret to a Great Business Plan: Don't Write One” on Inc. “You Don’t Need a Business Plan” on VentureBeat. “Why Business Plans Are a Waste of Time” on Forbes. The gist? “You don’t need a business plan. Just put together a pitch deck.”

Bullshit.

These Silicon Valley bloggers and investment “authorities” are misleading entrepreneurs. And I’m not just saying that because my livelihood depends on it. If the business plan really were dead, I’d be out of business. Not only that, but it’s simply untrue that most entrepreneurs don’t need one. I’d go so far as to say it’s irresponsible for writers to suggest as much.

“Fred,” a two-time client of mine, sweet-talked me into developing a pitch deck for his meeting with angel investors. He wanted to skip the business plan so he could “strike while the iron is hot.” I tried to talk Fred out of it, but he had read a contrarian blog (ahem) and was convinced he could save some money. I conceded, and my team jammed out an impressive pitch deck for Fred in less than a week. It was so impressive that he raved, “They loved it. I’ve set up a second meeting in two weeks.” Wait for it… “They want to see my full business plan, so let’s get that started.” Forehead slap.

Side note to all you entrepreneurs out there: When I tell you that it takes on average 250 hours for someone to write their own investor-ready business plan, it isn’t just a sales pitch. Ask anyone who got an A+ on their business plan in their MBA program. Business planning is complex. And it’s an iterative process. You are building, arguably, the most important document your company will ever own.

I tell Fred, “It takes us about 10 business days to develop a comprehensive first draft, and then we need to iterate from there, which takes time.” Fred pleads with me to do it faster and I tell him that we can, but it’s going to be about double the price because I have to keep the team after hours and over the weekend. Either that or he reschedule the presentation, which he does.

Fred likes our first draft...but he decides to change the revenue model and his target demographics, which means he needs additional market research. “I’ve got a meeting tomorrow,” he says. “You think you’ll have me a revised business plan by then?”

I like to think of myself as a rather calm, cool, and collected guy, but Fred is lucky someone in Silicon Valley hasn’t invented the Slap-o-Matic send-a-slap app. I explain to him, “Fred, that’s like a week’s worth of work -- three days minimum.”

My second example doesn’t end with telepathic threats via uninvented technology. A bright young app developer, we’ll call him Dave, calls me and explains, “I have my pitch deck done [re: same bloggers’ advice], but I started discussing things with a local forum, and they want to see my business plan. I’m pulling my hair out and I’ve got 10 versions going. Plus, my pitch deck is definitely going to change now that I’ve really got into the research and started a new version of the financial model.”

“Don’t worry, Dave,” I said. “We’ve got your back.” Here’s what I told him goes into a solid business plan:

  1. Value proposition. Make sure you understand the value of your product/service, and I don’t mean monetary value. What pain does it solve? What enjoyment does it bring? What need/want does it meet? And why does it do it better than your competitors?

  2. Research. Don’t rely on blogs. The internet is really good at conveying opinion and getting the numbers wrong. You want accurate numbers, and you want numbers that are relevant (i.e., not 2006). Great research on your prospective customer base almost always sits behind a paywall. However, free research does have its uses. Read consumer reviews of your competitors. See what people like and dislike.

  3. Value proposition again. Once you have data and opinion, it will likely change your value proposition. Heck, it might even spark an addition/change to your product/service that will bolster your company’s strategic advantage.

  4. Marketing. Think of how you are going to reach your audience and tell them about all the great things you offer that the competition doesn’t. At Masterplans, we have strategy professionals that help you do this. Different industries have to use different channels and we might even have a note or two on some things your competition isn’t doing that they should.
     
  5. Financial model. This is rooted in the research. What do your competitors charge? What is a conservative capture rate? How much does it cost to market in the channels you’ve specified? How many staff members will you need to support sales, marketing, management, customer service, returns, etc.? What is your rent going to look like? Do you have enough working capital in your model to support the company until you break even? How are you modelling cash flow? Are you hoping all goes according to plan and sail gloriously into success? Or are you planning for peaks and troughs along the way?
     
  6. Management. Do you have the leadership you need to make this thing a success? If not, are you clearly outlining management team gaps? Do you understand just who you need to recruit and what they need to be compensated?
     
  7. Finesse. Finally, proofread and polish the document -- and for goodness’ sake, make it presentable.
     

Two conclusions from the above list. First, business plans are meant to evolve and should continue to evolve, even beyond fundraising. And second, a three-day process this ain’t.

Take your time. Think it through. You may only get one shot with that ideal investment partner. It’s better to develop a well-thought-out business model, one that you understand and can get behind, than to walk into a rushed meeting and get flustered the first time someone asks you a hard question. And they will ask you hard questions.

Oh yeah, you are probably wondering about Dave. He called me and said, and I quote, “I have three investors courting me. They loved my presentation. I’m the belle of the ball.”

And we even did his pitch deck.

After we finished the business plan, of course.

---

Brent Butler is Masterplans’ co-founder and CEO.

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