This article is part of the College Startup Series. However, the information within it can be used by any person who is looking to develop a business plan for their start-up.
Most consultants and business experts recommend that you develop a business plan as part of the process of starting a company. So-called “conventional wisdom” agrees with this notion.
To put it bluntly, I disagree.
In my experience, most business plans are useless documents, the majority of which are designed to look nice rather than to answer tough questions or serve a useful purpose.
Am I against business plans?
I am certainly not against the concept of developing a well-thought-out business plan. They certainly can be pretty useful. But I am against student entrepreneurs wasting their time and money on fancy templates – trying to make a plan look nice. Buying a business book, or a few templates, and filling in the blanks does not make a business plan. But this is exactly what most people do, and this is why most business plans – and I have seen a few in my career — are garbage.
Real thinking. Thoughtful research
The business plan is a tool to help you think through the process of starting and running your business. It should be used as a tool to help you – the college entrepreneur – figure out if going into a business is worth it. Let me emphasize this point: the objective of the business plan is to help you figure out if the business is worth your time.
The process of writing a business plan is fairly straightforward, per se. Spend your time thinking about your business. Try to determine what it will take to create and operate the company. Spend a lot of of time trying to think of the problems that you will run into – as well as possible solutions.
Remember, you need to spend a lot of time thinking and researching. Nothing can replace that.
If you are still in college, this is a good time to start talking to your professors and getting their input. Likewise, you should also go the library to do your research. Libraries are a great source of hard data and reliable numbers.
In my opinion, a good business plan should answer these questions:
- What is your concept?
- Why is your concept better that what is out there in the market?
- What is the size of the opportunity?
- How will you get there?
- Who will execute this plan?
Ideas get you funding
It doesn’t matter if your plan follows a standard template format or if you just put everything into a regular document. Remember this: Any well-thought-out plan is a million times more impressive than a lousy plan written in a pretty document. Sounds obvious, I know, but most entrepreneurs make this mistake.
Having said that, if you have to show your plan to investors you will need to make it look presentable. But there is no need to go overboard. Savvy investors are impressed by ideas, opportunities, original research, and facts – not by a pretty document. Most of all, savvy investors are impressed when they see a plan that clearly articulates how the business will make them money.
By the way, most investors don’t focus, at least initially, on business plans. To present your plan to investors, you should develop a compelling pitch deck.
Be careful with the financial statements
One of the most common mistakes that I see with business plans is overly optimistic financial statements. Usually, the revenues are exaggerated while the expenses are grossly underestimated. This is a common “rookie mistake” and will turn off many potential investors.
You should develop your financial statements carefully and conservatively. Avoid filling out the standard financial templates with useless guesses. Investors will see right through that in a second. First, work with someone who knows finance and business. Then develop reasonable financial statements. Keep in mind that professional investors know that the financial statements in a plan seldom work out as expected. Most consider them a work of fiction. But investors do use them to test the maturity and experience of the founders.
Do not develop your financial statements with the hopes of convincing an investor. Similar to what I said earlier regarding the purpose of a business plan, the objective of developing financial statements is to help you determine if starting the company is a good idea. So develop them for yourself, bearing in mind that you are taking a big risk starting a company. By the way, you will have an easier time convincing investors to put money into your business if you believe your own forecasts. In my view, this is key if you are looking for financing for your college startup.
Get your plan reviewed
It’s always a good idea to have a few trusted advisors review your plan. Some entrepreneurs can be sensitive about this, which is understandable. Cast your sensitivities aside and ask them to be ruthless in their review. That is the only way you will improve your plan.
One example of what not to do
Let me tell you a story that happened a few years ago. I have changed some details to protect the innocent. A budding entrepreneur came to my office and showed me his “masterpiece” business plan. It was clear from the get-go that the plan was based on a template. Basically, he had filled in the blanks and created a nice-looking document without putting much actual thought into it.
The outrageous part was that their financial statements claimed that they could go from a $0.00-a-year company to a $5 million dollar-per-month company … in one year. That’s pretty tough to pull off, especially if you are new at the business of being an entrepreneur and if the only thing you have is a plan. This chart says it all.
I told the entrepreneur point blank: “If you can answer the following question to my satisfaction, I’ll finance you right now. What type of an organization would you need to have to support five million dollars of monthly revenues? Please be as detailed as possible.”
His first answer was a blank stare. The stare was followed by some ramblings about “figuring things out as they went along.” I pointed out that his plan had very specific expenses allocated to running the business in Q3 and Q4, when the major ramp-up would happen. Again, I asked him for a detailed explanation. He did not have one. It was clear that he had just guessed some numbers without actually trying to figure out what they meant.
You never want to be in the same position as the above-referenced entrepreneur. It’s not salvageable. However, entrepreneurs make this mistake every day.
A personal note
Here is another personal story. I started Commercial Capital LLC without a formal business plan. I had a document that contained my research. It was not good looking or nicely formatted, but it had all the information I needed to become comfortable with my plan. We’ve been in business for nearly a decade and have never used formal business plans. However, we do quite a lot of business planning. This is one reason why I am a strong advocate of business planning, but not of conventional business plans.
One last point
You should always keep in mind that business plans only work in an ideal world. In the real world, most business plans never work out as the founders envisioned. As I said earlier, most investors know that, as do experienced entrepreneurs.
Once your business is in place, be prepared to adapt quickly as you put your product/service out in the real market. As you know by know, things seldom go according to plan. Business is no different.
Business plan resources
To be honest, I could not find many business plan resources that I liked. Most resources focus on creating a nice, good-looking plan following an old boring formula. Few of them actually focus on all the thinking and work that goes behind the plan.
However, here are two resources that appealed to me and don’t cost money:
- SBA business plan resource
- SCORE’s plan and financial statement templates
- Entrepreneur Interview Project (Good research site – entrepreneur interviews for most industries. One feature I like is that you can view success factors by industry)
Who is Marco Terry? About the College Startup Series
Over the years, I have noticed two things. First, there are very few resources to help college students start their own businesses (though this is improving). Second, the little advice there is usually focuses on conventional wisdom, which often has shortcomings or is plain wrong. So I did something about it: I wrote this series.
Now, go out there and build a great company.
Disclaimer: This guide does not provide legal or financial advice. It only provides information – which could be wrong. If you need legal or financial advice, get a good advisor.
Copyright: This guide is copyrighted. Please do not steal it. Actually, it’s updated regularly, so you are better off simply linking to it.