Mission_Start: Business Plan Gravity Clarified

There comes a point in any potential entrepreneur’s life where they have to buckle down and take active steps towards the realization of bringing their ideas to the world of form. As one of these individuals myself, there have been years of accelerated business education that has now led me to the point where I must mix all of the various skills and knowledge that I have gained and channel it all into the writing (and execution) of a business plan that can be used externally to attract potential investors to my cause.

But what is a business plan exactly? You can ask 10 different people and get 10 different answers as to what the function of a business plan is, how detailed it should be, even what format the business plan should take. Sure, details can be very important, but according to two very high level minds active in educating individuals on the process of writing business plans, it’s not so much the details that separate the good plans from the bad…it’s the people and ideas behind the plan that can make all the difference.

William A. Sahlman, Dimitri V. d’Arbeloff Professor of Business Administration at Harvard Business School and Senior Associate Dean for External Relations, in his classic Harvard Business Review article “How to Write a Great Business Plan” states in the very first line “Few areas of business attract as much attention as new ventures, and few aspects of new-venture creation attract as much attention as the business plan.” This should automatically alert anyone concerned with beginning a new business to the value of writing a business plan, but by no means is it an indicator of future venture success.

Sahlman states that one of the big issues of business plans, in general, are that they are often based in some utopia world with overly detailed financial projections (including poor capital projection requirements) that literally are just plucked out of the sky to look good on paper; beyond year-one projections the numbers quickly become meaningless. This is common knowledge to experienced investors, and that’s why they look at other factors when critiquing plans for new ventures. The most important point to keep in mind regarding BP financials is to detail the financials that matter, as Salman says, “detail the numbers related to the business model that show the business' key drivers towards success or failure, be they distribution channels, production yield, or anticipated renewal rates.” Show within the business plan when the business hits the break-even point, and when cash flow turns positive, beyond these drivers and projections the rest is fluff that can really turn a potential investor off regarding your proposal.

Sahlman recommends a business plan structure that follows four key concepts to build the plan around:

1.    The People

2.    The Opportunity

3.    The Context

4.    Risk and Reward

In order to get another perspective on writing valuable business plans and to understand what the key objectives should be, I turned to Tim Berry. Tim is a Stanford MBA, and founder of bplans.com, Borland International, and Palo Alto Software, a company he “grew to 70% market share with no outside investment” developing Business Plan Pro and LivePlan business planning software. Tim has authored and co-authored books on business plan writing, and recently launched Eugene Social, a site that works to run business’ social media marketing efforts. In 2010, Tim was included in Business Week’s “top 20 entrepreneurs to follow on twitter”, “number 6 of the top 11 companies to follow on twitter” by the New York Times, and finally, one of Business Insider’s “top 20 entrepreneurs to follow”.

Tim says that the to-be business plan should follow a process that seems, to me, remarkably like a S.M.A.R.T. Goal model (Specific, Measurable, Attainable, Realistic, Timely). He says the plan should be Simple, Specific, Realistic, and Complete. The process Tim prescribes looks like this:

To enhance further understanding of Tim's business plan theory, be sure to watch this 5 part video series Webinar delivered by Tim for Global Entrepreneur Week. In it he covers the fundamentals of business plans.

While the plans are certainly one the best exercises for discovery regarding how your business will operate and an exhibit for attaining capital for development and growth, perhaps their most important function is in how they guide the company throughout the lifetime of the business. Business plans MUST be considered as a living document, dynamic in nature, anything that tends to be unbending in this world tends to break. This is a concept that stems from my long history of martial arts, and it is one that makes sense in many instances. The business plan must be bending to the existing market conditions like water in a river conforms to its banks or obstacles in its path, but like the water in a gushing river…stay true to your course, a business plan should operate in the same manner.