Taking a company from zero to IPO is one of the toughest things a person can do.
But starting a company? That’s a different story.
Really, all it takes is an idea, a name, and a little paperwork.
Many founders think that the next logical step after “making it official” is to write a business plan.
I think they’re wrong.
Although it speaks to some level of preparedness when founders show up to pitch meetings with 50 pages of market research and financial planning…
It’s not nearly enough to get me on board. And if that’s all they brought with them (it often is), I’m left shaking my head.
So, if not research and planning… what should you expect to see from a startup that’s courting your investment?
For starters, a proof of concept should always exist by the time a business seeks funding. At the very least, I want to see a design, sketches, or, ideally, a prototype.
Here’s the thing: business plans take a really long time to write. Why waste all that time typing up a document that essentially boils down to speculation?
A business plan doesn’t tell you anything. That’s why I always ask for proof that the product works – and that people will buy it. (Click here to learn some of the other questions I like to ask founders.)
A startup that can demonstrate market traction is much more likely to be able to establish a paying customer base. Even better if they have real, positive feedback to show me.
Too often, founders spend too much time and money focused on the big picture before they spend a dime on prototyping, beta testing, or marketing.
Imagine their surprise when, months or years down the line, testing reveals that there’s just no demand for what they’re selling. That hurts – and it wastes everyone’s time and money.
So don’t be too dazzled by glossy cover pages and fat stacks of paper. Instead, focus on finding startups that have already achieved something measurable… even if it’s as small as simply designing a prototype.
Until next time,
3 responses to “Don’t Invest in Business Plans”
May 02 2019