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 It seems to hearken back to the days when VCs were throwing money at any entrepreneur with a half-baked idea and a Web site, but new research from the University of Maryland says it's true: Business plans are more trouble than they're worth.Researchers compared what they called objective characteristics of 700 startup business plans, including the contents, team make-up and business model, and they found that these factors had no influence on whether a company got funded. "Our results suggest limited external benefits accrue from the production of formal business planning documents," the study said. "Although our results suggest that the inclusion of a business planning document in a request for funding is weakly predictive of funding decisions, the actual content of the document does not inform venture capitalists. Critical information is learned through alternative channels." Seems M.B.A. students the world over have been wasting their time toiling to build sample companies. Yet we take some issue with the sample used in the study. The data was culled from 700 dot-coms who drafted business plans in late the 1990s and early 2000s -- the very era when when so many young companies got funded that obviously didn't have a business plan, or at least a real one. We already knew that many private investors during that time couldn't care less about exactly how a new company planned to move forward. We would hope that after the tech bubble burst, VCs got a little more rigorous about ensuring a prospective investment had a solid plan. That said, the study's authors did have some good advice: Entrepreneurs' time is best spent building a viable business and finding potential customers and investors. "Invest your time on any other business activity but working on your business plan," said David Kirsch, an associate professor at UMD's Robert H. Smith School of Business. A video interview with co-author and assistant professor Brent Goldfarb can be viewed here. - Olaf de Senerpont Domis
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From: David,
Bill is correct. Even a simple business plan gets the ideas flowing and forces the person to look at their venture from different angles to help ensure better success. Here is a simple, but great resource: www.createyourbusinessplan.com David
Posted on:
April 10, 2009 4:06 PM
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Disagree. At the very least, a biz plan forces you to look at multiple areas, including competition, which is seldom addressed.