Don't Underestimate a Business Plan.

From Pieter Welten – Prime Ventures (@WeltenPie)

Since I became a VC at Prime Ventures, a lot of people tend to pitch their ‘ideas’ to me in a bar, restaurant, the gym, or supermarket. In their opinion it is the next big thing and Facebook, Google and Apple should be worried! Truth be told, I love these conversations, I get very excited about them, and I am very supportive. At least until I tell them that fortunes don’t always favor the bold.

It turns out that some of them have already spent considerable time and money on these ‘side projects’ and/or are considering handing in their notice. Some of them have even engaged with an expensive software design and development agencies to build an MVP. Yet at the same time, they can’t answer some very basic questions about competition, brand positioning, and funding requirements, despite valuing their company at $2 million (‘do I?’). It always amazes me. Now, I don’t want to discourage people from starting their own business, but I do highly recommend that they write a business plan. Why? Because it diminishes risk, both for yourself and (potential) investors, whilst increasing your chances to succeed.

Ask yourself the following question- Did I just start writing my dissertation (or whatever paper)? It probably went along this line: You did a lot of research about the subject, you put together an outline of the research, discussed it with your supervisor, rewrote the outline again, before signing off with your supervisor. You put a lot of time and effort in it, without having put a single word on paper, didn’t you? Whereas still a lot of work had to be done, chances were high(er) that you end up with a good grade! A similar way of thinking applies to the process and objective of writing a business plan.

A business plan is basically a roadmap for your business that outlines the goals, and details how you plan to achieve those goals. For an entrepreneur, by putting your thoughts and ideas down on paper, it forces you to carefully think about some of your beliefs and assumptions. For instance, by describing the competitive landscape you are likely to find there are dozens of other companies doing the same. And if that is not the case, it might make you wonder why not? Maybe there is simply not a market for your ‘next Facebook’.. And if you ask for a $500k investment in return for 20%, writing it down you might realize that you valued your company (or ‘idea’) at $2 million!

I know that a startup sounds romantic and a lot of people hate writing a dissertation, but to both the following applies: Success is the result of preparation and hard work. If you want to successfully launch your startup or raise funds prepare yourself. In my opinion, at least for all the first-time entrepreneurs, it starts with a business plan. It is your manual that tells you why, how and with whom you intend to build your business. By doing a business plan you can also more effectively do a pitch deck – the very first communication tool to a prospective investor – which helps an investor to feel confident in you and in the thoroughness with which you have considered and will deal with future scenarios.

Recently, I came across a business plan that I wrote a few years ago, a 47-pager. It made me laugh! My friend and I spent endless nights and weekends writing it. Finally, our finished business plan truly gave us the believe and energy that we were onto something big. Moreover, it gave our investors enough comfort to make a positive investment decision. Thinking about it now, I am convinced that without one we would have never been able to pull it off and understand the value add and importance of a business plan even better.