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New Research Finds Business Plans
Are Virtually Useless
Advice to Entrepreneurs: Perfect the Business, Not the Business Plan
College Park, Md. – April 6, 2009 — A business plan has zero
value as a fundraising tool according to new research from the University of
Maryland’s Robert H. Smith School of Business. Entrepreneurs should be
perfecting their business, not spending hours refining how their plan looks on
paper, say researchers.
“Spending time and energy tweaking your business plan is a waste of
resources,” said researcher David Kirsch, associate professor of management and
entrepreneurship. “It’s a limited-use document that will in no way substitute
for the hard work of actually building a business. You’re better off investing
in your idea, your social network, finding potential investors, potential
customers – the intangibles around your business that are going to make it more
likely you succeed. Invest your time in any other business-building activity but
working on your business plan.”
Kirsch and co-authors Brent Goldfarb, assistant professor of management and
entrepreneurship, and doctoral student Azi Gera studied the business plans of
more than 700 dot-com companies from the late-1990s to early-2000s boom era.
Kirsch maintains records from a broad sample of dot-coms in his Business Plan
Archive, a historical research and preservation project supported by the Library
of Congress’ National Digital Information Infrastructure Preservation Program.
The researchers compared objective characteristics of each business plan –
including the contents, team make-up and business model – and whether the plan
received venture capital funding. Their research, “Form or Substance? The Role
of Business Plans in Venture Capital Decision Making,” appears in the May 2009
issue of Strategic Management Journal.
Kirsch, Goldfarb and Gera found that the content of the business plans does
not predict which businesses get funded. They don’t suggest companies should
totally forgo a business plan. They say the document may be useful for
organizing thoughts and details of a venture, but they found no evidence that
either the content or presentation of the plan influences venture capital
funding decisions.
So why do venture capitalists even want business plans if they don’t use them
to make funding decisions?
“I think VCs like the plans because they skim them to see what people are
doing — to get a sense of what entrepreneurial activity is happening,” Goldfarb
said. But an interested VC will learn the details of a business whether it is in
the plan or not.
About the Robert H. Smith School of Business
The Robert H. Smith School of Business is an internationally recognized leader
in management education and research. One of 13 colleges and schools at the
University of Maryland, College Park, the Smith School offers undergraduate,
full-time and part-time MBA, executive MBA, MS in business, PhD and executive
education programs, as well as outreach services to the corporate community. The
school offers its degree, custom and certification programs in learning
locations on three continents — North America, Europe and Asia.
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