News Flash: Business Plans Are Useless
Perfect your business, not your plan, say researchers.
Here’s something you’d never expect to hear from a business school: Don’t
bother spending a lot of time on your business plan. According to recent
research from David Kirsch and Brent Goldfarb, both associate professors of
management and entrepreneurship, a business plan has zero value as a fundraising
tool for new ventures. Entrepreneurs should be perfecting their business, not
spending hours refining how their plan looks on paper.
“Spending time and energy tweaking your business plan is a waste of
resources,” said Kirsch. “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 Goldfarb, with Smith 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.
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
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.