Straight talk > Writing a Business Plan: waste of time?

Writing a Business Plan: waste of time?
Given the emphasis on writing business plans - the competitions, the guide books and internet sites, the classroom exercises - NEN decided to ask its VC Experts: how important do you regard business plans?

We were surprised by the sharply different views.

Hear direct from the VCs- how important are business plans?
> Avnish Bajaj, Matrix Partners
> Kanwal Singh, Helion Ventures
> Bharati Jacob, Seedfund
> Avnish Bajaj, Matrix Partners
> Alok Mittal, Canaan Partners
Avnish Bajaj, Matrix Partners:
Avnish BajajNo, I did not make a business plan for Baazee. In fact, we raised all our funding without a business plan. I mean, that is a little unusual. We didn't even have an investor presentation.

But I think real entrepreneurs don't waste time with writing a business plan. They spend time trying to create the business. And that is what we were doing.

We had started our technology product development; we had started signing up with people who would upload items on the site. We did not have a business plan. In fact one of my potential investors asked me, "When can we get a business plan?" I said, "When we have a business, then we will start planning. Right now let's just build a business."

That said, I don't want to discount too much the importance of planning. Planning is important. Sometimes what happens with entrepreneurs - it used to happen with me - is that you end up being a little cynical about process and planning and all of that. But it is still very important. The question is: do you need to write a 100 page document? No.

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Kanwal Singh, Helion Ventures:
Kanwal SinghThe business plan is very important for the entrepreneur to determine his or her own focus and ensure that he is on the right track. The depth of the plan will depend on the stage of the business. At the early stage the idea needs to be fleshed out in the context of the market opportunity, key differentiators, execution plan and financial projections. At later stages organization structure and detailed financial become more relevant in addition.

We generally do read a business plan after we have decided to dig deeper into an opportunity. Also, we don't just read the plan - we prefer to spend more time with the entrepreneur to discuss various aspects of the business.

The entrepreneur should spend reasonable time on the plan to be comfortable that he or she has addressed all the key imperatives of the business. Very lengthy biz plans are neither required nor desired.

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Bharati Jacob, Seedfund:
Bharati JacobInvestor presentations? Well, you know, we rarely make entrepreneurs use their PPTs in our presence.

Not that the PPTs are useless. Preparing the presentations would help the entrepreneurs clarify their own thoughts while they are putting it in a structure. We want to see the PPT definitely: that stays as a reference.

But we want to hear from them ex-tempo; what the entrepreneurs are saying. And we may believe in the business model, but we still challenge their ideas, their assumptions, to try and understand how much they have thought through.

This is the same for a business plan.

Essentially, when you read a business plan you are asking: Has this guy put enough thought into this idea, or gone and done enough research? Not doing library research so much, rather, has he may spoken to real life users of what his service might be, and has he understood what the market is? Or has he gone and seen how the selling happens in the marketplace, and stuff like that. Has he has gone and done this kind of research?

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NEN: So if it's not about writing 100 page business plans, what's the best way to prepare to start your business?

Here our VC Experts had some agreement:

Avnish Bajaj, Matrix Partners:
Avnish BajajSo what is the best way to prepare to start a business? I think best way to prepare is to learn on the job. Let's say you want to do something on the internet. Go work at an internet start up today, a venture-funded start up, and see how those companies are growing.

I get a lot of requests from students, for example students from Harvard, who want to come back and start a business. They ask me "what is the best way to do it?" I say, "Well come to one of my portfolio companies, work there for a year. See, you will understand all the dynamics about the Indian market and about the internet."

So I think the best way to prepare yourself is to immerse yourself in the domain if you can. But that said, I did not do that. I came and jumped right into entrepreneurship. So there is no clear recipe, but if you want to take a little bit more methodical approach, come and work in a start up, see what it's like, and then experiment with building these things yourself.

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Alok Mittal, Canaan Partners:
Alok Mittal I think there is importance to learning business planning and other elements that are taught in a classroom. Most of these elements combine form and content. And I think what lot of the training does is to educate people about the form, including what should you include, what to discuss at what stage.

I think the gap that this sort of training possibly can't cover is the content. That comes if you have been in the middle of the problem yourself. And as a venture firm, that's what we emphasize.

So if you are a first time entrepreneur, it pays to have experience. Because you can sit in your classroom and imagine a problem, or you can be sitting below in the industry and see the problem happen around you day in and day out. The latter definitely gives you a far better perspective. Is there a problem? Can I solve it? If someone is going to pay me for solving it and how?

So I think the content problem is something that the people have to solve through experience, but the form problem can be solved through academic training. I think business plan competitions, training around term sheets, around how to read a balance sheet: all those are fairly important in themselves.

NOTE: Some of the comments may have been edited for clarity, without changing emphasis or meaning.
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