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Ask HN: When should you make a business plan?

20 points by throw-away ↗ HN
A lot is changing around in the start up world. Whats the deal with business plans? Are those things still made? Just before boot strapping or before your first angel approach or before vc? What do you put in a business plan? Do we still go by those decades old templates vc firms used to love?

I am in India. I was talking with my first potential angel and he was quite surprised I didn't have a business plan already in place. The whole idea of sitting down and putting all kinds of arbitrary anchors in my mind around pricing, growth rate, future revenue and all that feels a bit... premature. I feel like my first beta would be a much more appropriate place to do this. In fact, it feels wrong. It feels like I am being asked to be dishonest.

I will make up something. Seeing this idea come alive is so much more important. But I was wondering how is it over there at the valley. When did you all put down your business plans? What has your experience with them been?

17 comments

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trizk
A business plan is an exercise to both familiarize yourself with your market and explore your vision. It helps ensure that what you are doing is grounded in reality and provides you with a well thought out initial trajectory. It is not set in stone and is something you use as a loose guide to direct your company. You can and will carefully pivot based on ongoing analysis of the dynamics of the situation in the trenches. Although it is of more benefit to you and your company than to anyone else, it certainly helps show that you are on top of your game.
throw-away
To be honest, I am not at the top of my game in that sense and no one should expect me to be at this stage. Enough data doesn't exist to make good guesses now. Generating it is exactly why I am approaching an angel and trying to get to demo and beta.
andrewce
Then figure out, in terms of expenses and whatnot, what you'll need to get to demo and beta and beyond (should this prove feasible).

From there, it gets trickier, but if you've built a good product that relieves some need without causing too much additional pain, you'll (possibly/probably) be fine.

Shouldn't data exist in the form of direct competitors? If there aren't any, then does this market exist? (It's entirely possible that it does, and no one but you sees it yet).

Data should also exist in the form of knowing roughly how many people could benefit from your product (and who might consider it a step up). If you're basing this on a market need, then that population should be at least a somewhat knowable quantity.

throw-away
Oh, I was expecting a more general discussion about business plans so I didn't put in too many details. I have talked to quite a few customers during our customer dev and some of them really like the idea. They think this innovation will increase their revenue but no one is sure by how much (and there is of course the risk that we are all wrong about it or the idea needs pivoting before it does that). It also involves a little bit of hardware so I need about the amount of money an average yc company gets from yc to get to the demo from here. I can do some other somewhat related projects to slowly raise that money but that is just wasting time. Ideally I should just get on it and get the demo out and deployed. Once we see what effect if at all it has on our customer's sales and how much it cost us to get that, we can iterate, price, figure out the revenue and generally write a business plan we could honour.

So, basically my angel's roi is not clear and a convertible note with a reasonable discount sounds ideal but the system here is the system and I don't want to waste time fighting it. I will put in a business plan to get talking to the right guys and then try and convince the right angel to ignore it and do a convertible note and hopefully all will be well in the world again. This will have the unfortunate side effect of polluting my mind with fake figures and expectations which I wish I could avoid but that's just part of the game at the moment.

trizk
So all you have is an idea in your head and you want people to give you money? Don't expect anything. Put yourself in the angel's shoes. Do you know how many people tell them "Psst! Have I got an idea for you!" on a daily basis? Your chances are very close to nil and you need to produce some value to differentiate yourself.

Either roll up your sleeves and bootstrap the beta or have professional courtesy to sit and honestly write down, in-depth why you think it would be profitable for someone to give you money.

throw-away
I have an idea, a co-founder, a company bootstrapped and running. I have potential customers who like the idea and are ready for a beta. And I am pursuing the idea whether or not the angel money comes through (just a whole lot more slowly).
stevejalim
At the risk of sounding incredibly patronising... re: "I will make up something." If this means you'll hack together some kind of bullsh_t business plan just to keep people happy, I'd be very careful who I actually showed it to. They'll be taking that plan as what your genuine intentions, expectations and forecasts are, which may well not match the reality of what you are actually doing. If money's at all linked to a BS business plan, you're in for a world of hurt.
vincentvanw
Having studied entrepreneurship as a master-degree, I learned that business-plans are important for the entrepreneur to verbalise what he is doing. If he can't do that in a plan, can he do it to outsiders, specifically his customers? However, running a startup for a year now, I find the act of writing a business-plan always comes second after doing what needs to be done to keep the business alive. Still, writing offers some reprieve from the day-to-day stress and I'm much better versed than my co-workers on the grander vision and how to get there.

Will a business-plan get you funded? It did in our case, from a governmental institution, but all the real investors I met preferred two things: a working product ready to launch and a clear financial overview of the potential return on their investment.

skatey
A new startup should write a business plan. If nothing else you familiarize with writing about your ideas and products on paper. With that you make a clearer vision of where you are headed and what you want to do. I believe you are thinking about everything everyday and all the time, but if you have to explain it to someone, it can be easily done with a business plan. It also shows you have read through most of the 10 points that potential investors are looking for, so you did your homework.

No one is saying that you should make an ultimate one, its a practice to refine it on a monthly, or semi monthly basis, depending on the pace of your development.

And also a product by itself is great to show around, but the numbers in business plan can also convince a lot of maybe not potential users, but business partners and investors.

I vote for writing it just so you put all your thoughts and plans on paper and doing iterations forward from there, I believe it's useful.

ABrandt
You have a masters in Entrepreneurship? Awesome, I'm close to getting my bachelors in it. I'd love to talk about the value that post-grad studies gave you--drop me a line: austin (at) beatnex (dot) com
10ren
I'm not in the valley, but Steve Blank is, and he suggests "business models" instead of business plans. They are a set of questions that your business needs to find answers to as it goes along: http://steveblank.com/2010/05/17/no-one-wins-in-business-pla...

also, plans are useless but planning is invaluable; that helps with actual success, not so sure about getting funded.

andrewce
Business plans can be extremely useful, or not useful at all, depending on how you use them.

The biggest questions they should answer are: "What are we doing, how will we make money from it, and how much money will we make?"

(It should also answer the question of "What do we do if everything fails?").

I found Guy Kawasaki's ten-part outline ( http://blog.guykawasaki.com/2006/01/the_zen_of_busi.html#axz... ) to be pretty reasonable. I followed it for both of the business plans I wrote (freelancing), which both achieved their purpose, and will follow it again for future business plans I write.

Depending on who your potential angel(s) is/are, you may have to be more "optimistic" than you would for others, as far as your financial projections go.

That said, the real purpose of the business plan is to give potential investors some solid numbers such that they can decide the odds of them getting their investment back, and also to force you to sit down and clarify your plans so that you don't get sidetracked with nonsense.

[dead] access_denied
There are basically 2 kinds of situations where the words 'business plan' gets uttered. The first is in sales. The typical example is selling your business idea to investors. In these scenarios your 'business plan' is a sales letter. So to answer your question: when you need outside investements of some form or other.

The other general function of a business plan is to establish clarity. You know, getting clear about what you want to do. What is your vision, your goals and so on. A good place to start is IMHO after you worked a couple of times on your project. You will know these things by then, now establish clarity by putting them in writing. This will help you making decisions along the way.

amorphid
A startup founder in San Francisco told me that if an early stage investor needs a business plan, it's a really lame investor.
shareme
It should be re-named Customer Plan!

Imagine yourself in a room full of potential customers. Describe the product to them and why they may need it making sure to anticipate their questions before they are asked , etc.

That is the first part. The second part is imagine the same room full of investors. Now expand the first part by describing how the business model to bring it into the world works.

Do not think of it was along plan made by some 500 fortune company. Think of it as a conversation about how your business works and will work.

The hardest part will be the model if there are very few competitors or no competitors. Its not a daunting challenge but a chance for you to take control and write the story.

biznessapps
I think a business plan is required almost immediately. It's just the size that differentiates. If it's for yourself, a single page or paragraph can do. It just helps founders focus on what they're trying to do. For me personally, it helps. If your looking for funding, then of coarse a larger business plan will be needed. I really think it just depends on the person or the situation. But like I said for me personally, I like to map my ideas on paper and have it easily read by others.