Bridges to Cross Before Writing a Business Plan

With its great breakfast menu, La Madeleine in the Westlake neighborhood is an
office-away-from-the office for much of the Austin high-tech community. On any
weekday morning, the French-style café is packed with entrepreneurs, venture
people, consultants and other local players. Since La Madeleine is right on my way
to the office and is so good for staying plugged-in, I like to meet people there for
early breakfasts. That gives us plenty of time to eat, take care of business and catch
up on the Austin start-up scene before heading off to start the "real" workday.

By ROB ADAMS Wall St. Journal

A La Madeleine breakfast I particularly remember is the one I had a while back
with Jens Tellefsen. Jens and his start-up team had given a presentation at AV Labs
the afternoon before. They were impressive. In fact, the minute they were out of the
office, we knew we’d found the right deal in a space we were targeting. We were
excited by this company and its team. Now, I had a chance to informally share our
decision with the 35-year-old Swede.

"Jens," I said as we unloaded our trays and sat down. "You guys were great — it’s a
go."

"Excellent!" Jens replied. "You know, we knew the presentation went well, but we
were a bit worried about one or two sections of the business plan. We never
discussed it in the meeting. So I guess it was clear enough, eh?"

"Jens, let me tell you how we evaluate these deals," I said. "We never focus on the
plan. Once we evaluate the market space and the team, we wait to see the
presentation."

I was relieved by Jens’ reaction. "You’re kidding," he chuckled, seemingly not a bit
put out that we hadn’t gone deep on his 40-odd-page business plan. "We spent
months on that thing. Oh well, I suppose it doesn’t matter much at this point."

"It really doesn’t," I told him. "In fact, don’t even think about the business plan again
— not anytime soon, at least."

"Gladly," he laughed. Then Jens and I covered some details of what would be in the
term sheet. Later, as I wound through the hills west of downtown and into the city, I
pondered the fact that people learn important business lessons in all kinds of places.
Over breakfast at La Madeleine, Jens Tellefsen picked up some very handy insights
about the business plan. He learned:

The business plan is not the be-all and end-all for getting funded.

Sometimes investors don’t even read business plans.

What are the critical criteria? Your team and your market space.

The Business Plan

Let’s look at the business plan. Let’s see just how crazy it is to toil over this document — especially when you make it No. 1 on your to-do
list.

"Huh? Stop writing my business plan?" That’s right. Cork it.

Did "Write a business plan" come down from a mountaintop, carved on a stone tablet? I don’t think so. But that’s what people tend to
believe, and it’s really no wonder. Check it out for yourself. Perform a cursory search of the Amazon.com database, for a starter. You’ll
get a list of more than 600 books on business plans. Look under software, and you’ll get more than 10 business-plan software packages.
Plus, there are nearly 70 business-plan-related products from an Internet-based firm that sells management products and services. There’s
even a video: "How to Really Create a Successful Business Plan" (Goldhirsh Group, 1992). I really promise — that’s the actual title.

It kills me to think of all the entrepreneurs — not just high-tech start-up wannabes, but people dreaming of corner retail stores, restaurants
or other businesses — combing through all these offerings, trying to decide which one is best. It must be incredibly confusing. Things get
even more confusing when they dive into the nuts and bolts of writing and assembling their business plans. Nine times out of 10, they have
no clue what they’re doing — even if they’re following the dotted lines in whatever how-to book or video or whatever. Nine times out of
10, they’re wasting their time.

Don’t get me wrong. Is it bad that all the business-plan assistance is available? Not at all. At some point, most entrepreneurs — though not
all of them, by any means — do write business plans. Indeed, even the AV Labs’ Web site encourages start-ups seeking funding to
introduce themselves with "a business plan and/or executive summary."

Writing a business plan, then, is not the problem. What is? Viewing the business plan as your primary goal, right out of the gate. "Okay
guys, we’ve quit our jobs. Now let’s write a business plan and get us some money." That’s what I’m talking about. Sound familiar? It’s a
very dangerous course. It you follow it, you’re labeling yourself a victim of the myth that investors fund business plans. Here’s how the
thinking goes: Write a good plan and throw it over the transom to a venture firm. Worse yet, blindly e-mail it to venture firms around the
country. The money is bound to follow. Use the correct format and investors will salivate over the opportunity to dole out the cash. Make
the plan detailed and thorough, and your chances go up even more.

If you subscribe to these beliefs, you could spend weeks or months burning the midnight oil or laboring over a document, before you really
do much of anything else.

Assembling a Team

Remember output mania? When you give in to output mania, you produce some tangible thing — an artifact, a claim, or whatever. But you
do little to advance your business model. Write a business plan too soon, and you’re engaging in output mania. The early business plan is a
tragic waste of your resources, particularly when crafted at a time when you have little or no funding.

What should you be doing instead? Assembling a team. Defining and validating your market. Devising a profitable business model. These
are execution-oriented projects. They advance the business model. And they’re far more likely than a business plan to lure the investor’s
dollar. In a nutshell: Execution-oriented projects plus no business plan equals a decent chance of getting funded. A business plan plus
output orientation equals a snowball’s chance.

This is what Jens learned when I told him we hadn’t gone deep on his business plan. "I thought a detailed business plan was essential for
raising money," he says. "Now I know that all the time we spent getting those details down on paper was probably not worthwhile. The
investors were much more interested in meeting the team and evaluating our grasp of the market — not whether we had written a
comprehensive business plan in our early stages."

Where should the business plan be on your agenda? Dead last.

Early-stage, execution-oriented projects lay the groundwork for your company. You must tackle them well before you even begin to think
of writing a business plan. Indeed, once you’ve done these things, the business plan writes itself. Or — and this was what happened with
Jens and his team — the business plan becomes totally irrelevant.

Sometimes, you flat-out don’t need a business plan at all. As Jens himself puts it, "We decided not to spend any time on a business plan as
we approached investors for our subsequent Series A round. It just didn’t seem to add any value."

That’s right: No investor ever dove into a business plan from Jens and his team. Yet they received seed funding — money they used to
validate the market, build the team, and develop a business model. What’s more, they raised substantial follow-on funding for growing the
business. And they did it without a business plan.

"Okay, so if a business plan isn’t important, what is?" The work.

If you’re obsessing over a business plan, I have one piece of advice: Stop. Don’t focus on the plan . . . do the work. What work, you ask?
Projects that:

Put together a great team — working colleagues, plus a cadre of rock-solid advisors and board members. What are you after?
Execution intelligence.

Validate the market as thoroughly as you can with the resources you have.

Define a solution that solves some of your customers’ most vicious pain and devise a strategy for getting to market fast — either by
partnering with established businesses or by designing a minimally accepted feature set with the first release.

Figure out how much money you need — and define the value inflection points you’ll hit with that sum.

These activities are critical for investors. If you knock out these milestones, you’ll be prepared to face even the most finicky investors
confidently. Even if you haven’t produced a complete business plan, you’ll be ready for your first and most important sales job: convincing
investors to fund the company.

— Mr. Adams is the author of "A Good Hard Kick in the Ass" (Crown Business, 2002), from which this article was excerpted.

http://www.startup.wsj.com/howto/soundadvice/20020807-adams.html