Author finds a hitch in business plan tradition- Business Plans not the key to success in Business Plan Competitions

The season is still young, and already we’ve seen business plans for a medical device to treat obesity, a one-stop shop for history buffs, a voice-mail system for small businesses, and a make-it-yourself dessert restaurant.

By D.C. Denison, Globe Staff

And those are just some of the finalists in Babson College’s recent Business Plan Competition. Still to come are similar contests at the Massachusetts Institute of Technology, Harvard, and Northeastern. Nationwide, another 15 business plan run-offs are taking place during the next few months.

At many business schools it’s now an annual rite of spring semester: the business plan competition, powered by awards as high as $60,000 and the prospect of favorable attention from investors and venture capitalists. It’s a great team project for the students, and a splashy event for the schools.

There’s only one problem, according to Needham author David Gumpert: Business plans no longer work.

Gumpert, a business communications consultant, claims that the traditional 30- to 40-page business plan, loaded with projections and financial spreadsheets, is now irrelevant, even counterproductive. These plans take too much time (at least 100 hours in most cases) and they sap valuable energy at the crucial early stage of a company. Furthermore, investors don’t read them.

Business plans are the screenplays of the entrepreneurial crowd: The vast majority make a nonstop trip to the wastebasket.

Gumpert, who has just written a book entitled, ”Burn Your Business Plan!”, said he came to his incendiary views gradually, almost reluctantly. In fact, earlier in his career, he authored two how-to books on writing business plans, and frequently helped fledgling entrepreneurs write their plans. It was this experience that eventually soured him on this convention.

”I discovered that the plans were widely ignored by investors,” he recalled. ”The entrepreneurs would shop the plans around for a few months and then give up.”

Increasingly, Gumpert came to believe that ”there must be more effective ways to raise money.”

As a reality check, Gumpert surveyed 42 investors around the country. Nearly two-thirds failed to rate a business plan as ”very important” in their overall evaluation of a business.

Surprisingly, although most entrepreneurs assume that a business plan is essential, 43 percent of the venture capitalists surveyed said that they had invested in at least one business within the last three years without seeing a written business plan. Moreover, 98 percent said they could become intrigued with a company referred to them that hadn’t prepared a written business plan, and 88 percent said they would listen to a presentation from an interesting company that hadn’t completed a written plan.

Gumpert said that in today’s tough economic climate, business plans often seem ”too theoretical.”

”At the end of the business plan process, you’ve got a document, but not much else,” he said.

So what’s the alternative? Gumpert suggested that a 12-slide presentation may be enough for many investors.

”It forces you into the rigor of planning without having to do a 30-page document,” he said.

Gumpert also suggested boot-strapping the business by getting a small revenue stream going, or by creating a workable demonstration that shows how the business model will work.

It’s too early to tell whether Gumpert’s ideas will influence the Business Plan Competition industry, but he pointed out that Bentley College, in Waltham, has already evolved its ”business plan” competition into a ”business presentation” event.

Yet other schools, like Northeastern, are sticking with the traditional competition. Ted Clark, the director of the upcoming $60K Business Plan Competition at NU’s College of Business Administration, said he found Gumpert’s book, ”rather inflammatory, no pun intended.” But he ”absolutely disagrees” with it.

”If you’re starting a company, you must have a business plan,” he said. ”If nothing else, it’s an educational exercise to learn what you’ll need to develop your business.

”Investors want to know three things: how much it will cost to get in; what’s the cash flow; and when am I going to get paid back,” he continued. ”The business plan is the most efficient way to answer those questions.”

Clark admitted, however, that the standard business plan could probably be shortened.

”A 10-page plan is as good as a 40-page plan,” he said. ”Today, everybody has to ask themselves, How much time does an investor really want to spend with my business plan?”

D.C. Denison can be reached at [email protected].

http://www.boston.com/dailyglobe2/103/business/Author_finds_a_hitch_in_business_plan_tradition+.shtml