Posted in: Business

Why the “You Dont Need a Business Plan” meme is Crazy Talk

I’ve been reading a bunch of posts on how Twitter got funded without a business plan or a business model. I think the logic of these posts is largely true in only one case – if you’re an early-stage company in tech where you have lots of adoption, good growth, and attention from the “right” people, you can probably get funded without a business plan in this market.

The one thing I do feel rings true is that it’s silly to waste time and money perfecting a detailed written document and printing it out for distribution. Early stage ideas and markets are too fluid. And, it’s hard to predict future cashflows if you don’t have any today. Save yourself the trips to Kinko´s and the hundreds of dollars in expenses you´ll incur. That being said, it’s worth at least thinking about the following questions before you start a business AND writing all this stuff down. Whether you choose to share the answers to these questions with your investors or others is a matter of personal opinion:

1. What are my top 3 milestones and what’s it going to take to reach each of them? Pick a few milestones that are meaningful. Acquiring a certain number of users, releasing X number of versions, achieving PV/UU metrics all work. Guesstimate what it will take to get there and then (at least) double your estimates for time and cost.

2. How large is the audience today and how am I going to attempt to reach them? It´s always good to do a quick market sizing and figure out how you´re going to get your users. Are you going to go national from day 1? Are you going to mine existing networks/communities? What´s your notion of what user acquisition will cost and how long it will take?

3. What are 3 things that could happen in the market that would make me rethink the wisdom of this idea? I personally think it´s always a good idea to have some sense of the types of signals you could see that would make you rethink whether you´re on the right track. For example, if your strategy is predicated on the belief that Yahoo/Microsoft/Google are too slow to pick up on the market you´re targeting, seeing the 3 of them release products in quick succession would be a good thing to note.

4. What are the most important metrics that will tell me whether I’m on track? Every good company I´ve seen has a few (as in 3-4 tops) metrics that they track on a daily basis. They know where they stand on those metrics at all times and there´s a good story for why those metrics matter.

5. Where am I going to get the first 5/10/15 people I need? I´m always surprised that more people don´t think about this one. If you´re starting a company, chances are you can´t do it alone. Where are you going to get those first few employees?

I do lots of tinkering on the web myself and I think answering these basic 5 questions (or a similar set) can really help frame what you´re doing and why.