Business plans for startups vs established companies

I ran across a blog post recently that pointed out that investors who ask for business plans probably aren’t a good match for funding your company since they probably either don’t understand your business or they don’t know you well enough to invest.

My unsubstantiated opinion on business plans for startups is that the investor wants to get insight into how you think. They want to understand what your approach to the market is and see how your financial allocations and financial expectations correlate with how the investor might see the market and your solution within that market.

Instead of a business plan, my thought is that you should create a document that encapsulates your philosophy of how you plan to make business decisions to enter a market. This is where you would talk about your opinions of being engineering heavy or sales heavy and why. Or, what you plan to do if the market doesn’t quite pan out the way you planned; “The pivot”.

I’ve never really seen a document like this, but it is a reoccurring thought in my head that screams that there is a better way to cutting to the chase of getting an investor on board than a static business plan that represents 1 out of a thousand outcomes.

I don’t think you need a detailed, in-depth, well-defined business plan for a startup. You need to say who your customer is. You need to define what pain you percieve that they have, and hopefully have some market research to back up your perception. You need to define how your product meets that pain, then you need to define your plan to get out and attack that market. You can really only define the blade of the hockey stick at this point because anything else you do is a big guess. Defining financials around a steep growth curve is probably fun for you, but worthless for reality. I think it’s better to define your philosophy of dealing with all of the unexpected curves and how you plan to build a culture and what your corporate values will be than mapping out what you might look like at 100X.

For established companies, business plans are essential to getting everyone on board for a new product, or a new direction for an existing product. You are already a member of an organization with an established distribution channel, established marketing and press release system, engineering and help desk systems. Your costs of getting a product to market are fairly well defined, so a business plan helps “management” get a comfort level that you are utilizing the business properly. This is well defined in most DCP (Decision Check Point) processes that product managers follow.

What are your thoughts on business plans and target audiences?