Thursday, February 16, 2012

Business plan a “must” for an entrepreneur? Wrong!



Where did we start at InsurEye...

If there is a topic where both Dmitry and I have the same perspective, it’s the perception of a business plan. We both started InsurEye and simply knew we needed a business plan, and so we wrote it. The 80-page document that resulted, looked like a completed PhD. It took a disgustingly huge amount of time and brought extremely little. So our view on a business plan now is the following: it’s normally a waste of time.


Our own experiences with the business plan

Don’t get me wrong. The thoughts behind the business plan are all right: define your business model, plan activities, calculate financial numbers, etc. The problem is that at the very first start-up phase there is so much uncertainty that you can spend 24 hours a day simply adjusting the plan to quickly changing circumstances.
How many nights did we spend polishing financial numbers and discussing assumptions? I’m not sure if we ever used them for any practical purposes, and we didn't use them for presentations. Let me give you an example – we made assumptions around development costs and then got several quotes from developers. They were off not by 40% but by 400%! Who can pack such uncertainty into the business plan?

Well, one thing is for sure:  After writing your first business plan including financials, you will gain the necessary accounting and finance knowledge. If you are not into that stuff, I can promise it will be painful. I was not a fan of accounting topics in my MBA classes and sometimes regretted not having invested enough time into books full of dollar signs. However, as an entrepreneur you will need this subject again much sooner as you think.


Conclusion about business plan

There might be a couple of cases where it’s probably a good idea to produce a business plan, like preparing for a presentation with investors. It’s probably also good if you want to make sure that you’ve thought through all key topics, using it as a reference.

But in general, invest your time into something more useful like the development of your product / service, testing it with future customers, and building partnerships for your business. Viable product and existing customers will always top any fancy, colorful slides.

What are your experiences with writing a business plan?

72 comments:

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  2. Hi Alison - happy to hear that you share our thoughts! I think before any start-up figures out the business model which really works and brings any revenue, it does not make sense to go deep into calculations.

    Any time invested into chats with future customers and getting their feedback and thoughts is worth much more than an academic exercise! ;-)

    Good luck for www.simplifyanalytics.com

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