There is an ongoing meme that keeps popping up ever so often among tech entrepreneurs and gurus. That the “business plan” is dead and there is actually no sense in planning at all.
After all they say “Hands-on Entrepreneurial Action is all that is required to create a Business”.
I have enough curiosity to keep finding out which of these truisms are valid and which are not. Fortunately I also have a position that allows me to try these experiments given that I run an accelerator program.
TLDR: This is absolutely false. Poor or any planning is better than no plan at all for over 80% of startups. In fact, the earlier the stage of the startup, the more is the value of that planning.
Here is the data:
Over the last 3 years, I had the opportunity to identify, select, coach and help 87 entrepreneurs for over 4 months each. I spent about 1.3 hours per week with each entrepreneurial team. In the last 3 years, and in 6 cohorts, there have been a total of 4834 applications we have received and reviewed. Of these my team and I have talked to about 450+ (about 10%) and have met with (for atleast 15-30 min) about 250 of these entrepreneurial teams. A total of 87 of them made it into our accelerator and that’s the sample size. Of these, 89% were from India, and 11% from the US.
There are between 10-12 sprints we run at each of our 4 month acceleration programs. Customer development, technology, product management, design, go-to-market, sales, partnerships, and others. One of the sprints we also run is called the “Operating plan” sprint. I instituted this after the first cohort, when I learned that most investors did not care so much about the “demo day pitch” as much as what the company was going to do with their investment for the next 12-18 months.
So, I put together an operating plan template. Think of this as your blueprint for execution. It would spell out what you were going to do to hire, sell, develop, fund and grow your startup. I put together a template as well to help the companies think through the plan.
It stems from your top level goal first, which depending on your stage could be – get product shipped, get customers to use it, increase usage, drive sales, increase revenue, etc. The only constraint I put was to ensure that you had one goal only. Not 3 or 5, just one.
Then you want to tie in various parts of your company to achieve that one goal.
If you had to hire engineers to build product, then that needed to be spelled out. If that then requires funding, you need to spell that out as well and so on.
So each operating plan will end up having 7-9 sub “plans” for product, development, hiring, sales, marketing, funding, etc.
This planning cycle begins in the 3rd month of our program and lasts 2-3 weeks for the entrepreneurs. During this time, many entrepreneurs are busy trying to get funding and meet investors, which means they tend to have little time for “all this other planning stuff”.
Which makes for a perfect experiment with a control group and a treatment group.
In the last 5 cohorts, I have asked and then politely urged all the entrepreneurs to participate actively in the operating plan sprint. But 50% of the cohort would get another 30 min pep talk from me on its importance.
I’d urge them over a lunch or coffee the importance of doing the plan.
I would not discourage the others from doing it, but the other group I did not spend the 30 minutes with on taking the operating plan seriously. Some of them took it seriously without my urging and cajoling and most ignored it.
Now that I have the data for 3 years, I can confidently tell you that just the act of putting together an operating plan – however poor it is, increases your chances of funding and raises valuation.
I went back to the data to look for my own biases and see if the ones that I urged were “somehow better suited to raise funding and be successful regardless of my urging” anyway, and I think I have no way to really check that at all, but I am confident that the sampling error, if any, was minimal.
Of the companies that I did the extra selling to, 69% of them raised funding within 6 months of the accelerator, compared to 31% who did not.
Even the companies that took the operating plan seriously and put what I consider a poor plan, beat the ones that did not take the operating plan seriously at all by a margin of 20 basis points.
I totally understand that funding is a weak (and only one) measure of achievement (and not of success), but I also realize that it is the metric most entrepreneurs judge an accelerator by.
So, the bottom-line is this.
If you want to achieve any form of success, creating an operating (or business) plan, even if it is poor, is better than not having one at all.