Leading Entrepreneurship

So… we all think it, but barely discuss it. Let’s.

I’ll start. Business plans are counter-productive dinosaurs. Basically, they are weighty legacies kept alive by a software industry painfully misguiding us into thinking we are actually accomplishing something. They are, for the most part, needless distractions to getting things accomplished. A so-called justifiable procrastination device.

Yep, I said it. Finally.

Don’t get me wrong, business plans make great academic tools, but are totally inefficient in practice. I do use business plans in class because I need students to have a point to be able to say “I’m done, I’m turning it in for a grade” – and feel as if they have received some finality to a course.

Point 1: Nobody will really read your plan but you

There has been lots of talk about how equity financiers do not read business plans, which may or may not be true depending on the individual. This, however, I can assure you. The debt financiers pay almost no attention to the plan.

First things first – the underwriters don’t know how to read plans. Underwriters are very typically (1) finance majors, (2) just starting their career, and (3) never been responsible for the risk associated with starting and growing a firm. They may have written an academic plan before, but don’t have the years of experience necessary to truly review and assess a plan with any precision.

Which means credit scoring will primarily determine if you get the loan. Well, credit scoring and ability to pay back the loan. Well, credit scoring and ability for the bank to collect on the loan.

I’ve said this before, and will say it again… banks are like bookies. If you’ve always paid on your losses in the past, they’ll continue to take your bets. If you miss your payments, I’ll hurt you (knees or credit score – same difference) and not take you bet again.

Point is, if nobody vouches for you (i.e. credit score), the bank will not take the chance. If lots of others have taken the chance, and it has paid off, they will.

Historical credibility is the issue, not “future bankability.”

Four C’s of credit, as seen by a banker:

• Character (basically, personal credit score – a historical measure)
• Capacity (does your P&L show you could historically pay back the loan you are asking for – a historical measure)
• Capital (is your balance sheet “upside down” – a historical measure)
• Conditions (will your environment allow you to make money – and they will not trust your assessment)

Let’s go back to equity financiers for a second. Famously egotistical, right? Well they should be. You read that right: They should be. They had the wherewithal to get their hands on the cash and you didn’t. I don’t want that to sound harsh, but I promise that if you get your hands on that money, and create even more money, your ego will swell too. And it should – you’ve accomplished something very few people are able to do. And you will not read other peoples’ plans. You may read the executive summary, you may peruse the financials, you may even skim the whole plan. But you will not read the whole thing.

And you shouldn’t.

Point 2: Plans do not equal planning.

A solid majority of entrepreneurs are just absolutely terrible at writing plans. They may be great at planning, but just awful at writing the document.

Guess what? I don’t want you to be any good at writing the plan. And it would be unrealistic for me to expect you to be an expert.

As an entrepreneur, you are planning all day every day. But how often to you really draft a full plan? Once in college? Maybe 3-4 times your entire life? How many things are you personally good at that you’ve only done 3-4 times throughout the entire course of your life?

If you draft a really good plan, then you’ve been practicing. Or you had someone write it for you. Or you lifted most of it from someone else.

All of these options scare the hell out of me.

If an entrepreneur brought a wall-sized calendar of the next year into my office, covered in post-it notes, I would feel much more comfortable. That entrepreneur is an expert in planning.

Point 3: Assuming Plan = Planning, then Planning = Plan. Period.

Business plan software had as negative an impact on entrepreneurship as the internet had a positive impact.

Business plan software set entrepreneurs back at least 50 years.

Why? Because these packages were created with the Plan = Planning mentality… which is (1) brilliantly misguided and (2) insufferably incomplete.

Software creates the appearance of planning, but skips all of the… you know… planning stuff.

Anyone can put a number in a spreadsheet, or say they will buy an ad, or commit to hiring a staff member. But using software removes the strategy, removes the stakes and risk, removes the planning all together.

Creating a P&L by “putting in and tweaking the numbers” is not planning, it is the exact opposite.

Where is the tie between marketing, operations and finance???

“But Daniel,” you might say, “my software allows me to have a living, breathing plan that can change as I need it to.”

Really? So your plan looks at where you are and compares to where you plan says you should be? It flags you of potential issues? It allows you to adjust the operational and financial plans if there is an unexpected marketing snafu?

Or are you telling me that it is living and breathing because you can always update your outdated text, regardless of any real and actual progress made?

The only way for software to actually help an entrepreneur (a non-expert in packaging “the plan”) is for the plan to truly represent planning all of the planning, all of the time, and the planning to always reflect the plan.

Both must be true.

Software just says “Hey, let’s assume success, and work the math formula backwards.”

Only problem is nobody is assured success.

Which brings me back to my overall point: Business plans are counter-productive dinosaurs.