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What Investors Really Mean When They Say They Don’t Need a Business Plan

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It is common knowledge that companies need business plans.

Business plans are critical for setting goals and mapping out your plan to achieve those goals. They are also critical in order to raise capital. Whether you are seeking a bank loan, or capital from angel investors, venture capitalists or corporate investors, a formal business plan is simply a requirement.

However, there are some investors that say they don’t need a business plan. Rather, they just want to see a company slide presentation and/or a 1-3 page Executive Summary.

So, at this point you are probably asking yourself, “So, do I, or do I not, need a business plan?”

The answer is a resounding “YES.” Let me explain.

To begin, the types of investors that typically do not want to see a formal business plan are an extremely unique bunch. They are typically the top 1% of angel investors or venture capitalists. These are the investors that see so many deals that they don’t have the time to read through business plans.

Perhaps more importantly, these are the investors that focus on investments that could be worth billions of dollars within a few short years.

They invest in companies like Facebook or Twitter; companies that have massive potential but which may not even have a real revenue model in place yet. For companies like these, that are potential “game-changers,” creating financial projections or analyzing the current marketplace are much less important than for other businesses. As such, formal business plans with this information is less important.

Another key reason for creating a formal business plan is the knowledge that comes out of it. Specifically, the business plan process forces you to make a lot of key decisions about your business. For instance, writing down your marketing plan forces you to determine the marketing tactics you will employ.

Likewise, the business plan development process forces you to assess your market, identify customer segments and customer needs, and determine the strengths and weaknesses of your competitors. This is all critical information that you need to successfully operate your business.

The U.S. Small Business Administration, in a study called “The Small Business Economy,” found a direct correlation between a business’ success and its creation of a formal business plan. That’s because the business plan development process forces you to really think through the business and make informed decisions.

Likewise, the business plan development process gives you the information that you need to include in your investor slide presentation and Executive Summary. For example, one slide needs to include your financial projections and uses of funding. Another slide must talk about your marketing plan. All of this information comes directly from your business plan.

And what about information that is in your business plan, but which you omit from your slide presentation -- is that wasted information? NO. Before they invest, investors will bombard you with questions about your business, your market, your customers, your competition and so on.

Having completed, read and re-read your business plan, you will be able to quickly and correctly answer all of these questions.

So, when investors say they don’t need a business plan, they are NOT saying that they don’t want you to create a formal business plan. Rather, they are saying that the way they want you to communicate your vision and concept to them is not through a long written document, but via another format, mainly a slide presentation and/or 1-3 page Executive Summary.

So, learn the format of business plan and complete your formal business plan. It will give you the information you need to create a winning business strategy and attract investors. And, in addition to your full business plan, create an Executive Summary (which should be the first section of your full business plan anyway) and a slide presentation, since these documents will be required in the capital-raising process.


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Monica Mwangunga says

Nice article Dave,it will be great if all startups know the importance of having a business plan done purely for the aspect of getting to learn more about ones own business during the process of preparing a business plan. Kind Regards, Monica
Posted at 7:53 am
Adam Hoeksema says

You mentioned that only the elite investors don't ask for a business plan, while this may be true business owners should note that the average investor will not read their business plan. This is primarily because of a poor executive summary. If you fail to intrigue the reader they will have no compelling reason to read the rest of the business plan. The executive summary is absolutely vital to your success in raising capital. Check out www.theexecutiveplan.com for more help with your executive summary.
Posted at 11:44 pm
Chris says

I sort of disagree, in a sense. The only reason why a high-level investor/angel wouldn't read a business plan is if he/she had no interest in looking deeper into the proposal itself. It's like saying that record companies don't listen to Demo CD's. They do - just not most people's. Yes, there is certainly some strategy involved in getting past gatekeepers, and actually getting your b-plan opened and read. But you'd better darn well have some documented plan in place when the time comes to make the pitch. I don't have experience with investors per se, but I've structured a lot of joint venture and have sold a few established businesses. And overwhelmingly, what matters most is current results. What buyers/investors/prospective partners want to see more than anything else is ACTION, not just ideas. If you've got some momentum, then you'll have a much easier time gaining the audience of someone with resources. Anyway... That's my 2 cents. Thanks -Chris
Posted at 8:40 pm
Conwy Homes says

Good points being made all round here. If for no other reason than getting to grips with the nitty gritty of your new business, producing a business plan is a very good idea. It is also very true to say than your exceutive summary needs to be spot on and draw the reader in, making them interested and above all clear what you are about. Chris' point about results matter is also true but for start-up businesses might not always apply.
Posted at 3:25 pm

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