(Published: January 2003)
Back in 1995, when I co-founded an Internet
marketing company, NetMarquee, one of the first tasks my partner and I
took on was to write a thorough business plan in order to raise money
for our new venture. After all, isn't that the first lesson you learn
in any course having to do with starting a business? Isn't that what
the business media recommend in hundreds of articles and books?
My partner and I sent our plan around to venture
capitalists and met with several to make presentations. No money came
of this effort, and at several points during 1995 we contemplated
giving up on the venture. But we had recruited a board of advisors with
broad experience in growth-company strategy, finance, and marketing,
and the members advised us to spend less time massaging our business
plan and more time making sales. The financing will come later, they
suggested.
So we made a few sales, enough to stay afloat
through 1996. In 1997, when we made a major change in our strategy and
product offerings, and sales failed to grow as quickly as we expected,
we decided to try the financing route again. This time, we figured,
financing should be easier to obtain, since we were fairly well
established.
Once again, our advisory board told us not to
bother. Professional investors don't want to back a company that
actually needs money. They're like bankers in that they like to support
companies that don't necessarily need the funds. Get out there and
promote yourselves and make more sales, they advised us, in what was
becoming a regular refrain.
Banking on the plan
But we were stubborn. We dusted off our old
business plan from a couple years back and spent many hours rewriting
and updating the document. We went off seeking financing and, once
again, it was thumbs down. Down certainly described our feeling, since
it seemed that every new Internet-related venture in the world was
obtaining financing. The numbers would suggest that, as the amount of
venture capital — a seemingly substantial $7.7 billion in 1995 — had
grown to $16.4 billion by 1997, according to the MoneyTree Survey,
sponsored by Price Waterhouse Coopers, Venture Economics, and the
National Venture Capital Association.
Our choice at this stage was stark: Find ways to
grow the business without financing or fold up the tent. We took the
first choice, and lo and behold, the business began to gain traction.
We engaged public-relations professionals, and they succeeded in
getting several of our most successful corporate clients written up in
business and industry trade publications — with mention of our agency
as the key force behind these clients' online success. Those write-ups
got the phones ringing with new prospects, several of which turned into
clients that generated additional sales.
Even as the business grew, though, we were
vigilant about monitoring our expenses and aggressively collecting
receivables. We got a kick out of the stories of venture-backed
Internet start-ups purchasing fancy $1,200 conference room chairs. Our
conference room chairs were mostly desk chairs we wheeled in from
vacant workstations for meetings, and then wheeled back out when
meetings ended. At one point, we partnered with another agency, with
venture backing, which confided that many of its receivables were six
months or more past due. Once again we had to chuckle, because we had
become obsessive about phoning clients on day 31 if invoices weren't
paid, and thereby maintaining a healthy cash flow.
By 1999, we were operating profitably at $2
million annual revenues, with nearly 20 employees. The amount of
venture capital being invested nationally had soared to an astounding
$55.5 billion, but we paid little attention, as our interest in outside
financing had dropped significantly. (Venture capital availability
would soar even further in 2000, to a peak of $85.5 billion.)
Rethinking the plan
My point in recounting our financing experience
is twofold. First, the venture capital route is closed to the vast
majority of businesses that seek it out — even during good times. While
it might have seemed back then that nearly every business that wanted
it was receiving venture capital, the reality is that most
entrepreneurs have the same experience my partner and I had: their
carefully crafted business plans are rejected out of hand by venture
capitalists. Second, it's often amazing what you can accomplish without
the financing you are convinced is essential to stave off failure.
As for the rest of the story: our success in
1998 and 1999 attracted the attention of a publicly held company that
was seeking the expertise we offered in developing and managing online
content, and in December 1999 this company acquired NetMarquee. Even
though an acquisition is really an investment situation, the acquirer
never asked to see our business plan; it only wanted to see financial
projections under several different scenarios.
I came to realize then that in three potentially
significant financing-related events for our company, namely seeking
financing in 1995 and 1997, and then selling the company in 1999, a
written business plan had been of absolutely no use to us. You might
say, "Well, just having gone through the process of writing a plan
probably helped you grow the business." I wish I could say that, but I
have doubts about that as well. The written plans we put together
assumed faster growth based on having received funding. The plan we
actually followed was a slow-growth plan that wasn't part of our
write-up.
The realization about planning was especially
important to me, since prior to launching NetMarquee, I had authored
two widely read books about how to write a business plan: Business
Plans That Win $$$: Lessons from the MIT Enterprise Forum (with Stanley
Rich) and How to Really Create a Successful Business Plan. After we
sold NetMarquee, I decided to revisit the whole subject of business
planning. I spoke with entrepreneurs who had obtained financing, and I
surveyed venture capitalists to learn the real role of business plans
in raising money. I confirmed my experience as an entrepreneur. A lot
of potentially deserving entrepreneurs never get their plans funded,
and many others that do obtain funding actually do so without ever
writing a business plan.
Act, don't plan
I decided to write a book challenging the preeminence of the written business plan, with the same title as this article: Burn Your Business Plan! What Investors Really Want from Entrepreneurs
(www.lausonpub.com). It argues that entrepreneurs should focus their
company-building efforts on such tasks as creating a website that
communicates their business model, obtaining publicity, keeping the
finances under control, and making sales before thinking seriously
about writing a business plan.
According to the conventional wisdom, we're now
in the third year of tough economic times. Business is quite difficult
in many industries, and financing seems to be unavailable to young
companies. Yet it's interesting to note that during the first three
quarters of 2002, venture capitalists have invested nearly $17 billion,
more than all of 1997, which at the time seemed like a great year.
Increasingly, though, I am convinced that the
key to the success of most young businesses is to ignore all the
venture capital statistics and admonitions to write business plans, and
instead use all the creativity and diligence you can muster to tend to
your business. Put another way, you should be doing, rather than
writing about what you will do.
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