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Marc Andreessen’s Partly Wrong on Business Plans
This morning Marc Andreessen (PMARCA) blogs on “Why a startup’s initial business plan doesn’t matter that much.” In his post he argues primarily that (a) on a fundamental level, you can’t know how well your idea will do, and (b) executing well will require a bunch of changes during that opening period anyway.
Perhaps the problem isn’t business plans in general, but rather the type of plan. Certainly, a static, rigid document full of income statements and cash position projections has less relevance in today’s startup environment. However: there is a lot of thinking that one should do before launching a product, and a business plan is a good place to capture that thinking.
One one hand, there’s fundamentals: segmentation, a marketing plan of some kind (even if its the absence of a formal plan), etc. Then, there’s what we might consider “Business Plan 2.0″ features: contingencies and forward thinking strategizing. What if: your product takes off, such as in the case of iLike? What if: It doesn’t, and you have to switch target markets entirely?
Andreessen positions these what-if’s as justification for abandoning business plans entirely; IMHO they’re all the more reason to have a modern business plan. Well structured, forward looking, flexible thinking, and scenario analysis can only assist a startup, however shaky their initial concept may be.
UPDATE: Tim Berry questions Andreessen as well.
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I have to admit, every day I worked on my startup’s business plan I felt stupid spending time on it. But at the end, it proved to be critical. I think the value is in figuring out a plan that works on paper (which by itself it hard) and then mapping all the assumptions. Those assumptions can be shared with others which will give the plan a good sense of probability. It’s ok to make wild assumptions which I think is why many people are critical of business plans. But you need to then figure out the probability of your assumptions. It is also the only way to get a complete idea figured out – otherwise you got the “this is a cool thing I don’t know how to make money off, but it is really cool!” startup.
Working on the Nouncer.com plan, I was trying to figure out how to make money from a micro-blogging service (I wrote about it just yesterday on my blog). With no real ad model right now for real time content, the only option was paid membership (well, there is always ‘sell it to Facebook’ business plan). I worked out a model that looked good and shared the assumptions about how much I will charge for a membership (different levels) and how many users are expected to go beyond the free version.
It didn’t take long to learn from others that the membership model rarely works especially for mass-consumer products. Doesn’t mean it’s a bad plan but it’s a long shot. The plan is still good, but only through writing it was I able to see how the numbers interact. One example, SMS and bandwidth cost was hard to figure out without it.
Agree with what you’re saying here and have read this article and few others linking around it.
Things always change as a startup so its all the more reason to have a flexible very dynamic approach to business planning. You’re right you don’t need a big static document but you do need to keep iterating on where you’re heading and what you strategy is until it starts to firm up.
Interested in your thoughts on our PlanHQ planhq.com online business plan product, its been described by springwise as business plan 2.0
cheers,
Tim.
I suggest two resources for this topic:
1) The Art of the Start by Guy Kawasaki
2) Getting Real by 37 Signals
@Elmer: Guy Kawasaki, eh? What’s your take on Truemors?
@Tim: Thanks for stopping by and sharing your thoughts, I’ll take a look at PlanHQ!
@Eran - thanks for sharing your thoughts - to be sure, sharing assumptions and mapping them to a probability matrix sounds like an excellent exercise. I’ll take a look at Nouncer too!