Plans are worthless, but planning is everything

President Dwight Eisenhower once said “Plans are worthless, but planning is everything”. I agree with this and want to provide a little more nuance to my recent dismissive attitude to business plans.

In a recent discussion at Techstars Boston I heard about an angel investor who is considering a seed stage investment. Even though it is very early in the company’s life, the investor wanted to know whether or not there will be a later need for large amounts of venture capital funding. Angel investors would love to know which path will be taken in advance, because the VC route heralds the possibility of significant future ownership dilution. One of the entrepreneurs in the room noted that for his company he could make up some fancy spreadsheet which showed a business plan for either case. Each would be as plausible or possible as the other, but that wouldn’t provide any real insight to the angels. Spreadsheets like these are interesting scenarios, but absent other information we don’t know how likely they are to play out, so they really would be worthless plans.

My suggestion is to list the hypotheses the company expects to test, and what they plan to learn over the period funded by a seed round, and show how this would lead to one path or another. This is useful for both the entrepreneur and prospective seed investors. The deliverable is a list of the key areas of uncertainty and risk to be resolved through testing and learning, and the possible pathways that lead from the various outcomes. With this kind of plan an angel investor can use their own judgment about the future trajectory of the company. Yes, the output is a plan, but it is certainly not the usual kind of five year, revenue projections pulled-from-air, business plan that we might normally expect.

That is not the end of the story. Those five year plans may be worthless, but the planning really is everything. I do want to see some of those scenarios (check out my short article on presenting financials to dumb VCs). This is not because of the value of the numbers themselves, but because I gain insight into the thinking behind the plans. I get to understand the assumptions being made, the factors being considered (and not), and whether the various parts of the scenario at least make sense together. For example, if you plan to employ 3 sales reps and sell 30 deals a quarter, can you imagine each rep making a sale almost every week? (You would be surprised at the number of plans which fall apart at this level of review.) Entrepreneurs able to present some reasonable scenario show they have the ability to plan. That will come in handy once the data starts to show how the market and the company will perform. The plan probably is worthless; the ability to plan is everything.

[Although this post is written about how things work with for-profit start-ups, the same thinking applies to how donors and non-profits should be approaching new projects. Hence this is a VC:VC post. I wonder how many non-profit ventures do think about things this way. ]