Best Laid PlansJustin Hibbard
Buckets of sweat have been shed by entrepreneurs over business plans. Truth is, a business plan doesn't matter much. Odds are it's going to change, and if it doesn't change, odds are it should. If you don't believe me, listen to Michael Moritz, a general partner at VC firm Sequoia Capital and an early investor in Google, Yahoo!, Cisco, and many others. At the VentureOne conference in San Francisco this morning, Moritz told a story about Google that demonstrated why VCs always say they invest in entrepreneurs or ideas--and not business plans.
As you might know, Google started out thinking it would sell its technology to corporations for internal use. After a year or two, that plan clearly wasn?t working. So the entrepreneurs started casting around for another strategy. "There is nothing like a declining cash balance to focus the mind," Mortiz quipped. Google's founders noticed the success of GoTo (later renamed Overture and bought by Yahoo) and set out to improve on its paid-search model. The rest is history--and so is Google's original business plan, which, to the founders' credit, they never formalized.
When evaluating a nascent startup, Moritz doesn't look for a detailed blueprint of the future. "The longer the business plan, the worse the prospects for the company," he said. "The more comprehensive the financial projections, the more unlikely a company is to meet those expectations." The business plan for Intel was famously written on half a sheet of paper. Yahoo! never had a formal plan, Mortiz said. But in both cases, the founders had a very clear idea of the product or service they wanted to build.
So here's a tip for entrepreneurs: unless you're a fiction writer, put away the financial-modeling spreadsheets. While you're at it, spare us the PowerPoint presentation. Just focus on making stuff.