The Zen of Business Plans

Glasses In my day job, I not only hear a lot of PowerPoint pitches, but I also read a lot of business plans. The PowerPoint pitches explain my Ménière’s disease, but the business plans explain my recent need for reading glasses. One of my goals for blogging is to reduce the external factors that are causing the degradation of my body, so this entry’s topic is the zen of business plans.

  1. Write for all the right reasons. Most people write business plans to attract investors, and while this is necessary to raise money, most venture capitalists have made a “gut level” go/no go decision during the PowerPoint pitch. Receiving (and possibly reading) the business plan is a mechanical step in due diligence. The more relevant and important reason to write is a business plan, whether you are raising money or not, is to force the management team to solidify the objectives (what), strategies (how), and tactics (when, where, who). Even if you have all the capital in the world, you should still write a business plan. Indeed, especially if you have all the capital in the world because too much capital is worse than too little.
  2. Make it a solo effort. While creation of the business plan should be a group effort involving all the principal players in the company, the actual writing of the business plan–literally sitting down at a computer and pounding out the document–should be a solo effort. And ideally the CEO should do it because she will need to know the plan by heart. Take it from an author, for writing to be cogent and consistent, there needs to be only one author. It’s very difficult to cut-copy-and-paste several people’s sections and come out with a good plan.
  3. Pitch, then plan. Most people create a business plan, and it’s a piece of crap: sixty pages long, fifty-page appendix, full of buzzwords, acronyms, and superficialities like, “All we need is one percent of the market.” Then they create a PowerPoint pitch from it. Is it any wonder why that the plans are lousy when they are based on crappy pitches? The correct sequence is to perfect a pitch (10/20/30), and then write the plan from it. Write this down: A good business plan is an elaboration of a good pitch; a good pitch is not the distillation of good business plan. Why? Because it’s much easier to revise a pitch than to revise a plan. Give the pitch a few times, see what works and what doesn’t, change the pitch, and then write the plan. Think of your pitch as your outline, and your plan as the full text. How many people write the full text and then write the outline?
  4. Put in the right stuff. Here’s what a business plan should address: Executive Summary (1), Problem (1), Solution (1), Business Model (1), Underlying Magic (1), Marketing and Sales (1), Competition (1), Team (1), Projections (1), Status and Timeline (1), and Conclusion (1). Essentially, this is the same list of topics as a PowerPoint pitch. Those numbers in parenthesis are the ideal lengths for each section; note that they add up to eleven. As you’ll see in a few paragraphs, the ideal length of a business plan is twenty pages, so I’ve given you nine pages extra as a fudge factor.
  5. Focus on the executive summary. True or false: The most important part of a business plan is the section about the management team. The answer is False.* The executive summary, all one page of it, is the most important part of a business plan. If it isn’t fantastic, eyeball-sucking, and pulse-altering, people won’t read beyond it to find out who’s on your great team, what’s your business model, and why your product is curve jumping, paradigm shifting, and revolutionary. You should spend eighty percent of your effort on writing a great executive summary. Most people spend eighty percent of their effort on crafty a one million cell Excel spreadsheet that no one believes.
  6. Keep it clean. The ideal length of a business plan is twenty pages or less, and this includes the appendix. For every ten pages over twenty pages, you decrease the likelihood that the plan will be read, much less funded, by twenty-five percent. When it comes to business plans, less is more. Many people believe that the purpose of a business plan is to create such shock and awe that investors are begging for wiring instructions; the reality is that the purpose of a a business plan is to get to the next step: continued due diligence with activities such as checking personal and customer references. The tighter the thinking, the shorter the plan; the shorter the plan, the faster it will get read.
  7. Provide a one-page financial projection plus key metrics. Many business plans contain five year projections with a $100 million top line and such minute levels of detail that the budget for pencils is a line item. Everyone knows that you’re pulling numbers out of the air that you think are large enough to be interesting, but not so large as to render urine drug-testing unnecessary. Do everyone a favor: Reduce your Excel hallucinations to one page and provide a forecast of the key metrics of your business–for example, the number of paying customers. These key metrics provide insight into your assumptions. For example, if you’re assuming that you’ll get twenty percent of the Fortune 500 to buy your product in the first year, I would suggest checking into a rehab program.
  8. Catalyze fantasy. Don’t include citations of some consulting firm’s supposed validation of your market. For example, “Jupiter Research says that the market for avocado-farming software like we make will be $10 billion by 2010.” No one ever believes this “validations” because the entrepreneur who pitched at 9:00 am said this about USB thumb drives; the one at 10:00 am said this about online dog food sales, and the one at 11:00 said this about smart antennas for cell phones. What you want to do is catalyze fantasy: that is, enable the reader to make her own mental calculation that this market is big. “Every Nokia Series 40 and Series 60 owner would buy this–Wow, this is a hot market!”
  9. Write deliberate, act emergent. I borrowed this from my buddy Clayton Christensen. It means that when you write your plan, you act as if you know exactly what you’re going to do. You are deliberate. You’re probably wrong, but you take your best shot. However, writing deliberate doesn’t mean that you adhere to the plan in the face of new information and new opportunities. As you execute the plan, you act emergent–that is, you are flexible and fast moving: changing as you learn more and more about the market. The plan, after all, should not take on a life of its own.

Written at: Atherton, California.

* Note: the question is what is the most important part of the business plan, not what is the most important part of the business itself. The management team is more important than the executive summary to the business, but the discussion of the management team is not the most important part of the business plan because if the executive summary sucks, people won’t get to the management team section.

By | 2016-10-24T14:29:22+00:00 January 21st, 2006|Categories: Entrepreneurship, Venture Capital|Tags: |56 Comments

About the Author:

Guy Kawasaki is the chief evangelist of Canva, an online graphic design tool. Formerly, he was an advisor to the Motorola business unit of Google and chief evangelist of Apple. He is also the author of The Art of Social Media, The Art of the Start, APE: Author, Publisher, Entrepreneur, Enchantment, and nine other books. Kawasaki has a BA from Stanford University and an MBA from UCLA as well as an honorary doctorate from Babson College.

56 Comments

  1. Andrew Fife January 21, 2006 at 4:43 pm - Reply

    Guy:
    I’ve heard some say that a full blow business plan isn’t necessary for an early stage company to get funded these days. Rather that the real key is to know what you intend to do and be able articulate your plans to the investor. What do you think and have you ever funded a company with out a busines plan?

  2. Lispian's Radio Weblog January 21, 2006 at 4:58 pm - Reply

    Guy again…

  3. Kendall January 21, 2006 at 5:10 pm - Reply

    Thanks for the advice. As someone who is trying to develop an idea into a business I think that this provides a good framework in which to work. Thanks.

  4. mikey January 21, 2006 at 5:22 pm - Reply

    great advice mate.
    thought you were taking the weekend off!
    put the mac down, walk away from the mac….

  5. Doug Hanna January 21, 2006 at 5:33 pm - Reply

    Most VCs won’t even consider you without an executive summary. (unless you have connections with them, etc.) They do need some way to tell what you’re going to do with their money.
    Good information, Guy. Thanks.

  6. Jerry January 21, 2006 at 10:02 pm - Reply

    Awesome, awesome summary Guy. Thanks. One could get buried in the myriad of “suggestions” from various sources but coming from an actual VC, this is good stuff. Great timing too as we are writing a plan right now.

  7. Not a native English speaker January 21, 2006 at 11:59 pm - Reply

    The business plan part that says “the market is $25B, if we get only 1% of the market we get $250M” is downright insulting to the intelligence of the reader.
    I’m an accomplished entrepreneur. Because in my country VC capital is rarely available, I used bootstrapping to start my businesses.
    I always considered business plans to be BS. The main point is to have a very clear idea of what you want to accomplish, to have calculated some things (if possible, etc).. and you can accomplish this without a business plan.

  8. Tim January 22, 2006 at 12:04 am - Reply

    I have worked with many small businesses as a consultant and all have had crappy business plans. Good points by the way. What I suggest to those who are writing, is to you write your business plan for starting a business without the VC. Write it in terms of really doing a business. Do it in real terms not as pretended fantasies as was earlier pointed out. Then write a separate one with a tweaked exec summary for the VC. This way all your info will be grounded and real. Thanks for the article.

  9. Deepak Singh January 22, 2006 at 12:06 am - Reply

    I have always wondered if VCs can get a sense of the ability of a company to execute from a well-written business plan. It is easier to plan and identify opportunities and even suggest concrete actions than it is to actually do something about them.

  10. John C. Randolph January 22, 2006 at 1:27 am - Reply

    Number seven really cracks me up. I once re-wrote the financial projections for a business plan that been written up by an accountant. He had a positively fictional level of detail, including such items as depreciation allowance for leaseholder improvements to our office space in the third year.
    I converted all of the overhead to 40% of salaries, and the VC’s we submitted it to said they’d never seen the figures presented so clearly before.
    Too bad our CEO had entrepeneur’s disease, and wouldn’t take a $200M pre-money valuation. Oh, well…
    -jcr

  11. Rolf Erikson January 22, 2006 at 1:31 am - Reply

    Very interesting. As Senior Adviser I find it sometimes difficult getting entrepreneurs to understand that they have to write a business plan. Your post will certainly help.

  12. Brian Flanagan January 22, 2006 at 3:09 am - Reply

    Guy, I passed your Top 10 Lies of Entrepeneurs to Ireland’s Sunday Business Post. They were featured in detail in today’s issue (22nd).
    As regards the task of preparing a business plan, we have publshed a list of 20 items on How NOT to Write a Business Plan. Amongst my personal favorites are:
    # Do mention in the marketing section that your proposed offering has no competition. This will save you having to do any market analysis.
    # Do develop your business strategies and ideas progressively as you write the plan. It will draw readers into the process and make the ending more unexpected !
    # Do write the plan’s summary before you write the plan, or, better still, don’t include any summary.
    # Do spend at least ten pages describing your offering – do make this as detailed and technical as possible to impress your readers. Don’t mention any benefits as these should be obvious !

  13. Michael Sitarzewski January 22, 2006 at 7:03 am - Reply

    Guy’s advice here rings true with the other VCs and angels I’ve talked to, especially the part about the executive summary being super important. I know a couple VCs that only read the executive summaries. We’ve spent a wicked amount of time working on that, and are doing the 10/20/30 PP using it as a guide. It would have been easier to do it the other way around like Guy is suggesting here.

  14. olivier blanchard January 22, 2006 at 2:52 pm - Reply

    Excellent.
    Tell me… How much of that gut check really has to do with your confidence in the person making the presentation rather than the presentation itself? I mean, how much stake do you put on people rather than their ideas and plans?

  15. jeremy bouma January 22, 2006 at 2:57 pm - Reply

    Guys,
    Your blog has been INVALUABLE to me so far. I was wondering however, if this post would also apply to a non-profit I am starting. While I wouldn’t necessarily have ‘investors’ in the same sense as in a for profit capital venture, would this general framework still apply? Should I include other info to attract donors/investors in my non-profit outreach program?
    Thanks 🙂
    jeremy

  16. Paul McNamara January 22, 2006 at 6:22 pm - Reply

    Guy, terrific blog.
    I spent 6 months on the inside of a venture capital house (El Dorado Ventures) before moving onto my next start-up. I came to understand that the early-stage venture guys invest in people first. Too many times companies would come in to pitch a deal and go on endlessly about the market and then rush through the Management Team section.
    VCs will size up a market really quickly. Its either “big enough” or “not big enough”…and it’s not hard to put a deal into one of these two categories. But it takes time and effort to figure out if the management team is worth investing in.
    I think people rush through the Management Team section because they are uncomfortable talking about themselves. But I would encourage people looking for venture money to spend the time necessary to convince the VCs (both in the business plan and in the pitch) that they are the right people to invest in.

  17. Don January 22, 2006 at 6:39 pm - Reply

    I “sorta” agree with you Guy.
    Number 3 doesn’t make sense to me. If a company hasn’t worked out what they are doing, how they are doing it, and who is doing it when, I’m not sure they can create the pitch first.
    Number 4 I don’t agree with either, fully. The Management Team is VERY important to me as a VC.
    I allow for a bit larger business plan, but I agree, too big and you lose out.

  18. G Raghavan from Mysore, India January 22, 2006 at 7:38 pm - Reply

    SIMPLY SUPERB.
    Presently am involved in the development of a business plan for a social venture. I confirm that your priorities listed for a truly business venture are relevant for a social venture too. In addition, a focus on social benefit should also be included in the sections. This may partly respond to the post of a reader above me in these comments.
    The art and craft of writing a successful business plan lies entirely in the Executive Summary.
    Many thanks.

  19. Marc Johnson January 23, 2006 at 12:04 am - Reply

    What has any of this to do with zen?

  20. Pelle January 23, 2006 at 2:10 am - Reply

    I think business plans are one of the number one reasons why you should not seek outside funding.
    Yes they are required to reach outside funding and if you have to do this please do follow Guy’s rules.
    But for most small startups I think they are exceptionally bad news. They cause you to lose focus on your business and on the art of making money.
    I put together this list of 10 Bootstrappers Anti-Patterns where business plans are number 3 on the list. Click on my name to go to the list.

  21. Stacy January 23, 2006 at 1:57 pm - Reply

    great overview for other areas as well…not just a biz plan for well, uh, start-ups. But I can see how one could use this in planning one’s life goals. It’s a thought.

  22. Edwyn Chan's Weblog : web 2.0 | blog media | china January 24, 2006 at 12:44 pm - Reply

    Good simple business plan advice

    Modesto Business Law: January 24, 2006 at 1:59 pm - Reply

    How To Write A Business Plan

    The startup guru, Guy Kawasaki, tells you how to write a business plan. His first point is to use your pitch to build the plan, not the other way around. His ideal business plan runs only eleven pages, covering

  23. Wren January 24, 2006 at 4:45 pm - Reply

    As a techie, I’d love to know more about the financial side of things. Anyone have any really good examples of business plans in the manner in which Guy suggests that I/we could take a peek at? Thanks!

  24. The Long View January 25, 2006 at 4:12 pm - Reply

    The Elimination Game

    I was reading Guy Kawasaki’s blog the other day and ran across this comment:True or false: The most important part of a business plan is the section about the management team. The answer is False.* The executive summary, all one

  25. Ian H January 26, 2006 at 4:50 pm - Reply

    Loving your site, Guy – this is the first time I’ve taken a look.
    A question, possibly a dumb one: where does your customer fit into your business plan? In the problem? The marketing and sales? Everywhere?
    OK, so I’m in marketing. The marekting mantra is ‘customer at the centre’ – even if it’s not always achieved, that’s the ideal.

  26. How to Start a Two-Bit Operation February 4, 2006 at 4:18 pm - Reply

    A business plan – doing it for all the right reasons

    There’s not a doubt in anyone’s mind that you need a sound business plan for a successful business. But, you shouldn’t go through the process of building and writing a business plan just because it’s another thing to check off the list. There are plent…

  27. Startup Fever February 27, 2006 at 5:04 pm - Reply

    The Zen of Business Plans

    Guy Kawasaki on the zen of business plans:
    In my day job, I not only hear a lot of PowerPoint pitches, but I also read a lot of business plans. The PowerPoint pitches explain my Ménières disease, but the business plans explain my recent need…

  28. Futurelab's Blog March 5, 2006 at 2:40 pm - Reply

    The Zen of Business Plans

    by: Guy Kawasaki In my day job, I not only hear a lot of PowerPoint pitches, but I also read a lot of business plans. The PowerPoint pitches explain my Ménière’s disease, but the business plans explain my recent…

  29. Create a Business May 20, 2006 at 11:06 am - Reply

    Create a Business Plan

    What is a business plan?
    A business plan, in its simplest for, is a plan that defines your business. Business plans identify your goals as a company and gives your company direction for the future. By creating a business plan, you are essenti…

  30. Pibor May 23, 2006 at 8:58 pm - Reply

    “Underlying Magic” – I think it’s pretty clear that you are planning a post on this phrase alone 🙂 Looking forward to it!
    I’m curious – how many plans/presentations that you see actually really subscribe to this, and do you chuckle internally thinking “oh, you read my blog!”?

  31. Simple and Loveable August 1, 2006 at 2:59 pm - Reply

    simple and loveable business plans

    If you ask most people in business if they would like to have an up to date and useful business plan that they feel they are going to achieve, most say absolutely! if you ask the same people if they have this plan, most say, no.
    So Whats the problem?
    Is i

  32. sanyo September 18, 2006 at 5:27 am - Reply

    The business plan part that says “the market is $25B, if we get only 1% of the market we get $250M” is downright insulting to the intelligence of the reader.
    I’m an accomplished entrepreneur. Because in my country VC capital is rarely available, I used bootstrapping to start my businesses.

  33. annarosa October 20, 2006 at 7:50 am - Reply

    I with you in many respects agree you are right!

  34. Abdellah November 1, 2006 at 11:52 pm - Reply

    Yes, how many the information. But there are discrepancies. Today I shall a little reflect above read and I shall write next time, that I think, and what opinion at me in this occasion.

  35. frederic baud January 21, 2007 at 11:28 am - Reply

    Guy,
    What would you think of the idea of writing and discussing your business plan in the face of the world instead of doint it in the secrecy of your kitchen with a couple of selected trusted individuals assembled around a table? This is exactly what we are trying to do within the BarCampBank. In particular, P2PVenture is an emergent project where we want to create a P2P screening and financing platform for startups and small business projects. Furthermore, in the good tradition of barcamps, anyone can freely contribute accessing our sites:
    – http://p2pventure.barcampbank.com for the site dedicated to openly creating a p2p financing platform
    – http://www.barcampbank.com for the site where our international community of professionals in the banking and finance industry and innovators collaborate to create new business models in every quadrant of the banking and finance industry.
    Cheers.

  36. Bplans Blog January 24, 2007 at 5:14 pm - Reply

    Don’t Skip the Planning Process

    Experts in business planning like Guy Kawasaki, and our own Tim Berry, are all talking about the recent Wall Street Journal article “Enterprise: Do Start-ups Really Need Formal Business Plans.” The article is based on a study conducted by Professor

  37. 三洋伺服 February 6, 2007 at 5:18 am - Reply

    I with you in many respects agree you are right!

  38. M.Y. Lessons Learnt February 27, 2007 at 7:28 pm - Reply

    To Plan or Not To Plan

    Lets say you have a great idea, you have read all the Entrepreneurial Proverbs … and youre ready to jump. Then what next ?Some one will probably tell you that it is a time for a business plan. And of course, you have no idea on how to start…

  39. lothar patten March 1, 2007 at 3:58 pm - Reply

    i’m trying to make a business blog for my documentary movie,the nice man cometh,which has me meet 9 different people vieing for office of the presidency.And i’m the man who talks to all of them and finds out how they feel about it all.lothar patten.

  40. Mitomjo April 11, 2007 at 7:03 am - Reply

    Thank you very much for posting this. It’s invaluable advice for those trying to put together a business plan, such as I am at this moment.

  41. hannes April 14, 2007 at 7:43 am - Reply

    I think the most important point in your list is point 5. The executive summary is defenitely the most important part.

  42. lothar patten April 14, 2007 at 3:46 pm - Reply

    i am now a class room lecturer.And i’ve spoken to 4 classes over the last year.And i mostly do this with educational purposes in classrooms at universities.And i’m starting to be very good at it.And my pro-life style is getting better all of the time.And you may call me the professor of filmaking and class lecturor.My name is professor lothar patten.

  43. lothar patten April 17, 2007 at 2:19 pm - Reply

    that was a terrible thing that young man did.And it seems like all of these terrible incidents just don’t want to stop happening.And the bible said that these things would happen in the last days.Sin and crime would be on the rise.Lets pray to god for a big healing for these families.Overcome tradjedy wit love.lothar patten-author.

  44. lothar patten May 3, 2007 at 6:36 pm - Reply

    i’m writing a comment about how i pay my bills on bicycle.And i’ve done it for years now,and i’ll never own a car again.I prefer to be an environmentalist rather than a gas guzzler.And i love to take long bike rides.lothar patten-trekker.

  45. David Willetts May 14, 2007 at 8:43 am - Reply

    The Executive Summary
    It may be considered all parts of a business plan are important and to some degree this is the case. However, if the purpose of preparing a business plan is to attract investors or to gain the confidence of others in the future of your business, then it is critical that the reader’s attention is gained, and retained, throughout the reading of the document.
    The Executive Summary will most probably be the first section of the plan to be read and it should, therefore, be succinct and written in an informed and interesting manner to encourage the reader to read more.
    If the reader fails to be attracted by the headline proposition then no incentive will exist to explore further.

  46. lothar patten May 18, 2007 at 4:40 pm - Reply

    i’ve started a column called my new life in jesus christ.And it’s progressing really well everyday.I just explain everything i do on a day to day basis and go on from there.lothar patten.

  47. Business plan May 24, 2007 at 6:34 am - Reply

    In reference to your second point, whilst I see where you are coming from, it is important to note the value of experienced external business planning specialists who can help create custom business plans and guide a company (especially small companies or start-ups) through the process.
    They can ensure a certain degree of quality and help determine how in-depth it needs to be using their experience of creating effective business plans for numerous clients
    They can also work with the company updating the business plan every few months as priorities change, new developments occur in the market, new competitors arrive on the scene, etc.

  48. business plans May 30, 2007 at 12:41 pm - Reply

    Excellent article – I guess also remember for most people a business plan doesn’t need to be a thousand pages long because a) no one will read it and b) by the time you finish it’ll be out of date.
    Just write what is necessary to describe how you are going to take your journey from today to where you want to be 🙂

  49. David Scott Lewis August 3, 2007 at 7:12 pm - Reply

    Actually, “avocado-farming software” will more likely be covered by Gartner. Jupiter focuses on the consumer side of things.
    $10 billion market, eh? 😉

  50. How to Start a Two-Bit Operation: Small Business Tips August 9, 2007 at 10:37 am - Reply

    A business plan – doing it for all the right reasons

    Theres not a doubt in anyones mind that you need a sound business plan for a successful business. But, you shouldnt go through the process of building and writing a business plan just because its another thing to check off …

  51. paul stanton August 13, 2007 at 12:37 pm - Reply

    If anyone is looking for a business plan(s) then we can reduce your workload – we have over 2000 at www.business-plans-4-you.com
    You could even become an affiliate…
    http://www.business-plans-4-you.com/idevaffiliate/index.php
    We hope that stops some of you staring at that blank piece of paper – it can be a daunting job!

  52. BizImpresario August 24, 2007 at 9:37 pm - Reply

    You Got A Plan?

    Imagine hiring an architect/contractor to build an expensive mansion. Youve had good recommendations on this person, and are ready to move forward. The construction team shows up to start working on the house. Mind if I look at the plan?&quo…

  53. wedding September 19, 2007 at 1:22 am - Reply

    Very interesting. As Senior Adviser I find it sometimes difficult getting entrepreneurs to understand that they have to write a business plan. Your post will certainly help.
    http://www.hk-car-rental.com/

  54. Joe F. Clark October 16, 2007 at 10:21 am - Reply

    Solid article, Guy. I especially like the way you categorize your business plans and emphasize the Executive Summary. We have seen dozens of plans and we open directly to the exec summary 99% of the time.
    When we help clients write strategic or business plans we strongly emphasis the importance of linking the value they are creating for the customer directly to the operating model. Sound obvious? We rarely see a solid link between a value proposition and the mechanism for delivering that value. The operating model is usually set-up to deliver different components of customer value than the ones being communicated.
    www.mybilliondollarfruit-stand.blogspot.com

  55. Drew Poland November 8, 2007 at 11:42 am - Reply

    I completely agree about the executive summary. It is so crucial to have a executive summary that sells. If not, the rest doesn’t even matter.

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