You don’t need a business plan

[This post is based on an excerpt from Dan Shapiro’s new book Hot Seat: The Startup CEO Guidebook, just released as an ebook and due out in hard copy June 1 from O’Reilly Media.]

You’re ready to meet with VCs. You’ve created a slide deck, honed your pitch, and mastered your numbers. But what about a business plan? Do you need one?

In their outstanding book Venture Deals (Wiley, 2011), Brad Feld and Jason Mendelson have this to say about the “business plan”:

We haven’t read a business plan in over 20 years. Sure, we still get plenty of them, but it is not something we care about as we invest in areas we know well, and as a result we much prefer demos and live interactions. … However, realize that some VCs care a lot about seeing a business plan, regardless of the current view by many people that a business plan is an obsolete document.

Let me take it one step further and tell you what to do when investors request that you conjure up an obsolete 30-page document from the ether and send it to them that evening.

I’ve been in this situation, and it’s very disconcerting. When Ontela was raising its Series B, none of the 77 VCs we pitched asked for a business plan. We talked to dozens of VCs (I didn’t keep track of how many) during our Series A as well and got zero business plan requests. But during our seed round, when we pitched probably 100+ angels, it came up more than a few times.

Whenever it did, we felt something between guilty and scared. Guilty that we had skipped something that was clearly important, and scared we’d look like idiots. There was a lot of hemming and hawing before we figured out a foolproof solution.

Whenever investors ask you for your business plan, send them the same damn packet you send to everyone else. In our case, that was a three-page “executive summary” and a dozen slides giving an overview of the business with some screenshots of the product. Don’t apologize, and don’t mention the business plan.

We did this at least a dozen times and had precisely zero complaints.

One final note: Investors who want business plans are probably not your target market, if you’re founding a high-growth technology startup. Business plans are typical of more traditional, predictable businesses like restaurants and retail outlets. If an investor is asking for them, that’s probably what that investor is used to seeing. We had lots of great follow-up conversations with the angels who wanted business plans, but ultimately none of them turned into investors.

Dan Shapiro is the CEO and cofounder of Glowforge, a startup that’s creating a 3D laser printer. Previously, Dan accidentally launched the bestselling boardgame in Kickstarter history when he crowdfunded Robot Turtles, a game that teaches programming fundamentals to preschoolers. Before his detour as a boardgame designer, Dan spent two years as CEO of Google Comparison, Inc, a Google subsidiary that operates comparison shopping products. He landed at Google when they bought his previous company, comparison shopping website Sparkbuy. Before Sparkbuy, Shapiro was founder and CEO of Photobucket Inc. (formerly Ontela).