Don’t Fret the Business Plan… Obey the Market

“Shark Tank,” the enormously popular TV show, is about entrepreneurs vying for money to fund their ideas. They win or lose based on their business plans and how well they present them.

It’s a bogus concept. Anyone that knows anything about how venture capital works, including the celebrity entrepreneurs that act as judges on the show, knows it.

What’s BS about the show is the focus on the business plan itself. Business plans matter, but not nearly as much as most people think. And when it comes to start-up ventures, the initial plans matter even less.

That’s because in the real world nothing is static. The economy is in a continuous state of change. Industries are forever shrinking and/or expanding. Supply and demand changes on a daily basis. And this is to say nothing of the infinitely complex and unpredictable nature of the human beings that comprise the business experience: the managers, the employees, the vendors, and the customers.

Business plans, however, are by nature static. They are based on facts and assumptions that are true for some limited period of time. Bigger plans – those that contain more facts and assumptions – may have the appearance of being more reliable, because they take so much more into consideration. But in fact, they are less stable – precisely because they contain more parts that are likely to move.

I’ve been involved in more business start-ups than I can count. When I think about the best of them, I can’t think of a single one that succeeded by faithfully following its original plan.

On the contrary, the most successful businesses I’ve been involved with at inception – the ones that grew to into thriving, enduring, multimillion-dollar companies – were all started with plans that were sketchy. Literally sketchy – with the core ideas recorded as sketches on scraps of papers.

The simple truth about entrepreneurship is this: It’s much more about the ingenuity, tenaciousness, and flexibility of the founders than about their ability to make perfect plans.

And that is why, in the past 20 years, the average business plan required by venture capitalists has shrunk from 75-100 pages to 15-25. Angel investors today understand that successful start-ups are not those that begin with amazing plans but with amazing people that have the ability to adapt quickly and enthusiastically to changing market conditions.

Do you recognize the name David H. McConnell?

He began his career as a traveling salesman. He sold books. Over several years of trying out a variety of whimsical sales pitches, he discovered that he could increase sales by giving potential customers perfume samples as a bonus.

I know! It doesn’t make sense. But the gimmick worked. It worked so well that he trashed his plan for building a bookselling empire and replaced it with a plan to sell perfumes.

He hired 13 female sales representatives (mostly former customers) and set them to work. A decade later, he had a sales staff of 5000. His business then was called the California Perfume Company.

Later, he changed the name to Avon.

The Takeaway: You don’t need a perfect plan to start a great business. You need a plan that is flexible enough to guide you through all the changes you’ll be making as your business grows.

Recommendation: If this idea feels important to you, get yourself a copy of Ready, Fire, Aim.