Posted by: hmchang | January 31, 2008

Books: The Art of The Start: Ch4 – The art of writing a business plan

(image source: http://www.guykawasaki.com/books/cover/046b.jpg)

Summary of the most important concepts

Guy Kawasaki in his “The Art of The Start” book put less emphasis on writing a business plan (ch4) as compared to pitching (ch3). The claim was that: no one really read the business plan, they don’t have time. However, writing a business plan is essential for (1) it is a necessary document to keep in file for investment bankers, (2) it help to identify loopholes in the founding teams, and (3) it brings the founding members together to think about the venture.

Another reason that a business plan is not as important is because the strategy, financial situation and many other important factors changes rapidly as a startup evolves. “If you are successful, no one will care if you didn’t follow the plan.” What is important is the execution, and fast execution. If your venture fails, no one will care how well you have planned, either.

Three important points in this chapter are: (1) Pitch than plan (2) focus on the executive summary (3) write deliberate, act emergent.

The structure of a good business plan is similar to the order of the presentation slides for a pitch. Many people starts by writing a business plan and then condense them to a pitch. However, Guy suggests the reverse: get your slides ready and then the business plan. The slides can be easily changed since they contain fewer words, so it is easy to fix after getting feedback. Few business plan gets feedback so one should always start from the pitch than the business plan to get a more thoroughly thought version.

Executive summary is perhaps the only part that people will read; thus, refine it until it’s perfect. This part is like the first few minutes of a pitch – getting the message out, stimulating interest is very important. Also, your business plan should not exceed 20 pages in total.

The most important section in a business plan is the financial projection. However, very few of those projections really meet the real numbers. However, as an entrepreneur, it is important to figure out the projected number to have a clear vision. A lot of assumptions may be needed in putting those numbers together and it is necessary to put them down. Understanding how practical those assumptions are shows how deep the entrepreneurs know about their business and the context. A general practice for how many years you should include in your financial projection is how long it takes for you to get significant profits. Investors are most concern about those years since they greatly affect their return.

Lessons Learned

I agree that a pitch is more important than a business plan. Reading is a one way communication and pitching can be a two way communication and thus pitching can be more effective in stimulating interests. Moreover, people do not have much time to read through a long story. Since there are limited time for pitching, entrepreneurs will be confined to just expressing the most important parts of their business. Many of the business plans contains redundant information.

My previous experience also supports that writing a business plan together will help bring team members together and also identifying loopholes in the founding team. However, at that time we started by writing the business plan than a pitch. Having slides for a pitch as an outline will definitely make writing our business plan much easier.

Just as the title and abstract is the most important portions of a good research paper, the executive summary should be very well written to be effective. Having one people writing the whole document also help for the flow. Others can prepare the outline, charts, tables, and figures. This minimizes the need for writing a majority of the document if the writing style differs a lot.

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