So this week we get it again: another business publication with a poorly conceived rehash of a misguided academic study saying venture capitalists don’t read business plans.
Why poorly conceived? Why misguided? And why a molehill?
The molehill reference is to the old phrase about making a mountain out of a molehill. In this case it’s making a molehill out of something much smaller than that.
The journalists like that study because it seems like the conclusion is contrarian: It seems to deny what everybody assumes is true. Specifically, it seems to question the usefulness of an entrepreneur developing a business plan.
But the truth is that the business plans that entrepreneurs should write, review and revise frequently were never really there just for VCs to read or not read. They were there to figure out what’s supposed to happen, when and why, how much it costs and who’s responsible.
The business plan is for you to plan your business. Whether somebody else reads it or not, you need to know what you’re talking about; and if you don’t have a plan, it shows.
So it’s a ruse, really: To say that VCs don’t read business plans is like saying audiences don’t read screenplays. The VCs get the results. The plan is for the entrepreneur.
Oh, and by the way, that study they’re citing lately, done at the University of Maryland–it was done almost 10 years ago at the height of the dot-com boom, when it wasn’t clear that VCs were reading anything, let alone business plans.
And of the million or so new businesses that start up every year, only about 5,000 of them are financed by VCs.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
