Thank you for writing this. Overall, I updated my beliefs pretty significantly. I started two startups myself and plan to start many more, so I care a lot about getting the right answers here.
It’s interesting, the vibe I get from “startup culture” is pretty anti-planning. That idea has always kinda made sense to me and I’ve sorta just rolled with it, but now I’m thinking that the decision to write a business plan deserves more careful thought.
I think the big critique people have for business plans is that when you’re an early stage startup, there’s bound to be a lot of iteration, so plans are bound to change significantly. Why spend a lot of time writing out a detailed plan for a podcasting platform when you are ultimately going to evolve into a microblogging social network? Another related critique is that numeric projections are extremely error prone at the early stages. You seem to mostly agree with these points in saying that it’s fine to keep it light when you still don’t know what direction you’re pointing, but that once you do know where you’re pointing it’s important to write out a 10+ page plan.
After reading your post, I may be even more pro-planning than you! I think that even at the early stages when you don’t know what direction you’re pointing, a 10+ page plan probably makes sense. The big thing to me is that it doesn’t actually take that much time to write out such a plan! Perhaps just a few days. So thinking about the cost vs the benefit, the cost side of the equation seems pretty low to me. However, if this low-cost assumption of mine is wrong and we’re instead talking about taking eg. a month to plan when you’re at an early stage, then that definitely seems silly. I think the big thing is remembering to ask yourself the question in the first place, rather than proceeding with some sort of cached thought/behavior. Once you ask the question, it seems like something that you can just be pragmatic about.
Still, even with all of that said, when I try to get concrete, things feel a little bit fuzzy to me. What are some good, real world examples of people who didn’t write out business plans, and suffered the consequences? What does this look like? I’m not trying to imply that when you get concrete the answer ends up being that business plans aren’t that useful. I’m just saying that I personally don’t have a strong sense of what those examples look like. And that I think your post would benefit from such examples, with a pretty heavy amount of detail included. Another way I think your post would benefit would be to steelman the opposing arguments harder. It felt a little strawman-y to me.
Here’s an example from my own life of not writing out a business plan harming me. I started a startup called Premium Poker Tools. Before diving into it, I did spend time thinking about what the market size is, how much of that pie I can plausibly capture, whether I could expand the pie, how likely all of this is, etc. Just getting a feel of whether the EV makes sense. I don’t want to say I did a half-hearted job of it. I definitely spent some time googling around and trying to figure it out. I arrived at some answers by using things like poker forum participation, YouTube views, etc. as proxies, because I couldn’t figure out any hard numbers for my competitors. I felt (over)confident in this and didn’t want to “waste” too much time on it, so I moved on. It turns out I vastly overestimated the size of the market. One cool thing I learned is that if you don’t know the revenue of your competitors, you could look at how many employees they have and multiply by something like $150k to get a ballpark idea. My competitors are all one/few person shops, so that should have been a sign. Also, more to the point I think, if I wrote out a business plan and shared it with people, someone who actually knows about this stuff could have pointed out that my market size estimates were dubious and that there are better ways of doing such estimates. It’s sad to admit this, but it could have saved me a good two years of my life if I did this.
Anyway, looking at the benefit side of the equation now, I’m a big believer in writing to think. Writing is an enormously helpful way to develop and refine your thoughts. Especially when you share it with others and iterate on it. To the extent I see this as underrated, it makes sense to me that writing out business plans would be similarly underrated.
Btw, I don’t have a good segue, but I really like the idea of business plans as simulations. I feel like that really clicked for me. I also really like and agree with the idea that it’s hard to predict what success, but it’s actually not that hard to figure out that a startup is bound to fail. Liron talks about this as well.
As a last point, I suspect that for startups/early stage businesses, the types of things you’d want to talk about in your business plan would be pretty different from what a more traditional business would want to talk about. It probably isn’t worth going into more detail in this comment, I think it’s an important thing to think about. What specifically are you planning in your business plan, and why?
PS re examples, I agree they are helpful in general (and I liked your post on the topic). Looking back at my notes I see I had a few more, but didn’t use them because they didn’t make crystal-clear points (and I was concerned the post was getting too long/complicated already). Actually in retrospect I realize I could have just made up examples if I couldn’t produce actual ones. Anyways.
Looking back at my notes I see I had a few more, but didn’t use them because they didn’t make crystal-clear points (and I was concerned the post was getting too long/complicated already).
Personally, I’m a fan of kinda anti-conciseness. I used to think of conciseness as a big thing to aim for, but iirc, there was some Slate Star Codex post that convinced me otherwise (possibly Non-Expert Explanation, but I don’t think so). A lot of things require you to look at it from various angles and see different examples of it before it really clicks.
There is a tradeoff of course though. Even if there’s a benefit of being more clear, for more tangential points perhaps that benefit wouldn’t be worth it. But for the more central points, I think the benefit usually is worth it, and that it would be worth it in the case of this article, IMHO.
The argument for conciseness these days would be that people are more likely to read it. Medium published stats a few years ago from which I inferred the optimum article length is v roughly 1200 words, if the aim is to maximise total words read (readers x mean words read).
Also analysing my own Medium articles suggests people typically stop reading after about 4 minutes regardless of the article’s length.
But I take your point re examples—they improve clarity disproportionately.
Thanks for this feedback. Re real-world examples of startups that went awry for lack of a plan, the classical music video one is of a standard kind—he thought ‘this would be a cool product for people like me’ but never thought how many there were like him, i.e. the market size. I assume similar examples exist for each of the headings in a business plan—people who didn’t think about e.g. marketing, distribution, risks, and especially financials. But though I’ve advised various startups, I don’t know many such examples, because I find if I insist on a business plan and they don’t want to write one, I tend not to hear from them again and never find out what happened. Many founders seem to find writing one an insurmountable obstacle.
I agree maybe I should steelman the opposing arguments, though I don’t know how strong they are. I thought a bit about the lean startup process, as it appears to contradict writing plans, but it’s largely about the earlier stage of finding a plausible idea for a business. So it’s not inconsistent with writing a plan once you’ve found one (even though people often don’t). I sense the anti-planning mindset is more of an ‘attitude’ than a rationale, with the negatives that suggests. I don’t think I’m too strawmanny though, as the lame excuses I give seem widespread (even if not always articulated).
As it happens I also had a poker software startup a few years ago (AI for playing/training with), which never succeeded—not for lack of a business plan, it was that making the software good enough took far longer than we expected (it being a particularly hard problem, and research as much as development), and we were chasing a moving target as the standard of online poker play was increasing fast. I spent a long time estimating companies’ market sizes via various proxies, including indeed multiple of employees. I had a rare chance to test this, as I’d estimated PokerStars’ revenue (from various things including traffic), which no-one knew since they were very secretive and published no figures—but when they were bought by Amaya they had to file accounts, and it turned out I had been only about 10% out. This was helped though by the fact various poker companies already published accounts, from which I had been able to calibrate the proxies quite well.
Re writing to think, indeed years ago a corporate finance company gave me this justification for writing a business plan. It forces you to think it all through.
I’m not sure a startup’s business plan is that different from an established business’s one—I’ve never noticed much difference when writing them myself, but maybe haven’t thought about the differences enough. (Other than that a startup is naturally more speculative, and has to create departments & processes that would often already exist in an existing business.)
Many founders seem to find writing one an insurmountable obstacle.
Hm, people seem to feel that way about writing “long” things in general, and I’ve always found that weird. For example, I’ve received “ugh, you want me to read all of that?” responses from multi-paragraph text messages before. When you actually think about how much time it takes, it isn’t that long, so maybe it’s the shock value, but that doesn’t feel like the right explanation either.
I don’t think I’m too strawmanny though, as the lame excuses I give seem widespread (even if not always articulated).
Hm, I agree. At least that it’s worth directly addressing the lame excuses due to them being widespread.
I agree maybe I should steelman the opposing arguments, though I don’t know how strong they are.
Even if they aren’t strong enough to win out, I think it’s useful to go through a longer, more thorough steelman for the purpose of educating + convincing the reader. Eg. I see the lean startup stuff + wide error bars stuff as the big counterpoints, and you only spent a few paragraphs talking about them. Well, it was actually a decent length relative to the overall length of your post, so maybe this point is tied to my other point about anti-conciseness.
As it happens I also had a poker software startup a few years ago
Cool! That makes sense about the software’s complexity. It’s difficult to have good estimates there. When I worked on Premium Poker Tools I spent a few weeks trying to estimate how long it’d take to complete my tasks. For a while I was doing good, but then there were some tasks where the complexity just spiraled out of control, which caused me to lose motivation and stop trying to estimate. Right now I’m really liking Basecamp’s idea of uphill vs downhill work as a substitute for estimating how much longer a task will take.
Thanks again for the detailed feedback. In practice I don’t think I’m going to improve this post further as I’ve spent far too much time on it already (I find assembling coherent thoughts painfully slow), but it’s useful for my future posts.
Thank you for writing this. Overall, I updated my beliefs pretty significantly. I started two startups myself and plan to start many more, so I care a lot about getting the right answers here.
It’s interesting, the vibe I get from “startup culture” is pretty anti-planning. That idea has always kinda made sense to me and I’ve sorta just rolled with it, but now I’m thinking that the decision to write a business plan deserves more careful thought.
I think the big critique people have for business plans is that when you’re an early stage startup, there’s bound to be a lot of iteration, so plans are bound to change significantly. Why spend a lot of time writing out a detailed plan for a podcasting platform when you are ultimately going to evolve into a microblogging social network? Another related critique is that numeric projections are extremely error prone at the early stages. You seem to mostly agree with these points in saying that it’s fine to keep it light when you still don’t know what direction you’re pointing, but that once you do know where you’re pointing it’s important to write out a 10+ page plan.
After reading your post, I may be even more pro-planning than you! I think that even at the early stages when you don’t know what direction you’re pointing, a 10+ page plan probably makes sense. The big thing to me is that it doesn’t actually take that much time to write out such a plan! Perhaps just a few days. So thinking about the cost vs the benefit, the cost side of the equation seems pretty low to me. However, if this low-cost assumption of mine is wrong and we’re instead talking about taking eg. a month to plan when you’re at an early stage, then that definitely seems silly. I think the big thing is remembering to ask yourself the question in the first place, rather than proceeding with some sort of cached thought/behavior. Once you ask the question, it seems like something that you can just be pragmatic about.
Still, even with all of that said, when I try to get concrete, things feel a little bit fuzzy to me. What are some good, real world examples of people who didn’t write out business plans, and suffered the consequences? What does this look like? I’m not trying to imply that when you get concrete the answer ends up being that business plans aren’t that useful. I’m just saying that I personally don’t have a strong sense of what those examples look like. And that I think your post would benefit from such examples, with a pretty heavy amount of detail included. Another way I think your post would benefit would be to steelman the opposing arguments harder. It felt a little strawman-y to me.
Here’s an example from my own life of not writing out a business plan harming me. I started a startup called Premium Poker Tools. Before diving into it, I did spend time thinking about what the market size is, how much of that pie I can plausibly capture, whether I could expand the pie, how likely all of this is, etc. Just getting a feel of whether the EV makes sense. I don’t want to say I did a half-hearted job of it. I definitely spent some time googling around and trying to figure it out. I arrived at some answers by using things like poker forum participation, YouTube views, etc. as proxies, because I couldn’t figure out any hard numbers for my competitors. I felt (over)confident in this and didn’t want to “waste” too much time on it, so I moved on. It turns out I vastly overestimated the size of the market. One cool thing I learned is that if you don’t know the revenue of your competitors, you could look at how many employees they have and multiply by something like $150k to get a ballpark idea. My competitors are all one/few person shops, so that should have been a sign. Also, more to the point I think, if I wrote out a business plan and shared it with people, someone who actually knows about this stuff could have pointed out that my market size estimates were dubious and that there are better ways of doing such estimates. It’s sad to admit this, but it could have saved me a good two years of my life if I did this.
Anyway, looking at the benefit side of the equation now, I’m a big believer in writing to think. Writing is an enormously helpful way to develop and refine your thoughts. Especially when you share it with others and iterate on it. To the extent I see this as underrated, it makes sense to me that writing out business plans would be similarly underrated.
Btw, I don’t have a good segue, but I really like the idea of business plans as simulations. I feel like that really clicked for me. I also really like and agree with the idea that it’s hard to predict what success, but it’s actually not that hard to figure out that a startup is bound to fail. Liron talks about this as well.
As a last point, I suspect that for startups/early stage businesses, the types of things you’d want to talk about in your business plan would be pretty different from what a more traditional business would want to talk about. It probably isn’t worth going into more detail in this comment, I think it’s an important thing to think about. What specifically are you planning in your business plan, and why?
PS re examples, I agree they are helpful in general (and I liked your post on the topic). Looking back at my notes I see I had a few more, but didn’t use them because they didn’t make crystal-clear points (and I was concerned the post was getting too long/complicated already). Actually in retrospect I realize I could have just made up examples if I couldn’t produce actual ones. Anyways.
Personally, I’m a fan of kinda anti-conciseness. I used to think of conciseness as a big thing to aim for, but iirc, there was some Slate Star Codex post that convinced me otherwise (possibly Non-Expert Explanation, but I don’t think so). A lot of things require you to look at it from various angles and see different examples of it before it really clicks.
There is a tradeoff of course though. Even if there’s a benefit of being more clear, for more tangential points perhaps that benefit wouldn’t be worth it. But for the more central points, I think the benefit usually is worth it, and that it would be worth it in the case of this article, IMHO.
The argument for conciseness these days would be that people are more likely to read it. Medium published stats a few years ago from which I inferred the optimum article length is v roughly 1200 words, if the aim is to maximise total words read (readers x mean words read).
Also analysing my own Medium articles suggests people typically stop reading after about 4 minutes regardless of the article’s length.
But I take your point re examples—they improve clarity disproportionately.
Thanks for this feedback. Re real-world examples of startups that went awry for lack of a plan, the classical music video one is of a standard kind—he thought ‘this would be a cool product for people like me’ but never thought how many there were like him, i.e. the market size. I assume similar examples exist for each of the headings in a business plan—people who didn’t think about e.g. marketing, distribution, risks, and especially financials. But though I’ve advised various startups, I don’t know many such examples, because I find if I insist on a business plan and they don’t want to write one, I tend not to hear from them again and never find out what happened. Many founders seem to find writing one an insurmountable obstacle.
I agree maybe I should steelman the opposing arguments, though I don’t know how strong they are. I thought a bit about the lean startup process, as it appears to contradict writing plans, but it’s largely about the earlier stage of finding a plausible idea for a business. So it’s not inconsistent with writing a plan once you’ve found one (even though people often don’t). I sense the anti-planning mindset is more of an ‘attitude’ than a rationale, with the negatives that suggests. I don’t think I’m too strawmanny though, as the lame excuses I give seem widespread (even if not always articulated).
As it happens I also had a poker software startup a few years ago (AI for playing/training with), which never succeeded—not for lack of a business plan, it was that making the software good enough took far longer than we expected (it being a particularly hard problem, and research as much as development), and we were chasing a moving target as the standard of online poker play was increasing fast. I spent a long time estimating companies’ market sizes via various proxies, including indeed multiple of employees. I had a rare chance to test this, as I’d estimated PokerStars’ revenue (from various things including traffic), which no-one knew since they were very secretive and published no figures—but when they were bought by Amaya they had to file accounts, and it turned out I had been only about 10% out. This was helped though by the fact various poker companies already published accounts, from which I had been able to calibrate the proxies quite well.
Re writing to think, indeed years ago a corporate finance company gave me this justification for writing a business plan. It forces you to think it all through.
I’m not sure a startup’s business plan is that different from an established business’s one—I’ve never noticed much difference when writing them myself, but maybe haven’t thought about the differences enough. (Other than that a startup is naturally more speculative, and has to create departments & processes that would often already exist in an existing business.)
Hm, people seem to feel that way about writing “long” things in general, and I’ve always found that weird. For example, I’ve received “ugh, you want me to read all of that?” responses from multi-paragraph text messages before. When you actually think about how much time it takes, it isn’t that long, so maybe it’s the shock value, but that doesn’t feel like the right explanation either.
Hm, I agree. At least that it’s worth directly addressing the lame excuses due to them being widespread.
Even if they aren’t strong enough to win out, I think it’s useful to go through a longer, more thorough steelman for the purpose of educating + convincing the reader. Eg. I see the lean startup stuff + wide error bars stuff as the big counterpoints, and you only spent a few paragraphs talking about them. Well, it was actually a decent length relative to the overall length of your post, so maybe this point is tied to my other point about anti-conciseness.
Cool! That makes sense about the software’s complexity. It’s difficult to have good estimates there. When I worked on Premium Poker Tools I spent a few weeks trying to estimate how long it’d take to complete my tasks. For a while I was doing good, but then there were some tasks where the complexity just spiraled out of control, which caused me to lose motivation and stop trying to estimate. Right now I’m really liking Basecamp’s idea of uphill vs downhill work as a substitute for estimating how much longer a task will take.
Thanks again for the detailed feedback. In practice I don’t think I’m going to improve this post further as I’ve spent far too much time on it already (I find assembling coherent thoughts painfully slow), but it’s useful for my future posts.
Sure thing. That makes sense.