Wednesday, April 08, 2009

It's Official: Business Plans Are a Waste of Time

Lots of entrepreneurs ask me if they need a business plan. I always give the same answer: No.

I've raised and participated in dozens of angel and venture rounds, and the only time a business plan was ever involved was my very first start-up.

I'll bet the experienced investors who gave me their money saw my carefully crafted 50-page plan and thought, "Rookie!"

I'm glad I can now now cite a real study from the University of Maryland's Smith School of Business to support my intuition.

The group studied business plans of more than 700 dotcom companies from the late-1990s to early-2000s. They compared characteristics of each business plan – including the contents, team make-up and business model – and whether the plan received venture capital funding.

Their conclusion is that the content of the business plans does not predict which businesses get funded. “We kind of thought we’d find something,” he says. “We thought it would at least matter if you submitted a plan, or if the plan kind of looked right. The evidence is pretty strong that [VCs] don’t pay attention at all.

So what does matter? Social connections trump business plans by a long shot, says Goldfarb. Thus it is that people who already know VCs and angels have an easier time raising money.

Alas, many folks continue to waste their time writing business plans, or even worse, paying someone to write a plan for them. Save your time and money, folks, and focus instead on building relationships.

The One Secret To Resolve Argument and Conflict

Professor Todd Kashdan of George Mason offers this wonderful tip on his Psychology Today blog:

Researchers at Stanford University tested a simple idea for how to create successful outcomes during tense negotiations or conflicts. The reason that arguments can quickly turn ugly is that people don't feel as if they're being understood. Thus, make sure that each party feels as if they are being carefully listened to.

If people show that they are curious and willing to learn more about someone else's opposing view, this might be the key to diplomacy. That is, ask a single clarifying question about what another person's view is about. That's it. One question with a few important guidelines:

1. All you are doing is gathering information.
2. Be willing to suspend your biases and passionate beliefs-anticipate being challenged to defuse any defensive reactions on your part.
3. There is no commitment that you are going to alter or change your position based on what you learn.

Think of it as making an assessment of what the other person is thinking instead of judging them. Don't get me wrong, this is a hard mindset to be in. But what happens when we are genuinely curious about someone that holds a point-of-view that diverges from our own? By merely asking for a single bit of information, the other person views us as more open-minded and warm ("I appreciate you taking the time to actually hear me out"). They view us as different from the typical person with a belief system that differs from their own ("You know, it's refreshing to hear someone who is an atheist listen to what someone with faith actually has to say"). The other person feels as if we are paying attention and they don't just feel good, they view us as a good person. That curiosity, that open-mindedness, ends up being contagious. When you show curiosity in what they care about, they show a greater willingness to gather additional information from you. In the end, they are more willing to negotiate and come to a compromise that benefits everyone.

Far too many in this day and age take a positional approach--establish your position, and advocate it as strongly as possible. But the positional approach is only optimal if the conflict or argument is truly a simple, zero-sum tug-of-war.

Far better to seek an understanding that lets you craft an outcome that maximizes overall utility. Even if you don't get a significantly better deal, allowing the other part to come out ahead as well has major benefits for future interactions and your overall reputation.