Why do you need a business plan?

Here are a few more reasons from investors about why a solid business plan is so important:

“The ability of a CEO and his or her top-level groups to write a good business plan is the first test of their ability to function as a team and to run their proposed company successfully”

– C. Gordon Bell, DEC veteran and advisor to US Venture Partners

“At a minimum, VCs prefer business plans that convey a coherent and compelling story. They like plans that are clear, concise, thorough, and professional in presentation; practical, realistic, and credible in content; and that adequately explain all assumptions on which claims are made.”

– Justin J. Camp, Author of Venture Capital Due Diligence

““We may or may not read the actual business plan, but it is the solid thinking that goes into developing it that will lead us to invest”

– Prashant Shah, Venture Partner at Hummer Winblad

"...The more relevant and important reason to write a business plan, whether you are raising money or not, is to force the management team to solidify the objectives (what), strategies (how), and tactics (when, where, who). Even if you have all the capital in the world, you should still write a business plan. Indeed, especially if you have all the capital in the world because too much capital is worse than too little."

–Guy Kawasaki, Garage Ventures

And, one final reason-- the competition for funding is incredibly intense. To beat the odds, you must be well-prepared, and you must stand out from the pack. To wit:

“A typical $100 million venture capital firm receives at least 1,500 business plans per year. Of those, about 100 (6.7%) will be invited to meet with the partners. Perhaps 50 (3.3%) will result in serious due diligence, 10 (0.7%) of them will be offered a term sheet (see below), of which 5 (0.3%) of them ultimately will obtain funding. Most VC firms this size will have 3-5 investment professionals and will likely have the resources to execute 1-2 deals per professional per year.

---from David Blumberg of Blumberg Capital, and published in How to Value Your Business and Increase its Potential, by Jay B. Abrams, McGraw-Hill.

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