Writing a business plan is something virtually every entrepreneur and entrepreneurship student does. A new study out of U of Maryland, authored by my friend David Kirsch and co-authors Brent Goldfarb and Azi Gera). From the NYTimes article by Brent Bowers:
Researchers found that venture capitalists, who screen hundreds or thousands of solicitations each year, pay little or no heed to the content of business plans. Instead, the study said, because they make decisions “under conditions of high uncertainty,” venture capitalists rely on instinct and their expertise in ferreting out information by other means to evaluate the prospects of a business.
That means, the study said, that they pay little attention to the documentation from entrepreneurs about their academic credentials, work or start-up experience, previous success in raising equity capital, ability to form a top-notch management team or even how much money they want.
“In general, business plans don’t matter,” said Brent Goldfarb, an associate professor of management and entrepreneurship at the Robert H. Smith School of Business, who wrote the study with David A, Kirsch, also an associate professor at the school, and Azi Gera, a doctoral student. “Nobody is going to read them.”
That assertion flies in the face of the conventional wisdom that writing a business plan is one of the first and most essential tasks an entrepreneur should undertake, Mr. Goldfarb acknowledged. But, he says, the report’s conclusions jibe with the feedback he gets from venture capitalists.
I look forward to reading David’s paper, but it must be noted that this paper is pointing out how venture capitalists use business plans. There is a huge value to plans for entrepreneurs, partners, bankers, angel investors, and others.