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Business Plan Has Zero Value for Attracting VC Funding?

Here’s some information that is likely to stir some debate. Researchers from the University of Maryland’s Robert H. Smith School of Business are saying that business plans are virtually useless. They claim that a business plan has zero value as a fundraising tool and that entrepreneurs should be perfecting their businesses rather than spending hours refining how their plans look on paper.

“Spending time and energy tweaking your business plan is a waste of resources,” said researcher David Kirsch, associate professor of management and entrepreneurship. “It’s a limited-use document that will in no way substitute for the hard work of actually building a business. You’re better off investing in your idea, your social network, finding potential investors, potential customers – the intangibles around your business that are going to make it more likely you succeed. Invest your time in any other business-building activity but working on your business plan.”

To reach their conclusion, they studied over 700 dot-com companies from the late 90s to the early 2000s. The researchers compared objective characteristics of each business plan including the contents, team make-up and business model, and whether the plan received venture capital funding.

They found that the content of the business plans did not predict which businesses got funded. They do make clear that it is not their advice that companies completely forgo business plans, as they can provide helpful organization tools. They just say they don’t have a direct effect on influencing venture capital funding decisions.

“I think VCs like the plans because they skim them to see what people are doing – to get a sense of what entrepreneurial activity is happening,” Goldfarb said. But an interested VC will learn the details of a business whether it is in the plan or not according to the researchers.

What do you think about this research?

About the author : Chris Crum is a content coordinator and staff writer for SmallBusinessNewz and the iEntry Network.

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Social Guy is a tech buff, online entrepreneur and social animal. He is best-known as the Editor-in-Chief of SOCIABLE, the world’s leading social media news source. Social Guy's 7+ year career with SOCIABLE began when he joined as a blogger in August 2007. Guy’s work has been quoted or featured in media such as ZDNet, Examiner, Marketwatch, PC Magazine, Wired, CNET, and The New York Times.

2 comments

  1. Hey Chris, thanks for the informative article on this, I just loved reading it, keep posts like this one coming. Subscribing you right away!

  2. I hope business plans are worth more than a skim, but it's true how VCs might ignore them. Just because it looks good on paper does not mean it will come to reality. A lot of aspiring entrepreneurs go to school to learn about business plans and other technical skills when that's not what they really need. i intern for a startup right now and they cannot get any funding because they two and years out of college. I believe it's also the track record that might investors pass off the ideas. Check out http://www.awesome.viralogy.com if you interested in interviews with young entrepreneur bloggers. It's definitely a new way to meet the people behind the blogs.

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