Forget Business Plans—Go for Market and Passion, Say Investors

3/12/10

MIT’s Kirsch Auditorium was filled to its last seat as over 300 people showed up at the MIT Enterprise Forum Wednesday evening. The topic: “Accelerating Startup Growth: Seed Funding, Incubation and Mentorship Models.”

“You don’t know what you don’t know when you start a company for the first time,” said Laura Fitton, the founder of Twitter app store oneforty who’s often called the “Queen” of Twitter. “You just have this great idea but don’t know anything about marketing, fund raising, investors, regulations, IP. That’s why a structured program is so good for newborn entrepreneurs.”

Fitton herself was happy to be taken aboard by TechStars, which was founded by David Cohen, one of the speakers at the event. TechStars runs a highly structured three-month program for seed-stage startups, putting the entrepreneur straight into a fertile working environment.

“TechStars packs into three months what would take one or two years to achieve in the wild,” said Cohen. “We bring the participants into the innovation ecosystem. About half the startup companies won’t be recognizable after the program. The other half will no longer exist.”

Dave McClure, another investor, oversees the Founders Fund seed-stage investment program, which also focuses on investing in smaller startups. He explained that the cost of launching and funding many startups has decreased, so funds should adjust accordingly and back more companies for the same total amount of money invested.

“The ability to make money on the Internet is good,” said McClure, “especially for consumer-oriented software, like apps for Android and iPhone. Other common entrepreneurial ideas swing around data collecting and data sharing in different forms.”

“I see no shortage of ideas,” McClure added. “Beyond lack of experience, the problem for many entrepreneurs is to find a business model that easily scales up the distribution.”

Lack of experience presumably comes with the territory for many entrepreneurs. Gabor Garai, a partner at the law firm Foley & Lardner who has devoted his career to the legal aspects of investment and entrepreneurship, offered these tips for everybody with a great idea but not a lot of experience running a business:

  • Focus on the business.
  • Learn to handle crisis.
  • Keep a simple structure.
  • Don’t worry about core people leaving the team—it will happen sooner or later.
  • Don’t bother too much about IP or the dilution an investor wants—it’s not about the slice of the pie, but the pie size.
  • Don’t invest energy on issues such as how to cut taxes, etc; it only fragments your focus.

Finally, the panel agreed that business plans are often over-engineered.

“I don’t care much for business plans,” said McClure. “I look for energy, for passion, and a market.”

Eva Regårdh is a tech journalist from Sweden. She is an Innovation Journalism Fellow 2010 at Stanford University and is working for Xconomy during her fellowship. Follow @

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  • http://www.techstars.org David Cohen

    I do recall saying “About half the startup companies won’t be recognizable after the program.” I don’t recall saying “The other half will no longer exist.” – That’s way high, as evidenced by our open sourced results at http://www.techstars.org/results

  • http://www.daggerboardadvisors.com Emmanuel de Boucaud

    True. Gone are the days of 40-50 page plans, and yes, it is true that until the business model and market assumptions are define, a plan does not make any sense…

    But, a complete understanding of the market landscape and ecosystem you operate in, and solid projections (financials) – both elements of a traditional business plan – are needed to validate and confirm monetization, and market opportunity assumptions. This cannot be overlooked or shunned because it will tell you if your ‘idea’ is truly a sustainable business, and not a product, feature or less.

    Not every entrepreneur has the benefit of incubators or mentors to help cover those bases…

  • Patrik

    Business plans should not be underestimated, a proper analyzis adds value to the development of a strategy and long term success.

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  • http://econdev.transylvaniacounty.org Bill Layton

    The article makes several valid points. However, it is unfortunate that you chose to excerpt one comment and headline your article with “Forget Business Plans.” That’s the wrong message to send to would-be and novice entrepreneurs.
    I have been personally involved in several entrepreneurial startups and have consulted with dozens more. In addition to under-capitalization, a primary reason for business failure is lack of a written plan, expecially involving market and financial analyses. Yes, 40-page business plans are overkill, but founding a business only on passion and emotion and winging it from there are too often fatal in today’s global business environment.