Investors asked for a business plan, what do I do?

When I ask anybody to close their eyes and imagine what a business plan is, everybody has a very different idea of what it should be, ranging all the way from a sketch on the back of a napkin to a printed and bound manuscript so big and heavy that would hurt if you dropped it on your foot.

When an investor likes what you’re working on and asks for a business plan, you want to be certain that what you come back with is at least similar to what they had in mind. And creating or revising a business plan takes time you would rather spend working on your startup, so you don’t want to over-do it.

So maybe the first step is to be very clear about what kind of business plan they want to see? If you’re about to embark upon a work of speculative fiction, best to understand whether they’re hoping for a 14 page superhero comic or the entire Song of Ice and Fire.

But you’ll find it’s hard to find out what an investor wants/needs in a business plan. Ask them if they’d like revenue projections and they’ll say yes. Ask them if they’d like marketing cost projections and they’ll say yes again. Ask them if they need headcount, and capex, and office rent, and they’ll say yes, yes, and yes please, thank you. They will say yes to everything because everything you add probably feels like it reduces their risk in investing in your business.

But it won’t necessarily get you any closer to closing an investment round, because every additional bit of information you put in a business plan is one more bit of information that can be interrogated, questioned, or challenged. Sometimes it will feel like adding one answer creates another three questions.

It’s all speculative fiction. You just can’t know for sure, a lot of the time. These are startups, not an FMCG brand — you’re not making a slightly different colour of toothpaste, you’re redesigning tooth enamel so it never needs to be cleaned again.

Forward projections are just difficult to estimate on an early-stage tech business, particularly one with a two-sided marketplace when there’s still relatively few transactions across the platform, a freemium product, a display/performance ad revenue model or a category-defining product or service.

Say you develop a business plan for the investors as they’ve asked and it’s got a set of forward projections. Over-achieve on them and you’ve got very happy investors and an easy investor relationship to manage.

Miss your speculative fiction numbers and you’ve got unhappy investors. Doesn’t matter how many disclaimers were in the business plan. They might prefer to explore changing the CEO before they’re ready to change the business plan.

Hold out for investors who understand investing in early-stage unlisted tech companies is a gamble. Requiring a business plan can be a sign that investors are inexperienced, or a sign that they’re reluctant to gamble on investing in you. Neither is great.