September 12, 2010

What's in a Name?

Since launching this blog, I've had friends and acquaintances ask me how I selected the name and what "plan on fire" means, so I'm writing this post to clarify that for anyone who might be curious.

First of all, "plan on fire" is obviously a play on the expression "man on fire," which happens to be the title of a 1981 novel by A.J. Quinnell, although I suspect the phrase may predate his book. Readers may be more familiar with the films based on the novel, one in 1987 and the other in 2004 (with Denzel Washington).

More importantly, "plan on fire" reflects my critical stance towards a myopic view of entrepreneurship often peddled to aspiring business owners. Many academic courses and books on the subject of new venture creation emphasize little beyond writing business plans and raising money, as if these were the skills that will make you into a successful entrepreneur. They won't. They are merely prerequisites necessary to exploit a limited range of opportunities.

That's why I feel using the venture-backed model as the "default template" for describing how new businesses are created is a real disservice to the public. It perpetuates a distorted view of how most companies (even fast growing ones) are actually founded, and it gives people the false impression that they cannot build a world-class business without significant external funding.

The name of this blog also pokes fun at entrepreneurs' seemingly endless preoccupation with formal business plans. It's not that I'm against planning. Rather, it's that business plans invariably paint the future with an unwarranted degree of certainty. It's hard enough to project a mature company's sales two years from now. Can anyone honestly say what a startup’s revenues will be five years in the future when those estimates are based on a whole set of untested assumptions? I can't tell you how many business plans I've reviewed that included such "pie in the sky" forecasts.

Steve Blank notes the absurdity of the practice in this gem:

Where did the idea that startups write business plans come from? A business plan is the execution document that large companies write when planning product-line extensions where customer, market and product features are known. The plan describes the execution strategy for addressing these "knowns." In the early days of venture capital, investors and entrepreneurs were familiar with the format of business plans from large company [sic] and adopted it for startups. Without much thought it has been used ever since.

The only thing I would add to Blank's observation is that, because it has been adapted to a purpose it was never designed to fill, the business plan has lost any meaningful connection it had with execution strategy long ago.

Professional investors know these documents are more often just thinly veiled puff pieces. If they bother to read the plan at all, they may just skim the executive summary to get an idea of what the opportunity is about. Angels and VCs base investment decisions not on the entrepreneur's wishful thinking, but on their proprietary knowledge of the market space and their own assessment of the management team's ability to execute. That's why I find the whole emphasis on writing business plans for early stage companies to be misguided, and I hope this blog will help entrepreneurs find more productive uses for their time and energy.

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