Secret Entrepreneur Lesson: Start Ups Should Develop Customer Benefit Plans Rather than Business Plans for Venture Capitalists

Take a course on entrepreneurship at any business school, and you'll soon be engaged in creating a business plan to raise $3 million from venture capitalists. A new study shows that fewer than one percent of such business plans will ever be implemented. Entrepreneurs who focus instead on creating the most customer benefits first will have a better chance of success than those entrepreneurs who gain $3 million in venture capital.

Weston, MA (PRWEB) March 15, 2006 -- Entrepreneurs are unintentionally destroying their chances of success by focusing on business plans for venture capitalists rather than ways to deliver maximum customer benefits. Why? Business school and venture capital profits are enhanced if entrepreneurs follow this questionable path.

Virtually any business school professor or venture capitalist will tell you that the business plan for a new venture is a critical ingredient in a start up's success. Having heard that advice, millions of wannabe entrepreneurs are huddled over the computers creating slick 50 page business plans promising huge profits. Fewer than one in one hundred of such plans will ever be implemented.

Why? One problem is that venture capitalists fund less than one tenth of one percent of all successful start ups. By creating a plan that needs large amounts of venture capital, most entrepreneurs have signed the death warrant for their start up idea. Without the $3 million they dream of, they can do nothing.

Another problem is that the thought and energy that go into such fund-raising business plans would be better spent developing more customer benefits. Instead, the entrepreneur makes endless presentations of the business plan that won't be funded.

By contrast, successful entrepreneurs who created billion dollar businesses rarely wrote business plans or spent time talking to venture capitalists. Their focus was instead on adding ever-increasing customer benefits. With raving fans on their side, these entrepreneurs didn't need any money from venture capitalists.

Examples of successful companies that didn't create business plans for venture capitalists when they started include Wal-Mart, Dell and the Virgin Group.

Imagine if David had followed such bad advice when faced with Goliath. He would have been writing a business plan instead of taking out his sling and some stones and taking dead aim.

The Billionaire Entrepreneurs’ Master Mind, http://billiondollarbusiness.blogspot.com/, a global learning organization that helps entrepreneurs create billion dollar businesses from start ups headed by Donald Mitchell (co-author of The 2,000 Percent Solution http://www.2000percentsolution.com/, The Ultimate Competitive Advantage and The Irresistible Growth Enterprise http://www.irresistibleforces.com/), examined the large companies that had the fastest growth under one CEO from 1989-2002 which had been founded as entrepreneurial ventures. This study determined that

The entrepreneurs focused their start ups on 7 key tasks, regardless of how long it took to accomplish the tasks:

Creating a major new market or expanding an old one by 20 times

Reducing the costs of customers and beneficiaries to use the start up's offerings

Adding customers 20 times faster than competitors at low cost

Improving the start up's business model at least every four years

Employing a business model that didn't require much external equity capital

Building a management team deep in innovation, operations, finance and marketing

Searching to find out what they didn't know that they didn't know.

Donald Mitchell noted: "Entrepreneurs who mostly work on their business plans fool themselves, but not their potential customers. Every hour spent with customers finding out better ways to meet their needs is worth a thousand hours spent on a business plan for venture capitalists. Believing in venture capitalists is like believing in Santa Claus when you're an adult."

Why do business schools favor such plans? Mitchell said, "Teaching business plan writing is easier than teaching entrepreneurship. It's hard to find an entrepreneur on a business school faculty, so the professors teach middle management plan-writing skills instead. If the new venture idea fails, these students can always get jobs at large companies that favor formal planning."

Why do venture capitalists want entrepreneurs to write such plans? Mitchell observed, "Venture capitalists want a huge deal flow to consider in an easily digested format so they can skim the cream for their investors and themselves. They don't care what happens to those who don't succeed in raising money."

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