Which information belongs-and which doesn't-may surprise you. How to Write a Great by William A.Sahlman Few areas of bus Nothing could be further from the truth.In my ups business plans rank no higher than 2 on a scale plan.Countless books and articles in the popular rit the top from I to 10-as a predictor of a new venture's suc elaborately lan contests are springing up across Both graduate and undergraduate schools devote What's wrong with most business plans!The an swer is relatively straightforward.Most waste too much ink on numb would-h ur andss sta glossy five-co charts bunde of meticulous cial projections for a new company-especially de. Ino ecade ofonchy tailed,month-by-month projections that stretch out for more than a year- -are an act o magination. knowns to predict revenues.let chool in Boston.Massach has been closely Moreover,few if any entrepreneurs correctly antici He teaches discount the figures in business plans.These ma. All rights reserve HARVARD BUSINESS REVTEW July-August 1997Which information belongs–and which doesn’t–may surprise you. How to Write a Great by William A. Sahlman Few areas of business attract as much attention as new ventures, and few aspects of new-venture creation attract as much attention as the business plan. Countless books and articles in the popular press dissect the topic. A growing number of annual business-plan contests are springing up across the United States and, increasingly, in other countries. Both graduate and undergraduate schools devote entire courses to the subject. Indeed, judging by all the hoopla surrounding business plans, you would think that the only things standing between a would-be entrepreneur and spectacular success are glossy five-color charts, a bundle of meticulous￾looking spreadsheets, and a decade of month-by￾month financial projections. William A. Sahlman is Dimitri V. d’Arbeloff Professor of Business Administration at the Harvard Business School in Boston, Massachusetts. He has been closely connected with more than 50 entrepreneurial ventures as an adviser, investor, or director. He teaches a second￾year course at the Harvard Business School called “En￾trepreneurial Finance,” for which he has developed more than 100 cases and notes. Nothing could be further from the truth. In my experience with hundreds of entrepreneurial start￾ups, business plans rank no higher than 2–on a scale from 1 to 10 – as a predictor of a new venture’s suc￾cess. And sometimes, in fact, the more elaborately crafted the document, the more likely the venture is to, well, flop, for lack of a more euphemistic word. What’s wrong with most business plans? The an￾swer is relatively straightforward. Most waste too much ink on numbers and devote too little to the information that really matters to intelligent in￾vestors. As every seasoned investor knows, finan￾cial projections for a new company – especially de￾tailed, month-by-month projections that stretch out for more than a year–are an act of imagination. An entrepreneurial venture faces far too many unknowns to predict revenues, let alone profits. Moreover, few if any entrepreneurs correctly antici￾pate how much capital and time will be required to accomplish their objectives. Typically, they are wildly optimistic, padding their projections. In￾vestors know about the padding effect and therefore discount the figures in business plans. These ma￾Copyright © 1997 by the President and Fellows of Harvard College. All rights reserved. HARVARD BUSINESS REVIEW July-August 1997