Are Business Plans Useless In Tech Startups?

I started working with a CEO a while ago. The CEO had an interesting business model, traction and customers.

I asked the CEO, “How much money are you spending each month?”

“I don’t know,” he answered.

I asked the CEO, “What is your break even revenue?”

“I don’t know,” he answered.

I asked the CEO, “How much money are you making on each customer?”

“I don’t know,” he answered.

The CEO was losing a significant amount of money, and he didn’t even know it.

What was the first thing I had the CEO do? Develop a plan.

Think about it. You’re running a company, and you obviously want your company to succeed.

How can you have a chance at success if you don’t know what success looks like?

Now your plan doesn’t need to a thirty page, single-spaced document. But you do need some basic things. You need to know:

A. How much revenue you expect to make. Depending upon what you are selling, you need to know your revenue by product or service or customer. Then, you need to know…

B. How much each product costs to make. The CEO I was working had deals where his product cost was more than what he was selling the product for. He wouldn’t have made this mistake if he knew his costs. Then, you need to know…

C. Your other costs. What are your salaries? What is your rent? How much are you spending for your website? How much are you spending on office supplies? Gather up everything you are spending money on and account for it.

Now you know your costs and revenue plan.

So you can figure out how much money you are going to need to get to cash-flow break even. Now you have a plan.

Add in a product roadmap, a hiring plan, and a competitive analysis, and your plan is complete. You know now:

A. What you are doing and why you will win. This is your product plan. And, you know…

B. How much it’s going to cost and how much money you will make. This is your financial plan. And, you know…

C. How many people it’s going to take (and how much they will cost) to get there. This is your hiring plan.

Your plan doesn't need to be complex as you can. Four or five power point slides will cover it.

Developing a plan is well worth it even if your numbers are way off to start. You will get better with each iteration.

For more, read: How Do You Know It's Time To Hire Your First Employee? 

Is your business stuck?  Maybe I can help. 

View original answer on Quora.