how to write a great business plan

C L A S S I C S

H O W T OW R I T E A G R E A TB U S I N E S S P L A N

William A. Sahlman

Harvard Business PressBoston, Massachusetts

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Copyright 2008 Harvard Business School Publishing CorporationOriginally published in Harvard Business Review in July 1997Reprint # 97409All rights reservedPrinted in the United States of America

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Library of Congress Cataloging-in-Publication DataSahlman, William Andrews.How to write a great business plan / William A. Sahlman.

p. cm. — (Harvard business review classics)ISBN 978-1-4221-2142-91. Business planning—Handbooks, manuals, etc. I. Title. HD30.28.S234 2008658.4'01—dc22

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Few areas of business attract asmuch attention as new ventures,and few aspects of new-venture

creation attract as much attention as thebusiness plan. Countless books and articlesin the popular press dissect the topic. Agrowing number of annual business-plancontests are springing up across the UnitedStates and, increasingly, in other countries.Both graduate and undergraduate schoolsdevote entire courses to the subject. Indeed,

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judging by all the hoopla surrounding busi-ness plans, you would think that the onlythings standing between a would-be entre-preneur and spectacular success are glossyfive-color charts, a bundle of meticulous-looking spreadsheets, and a decade ofmonth-by-month financial projections.

Nothing could be further from the truth.In my experience with hundreds of entrepre-neurial start-ups, business plans rank nohigher than 2—on a scale from 1 to 10—as apredictor of a new venture’s success. (For in-trapreneurial start-ups, see “Business Plans:For Entrepreneurs Only?” at the end of thisarticle.) And sometimes, in fact, the moreelaborately crafted the document, the morelikely the venture is to, well, flop, for lack ofa more euphemistic word.

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What’s wrong with most business plans?The answer is relatively straightforward.Most waste too much ink on numbers anddevote too little to the information that reallymatters to intelligent investors. As every sea-soned investor knows, financial projectionsfor a new company—especially detailed,month-by-month projections that stretch outfor more than a year—are an act of imagina-tion. An entrepreneurial venture faces fartoo many unknowns to predict revenues, letalone profits. Moreover, few if any entrepre-neurs correctly anticipate how much capitaland time will be required to accomplish theirobjectives. Typically, they are wildly opti-mistic, padding their projections. Investorsknow about the padding effect and thereforediscount the figures in business plans. These

How to Write a Great Business Plan

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maneuvers create a vicious circle of inaccu-racy that benefits no one.

Don’t misunderstand me: business plansshould include some numbers. But thosenumbers should appear mainly in the form ofa business model that shows the entrepre-neurial team has thought through the keydrivers of the venture’s success or failure. Inmanufacturing, such a driver might be theyield on a production process; in magazinepublishing, the anticipated renewal rate; orin software, the impact of using various dis-tribution channels. The model should alsoaddress the break-even issue: At what level of sales does the business begin to make aprofit? And even more important, When doescash flow turn positive? Without a doubt,

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these questions deserve a few pages in anybusiness plan. Near the back.

What goes at the front? What informationdoes a good business plan contain?

If you want to speak the language of in-vestors—and also make sure you have askedyourself the right questions before settingout on the most daunting journey of a busi-nessperson’s career—I recommend basingyour business plan on the framework that fol-lows. It does not provide the kind of “win-ning” formula touted by some current how-to books and software programs for entre-preneurs. Nor is it a guide to brain surgery.Rather, the framework systematically as-sesses the four interdependent factors criti-cal to every new venture:


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The People. The men and women start-ing and running the venture, as well as the outside parties providing key servicesor important resources for it, such as itslawyers, accountants, and suppliers.

The Opportunity. A profile of the busi-ness itself—what it will sell and to whom,whether the business can grow and howfast, what its economics are, who and whatstand in the way of success.

The Context. The big picture—the regu-latory environment, interest rates, demo-graphic trends, inflation, and the like—basically, factors that inevitably changebut cannot be controlled by the entre-preneur.

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Risk and Reward. An assessment ofeverything that can go wrong and right,and a discussion of how the entrepreneur-ial team can respond.

The assumption behind the framework isthat great businesses have attributes that areeasy to identify but hard to assemble. Theyhave an experienced, energetic managerialteam from the top to the bottom. The team’smembers have skills and experiences directlyrelevant to the opportunity they are pursu-ing. Ideally, they will have worked success-fully together in the past. The opportunityhas an attractive, sustainable business model;it is possible to create a competitive edge anddefend it. Many options exist for expanding


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the scale and scope of the business, andthese options are unique to the enterpriseand its team. Value can be extracted from thebusiness in a number of ways either througha positive harvest event—a sale—or by scalingdown or liquidating. The context is favorablewith respect to both the regulatory and themacro-economic environments. Risk is un-derstood, and the team has considered waysto mitigate the impact of difficult events. Inshort, great businesses have the four parts ofthe framework completely covered. If onlyreality were so neat.

the people

When I receive a business plan, I always readthe résumé section first. Not because the

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people part of the new venture is the mostimportant, but because without the rightteam, none of the other parts really matters.

I read the résumés of the venture’s teamwith a list of questions in mind. (See “WhoAre These People, Anyway?” at the end ofthis article.) All these questions get at thesame three issues about the venture’s teammembers: What do they know? Whom dothey know? and How well are they known?

What and whom they know are matters ofinsight and experience. How familiar are theteam members with industry players and dy-namics? Investors, not surprisingly, valuemanagers who have been around the block afew times. A business plan should candidlydescribe each team member’s knowledge ofthe new venture’s type of product or service;


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its production processes; and the market it-self, from competitors to customers. It alsohelps to indicate whether the team membershave worked together before. Not played—asin roomed together in college—but worked.

Investors also look favorably on a teamthat is known because the real world oftenprefers not to deal with start-ups. They’retoo unpredictable. That changes, however,when the new company is run by people wellknown to suppliers, customers, and employ-ees. Their enterprise may be brand new, butthey aren’t. The surprise element of workingwith a start-up is somewhat ameliorated.

Finally, the people part of a business planshould receive special care because, simplystated, that’s where most intelligent in-

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