The Book
Introduction to the Second Edition Revised

The business plan was flawed

In the three years following the initial edition of this book, a record number of business plans were approved. These plans received a record amount of funding. Unfortunately, a record number were very soon seen to be flawed. Why did this happen? What was going on? And what lessons can be learned?

This was the era of the dot com boom and bust. It was just starting when the first edition of this book went to the presses at the end of 1998. In the months that followed, thousands of dot com Internet businesses were established. The excitement was reminiscent of a gold rush or explorers setting off for a New World rumoured to be filled with unbelievable riches.

Venture capital providers emerged from the woodwork and provided backing for seemingly any young techie with a web site and an idea, or preferably just an idea. It was a popular joke at the time that if you had a track record you wouldn�t get funding. Business experience, management training, wisdom were seen as counterproductive. Adaptability and an unshackled mind were regarded as more-important attributes. Money poured into distinctly weak business propositions on a shot gun approach that out of every dozen, 11 would fail but one might be spectacularly successful.

At the peak of the frenzy, in the first three months of 2000, a record US $22 billion of venture capital was pumped into a record 1330 Internet start up deals in the US alone � the same number of deals and more than twice as much money as in the whole of 1998.* Worldwide in 2000, business plans raised nearly $200 billion of external funding for start ups, management buyouts and expansion � two-thirds of it for technology businesses. The time between business startup and initial public offering (IPO) was shortened dramatically and money piled into global stock markets. The US Nasdaq stock exchange has the highest dollar volume of trading of any market in the world; the Nasdaq-100 index soared to peak at nearly 5000 in the first quarter of 2000.

Then came the collapse. Disillusionment set in. After squandering millions of dollars, many Internet upstarts saw the prospect of failure. In the next 18 months, over 1 000 dot coms laid off more than 150 000 workers in the US alone. Several hundred corporations closed or declared bankruptcy. Even before the fateful terrorist attack on America on 11 September 2001, the Nasdaq-100 had dropped back to its end-1998 level of around 1500 � a 70% slump from the highest level. What went wrong? The answer is simple and was given for us: for months after the peak all we heard about this or that dot com was that the business plan was flawed.

Hundreds of millions of dollars went into funding flawed business plans because almost everyone lost sight of a few simple facts. Management science, MBAs, professional managers are a new thing; the product of a mere few decades; a single tick on the earth�s four-and-a-half-billion-year-old clock. Nevertheless, they do have value. They are the distillation of everything we have learned about doing business. And you can�t kick them out because you have a new way of wiring the world. The Internet has created a new global market place. But we all compete on largely equal terms in this market place. The dot coms did not have a breakthrough product, they merely had a new market.

There is no substitute for what might be called conventional businesses planning. It is clear that new economy businesses need to be planned in exactly the same way as any other. This is why there was no special mention of dot coms in the first edition of this book. In the overall context of business planning, there is nothing really special to say about them. If the failed dot coms had drawn up business plans as described in this book, and if the plans had been assessed as described in this book, less funding would have changed hands. There would have been less hype and less frenzy. And there would perhaps have been a few more successful businesses. It is not too late for the rest of us.

I hope that the techniques discussed in this book will help you, whether you are a novice or an expert at business planning; whether you are trying to save an ailing business, starting a new business or running an already successful business; whether you are directing or managing some small part of a corporate unit or a whole enterprise; whether it is for a profit-making or a not-for-profit organization; and whether you are writing or approving a plan. Make sure that you have a business plan. Make sure that you use it. And, critically, make sure that it is not flawed. Good luck.

* Source: 3i/PricewaterhouseCoopers, VentureOne, MoneyTree� Survey.