I had a delightful day yesterday with about 90 people who teach entrepreneurship in about 90 different places across the U.S. I was doing training related to my online curriculum, mostly, but we had a chance to talk about a variety of related topics.
One thing that came up in discussion and generated total consensus in the group was that the business plan document written by an outsider isn’t useful. I referenced my worst-ever consulting engagement, one of my favorite posts on this blog. Everybody in the room agreed that business planning is something you do, not something you buy. It’s a process, not a finished document.
Which reminds me of the idea of the hired gun, taken from cowboy movies. One of my favorites in the old days was Have Gun Will Travel, in which Richard Boone’s character, named Paladin (ha! the good old days) would ride into a new town every week, hired by somebody to solve a problem, all resting on the assumption that a stranger with a big gun and a fast draw was the solution. And of course it usually was, on the TV show.
But in real life? I do think there’s room in entrepreneurship and small business for experts to come from the outside and help with some problem or other? Does the hired gun idea work?
I think the answer is yes, sometimes, for some kinds of work. Outside experts, consultants, and professionals can be very helpful, if you have the money to spend. But they are not for doing the core thinking and decision making and management you have to do yourself. I’ve had success with outside people doing packaging, and with attorneys and CPAs, and copy writing, and other tasks that have relatively well defined deliverables. And regarding strategy, I think there are experts who help you take a fresh look, and apply a new framework. Getting a vendor to do web design, or hiring a designer to do your logo, that works well too. But there are a lot of core management things you — the owner, the entrepreneur — simply have to do yourself.
In my post here yesterday I started to answer “what should I pay a consultant to develop a business plan for my company?” My first take was about the need for planning process and living with your plan over the long term. The key thought there was:
So my first answer to this question is this: don’t pay a consultant to develop a business plan. Do it yourself.
Still, if you’re busy, and you believe in division of labor, and you don’t want to do the plan yourself, this doesn’t really answer the question. So this is part 2 of my answer.
1. The one-time business plan document
Let’s assume for a moment that you want exactly what I say is the wrong thing: somebody to write a 10-20-page document you can call your business plan. There’s no concern about actually planning your business. You don’t want advice or guidance or second opinions, just a damn document. You don’t think anybody’s going to read it anyhow.
For that, find a good freelance business plan writer and good luck. Pay somewhere between $400 and $1,000. Figure the time involved is some listening to you, some shuffling your past papers around, and some writing. It’s a day or two of work.
I just checked average freelancer rates on freelanceswitch. It looks like writers get about $50 per hour, give or take. So $1,000 buys you about 20 hours for an average business writer. $500 buys you 10 hours.
And if you want spreadsheet knowledge double the price, and if you want financial knowledge and understanding, triple it.
Get very specific with the consultant: what services are you buying? Interviewing you? Reviewing your documents? Writing your document? Projecting your financials?
The good news in this case is now we’re talking about real business planning to really help you manage your business. This kind of consultant will work with you as much as for you, and help you create your plan based on your goals and resources. Let’s hope you get somebody who will help you build a planning process that generates a living plan that can be reviewed and revised regularly.
This consultant won’t just write a document for you, because that doesn’t work; but he or she will help you do it in a way that will work. Experience in this field is valuable. Don’t reinvent wheels and learn everything the hard way. Get somebody to accelerate that learning.
But the bad news is that somebody with the knowledge of business planning, spreadsheets, and financial standards is worth a lot of money. In this earlier post I calculated at least $200 per hour, maybe more.
And how many hours do you want of that person? Are you going to do the heavy lifting yourself, and optimize the task with leveraged knowledge and expertise? Then you don’t need as many hours. Do you want the consultant to do it all? That’s 20, 50, 100 hours very quickly. And then you need the consultant to transition the changes in the plan, and work with the planning process. I think I’m talking about serious dollars now; I’m afraid to add it up. $10,000? $15,000?
And be very, very careful as you approach this job. These are shark infested waters. Check references of past clients very carefully. In my experience the ratio of real consultants offering real value to charlatans and quacks is about one to four. Remember this: although you can’t get an investment without a business plan, the business plan alone means nothing. Investors buy your team, your market, your product, and your future. The plan is just to show them what you’re planning.
3. My consultant will get me the money
With this one you get even more skeptical. The vast majority of people who sell business plan consulting services promising to get investors are just plain lying. Given that it’s not really the plan, but the team and product and market and such, that investors buy into, then what’s going on when somebody promises to write you a plan to get you the money?
If you do have a great team, market, and product, then a savvy consultant wants a piece of the action. They want to join the team.
Somebody who has the experience and contacts to bring to the party doesn’t just sell that knowledge to the highest bidder. That person can’t bring bad businesses to those contacts. There’s a whole set of worries about reputation. So either your business is really going to be interesting in that upper-echelon world, you have the team and market and product, or that person isn’t what they claim to be.
When somebody promises to get you in touch with movers and shakers, just for money alone, watch out. Keep your hand on your wallet pocket. Something is fishy there.
I knew a guy who did this kind of business for several years. He chose his clients carefully, making sure they had a real shot at getting investment. He charged $25,000 and up, usually along with a piece of the action, and that was 10 years ago. And he delivered on his promise. He used to use Business Plan Pro and the companies he consulted for account for more than a dozen of the successful companies, that got financed, in the bplans.com database of business plans.
But he doesn’t do that anymore. He ended up as CFO in one of his client companies.
If you’re thinking of going this way, check references very carefully. Always talk to past clients. Get a bunch of names and talk to all of them. Too many dishonest consultants can produce one or two names of past clients who are motivated (sometimes with mutual favors, sometimes with money) to speak well of them. Get 10 names and check with all of them.
It sounds attractive, doesn’t it? Get a business plan by hiring somebody to do it for you? I can see how you’d think of that as division of labor, like hiring an expert to do design, or programming; have an expert do a plan. And you can do that, if you’re careful; but you really have to understand the underlying management questions, what you’re getting, and what you want.
Still, here are 3 more questions:
What would you estimate to be the hourly rate of somebody with business experience, financial knowledge, and computer knowledge to do a competent business plan?
How many hours would you expect that person to take?
What would you get if you multiplied that hourly rate question by the number of hours question?
I don’t know about you, but I’d estimate $200 or so per hour for that first question. It would depend on the market, and the specific person, but we’re probably talking about MBA or CPA. I’d say 20-40 hours for the second question, although that depends too, on other factors. And for the third question, multiply $200 times 20 hours and you get $4,000.
So what are you planning to pay that business plan writer? And how is it that I see business plan writing advertised for a few hundred dollars? How do they make money like that? And if the plan writers’ prices are that cheap, is the plan quality cheap as well?
No, it’s not that I have anything against business plan writers for hire. I spent some years doing that, although I never just wrote the plan; I always facilitated and translated and coached planning. (Unless, of course, you’ve read my post on my worst business plan engagement, in which case you’ll know I’ve used “never” and “always” wrong in the above).
If you wanted to get your body in shape, would you hire somebody else to eat better and exercise regularly?
How would you feel about sending somebody else to the doctor to be examined to determine your health?
How do you feel about pre-packaged vacations?
What would you tell your ghost writer? How long would that take you? Could you type that out, maybe? Could you do it in YouTube?
How will you deal with questions that come up, after the plan is done?
How much good will a single one-time plan document do you?
What will you do about revisions later on? Will you just accept a plan done once, and never revise?
How long would you estimate is the average shelf life of a written business plan, before it begs for revisions?
What would you do about regularly reviewing and revising a business plan that some outside business plan writer had written?
How would you get a team of people committed to a business plan that an outsider wrote?