How to write a really Great Business Plan

William A. Sahlman (1997) - How to write a really Great Business Plan
Harvard Business Review, July – August 1997, pp. 98-108

Summary
In his essay, William A. Sahlman states that too much time is wasted on number crunching, and figures, such as capital, time, predicted revenues and profits regarding business plans for new ventures. Since accurate numbers related to a business plan are difficult to predict anyway, he suggests to focus on a framework that is based on four critical factors: people, opportunity, context, and possibilities.
Sahlman considers most entrepreneurs as wide-eyed optimists, who naively believe in their ideas, but who fail to ask “the right questions” related to the above framework. When it comes to the first factor – people, it should clearly be determined in a business plan who the people are who start the venture, what their experience and their knowledge is regarding the product or service, moreover production processes, the market itself, the competition, the customers etc. Questions to ask: What do these people know? Whom do they know? How well are they themselves known in the market place?
The second factor, opportunity, should explain the profile of the business, its economics, the expected success, but also what could possibly hinder that success (vulnerabilities). The necessary questions focus both on the market (Is the market large enough, or rapidly growing, or both?) and on the industry (Is the industry and its structure indeed sufficiently attractive?)
The context defines the macroeconomics, or – in other words – the external factors that cannot be controlled by the entrepreneur, such as demographic trends, a possible inflation, regulatory environment, government rules, etc. However, the question remains how the entrepreneur reacts when this context inevitably changes.
The last factor, the possibilities regarding risk and reward, determines the scenario of what can possibly go right and wrong, and how to respond to it. What magnitude of reward can be expected, and when can the reward be expected?

Evaluation
William Sahlman is obviously a person who is very familiar with new ventures and the countless business plans that go in line with start up companies. His view is based on observation and experience that lead to above conclusion. His valuable insight and knowledge can help and support new ventures that have to present a business plan sooner or later. But his framework is not a scientific model that can be discussed on a scholarly level, since it lacks representative observation and results.
Similarly, Peter Drucker offers seven sources as “diagnostic disciplines” in his book “Innovation and Entrepreneurship” (1985) that need to be considered not only when starting a new venture, but also when writing a business plan. Drucker describes the first four as internal sources, including industry and market structure (see Sahlman’s “Opportunity factor” above). The so-called outside factors include macroeconomic issues, such as demographics and changes in perception of the customers (see Sahlman’s “Context-factor”).
Gundy and Kickul (see “Entrepreneurship Strategy”, pp. 63-64) offer a similar approach for strategic assessments of new ventures, by also focusing on four factors: people, available resources, knowledge and information that are possessed, and the idea’s ability to generate revenue.
While Sahlman considers people and their skills the most necessary factor, other potential investors might consider the financial outlook, or marketing strategies and sales programs the most necessary issues when it comes to evaluate a business plan. The framework he suggests seems to be very helpful, but remains a subjective tool that might fall short when generalizing all ventures and all potential investors.