Being too picky when reading a business plan?

Some personal points of view today. I am usually accused of being too picky when analysing business plans (BP). Some entrepreneurs feel really passionate when someone from the outside has a critical opinion on their assumptions (I felt that in the past, as an entrepreneur myself, and I really understand it). But if you are an entrepreneur, you should get used to that, because critical opinions are something very useful.

I am very fortunate to see ideas in all stages. I “fish” very early stage ideas (sometimes even still in the entrepreneur’s mind, without a BP) and I’m involved with venture capital investments (where a BP has been analysed to death, literally dozens of times). This is a long continuum that forces me to have very different ways of “reading” business plans.

I will always (believe me, always) find things I don’t like in a business plan, no matter how good it is. And other investors will find things they don’t like in the very same business plan. And we will not agree 100% on those things we don’t like. And this does not mean the BP is wrong, it just means a BP is a highly subjective document.

When I see a BP, I somewhat decide which "mindset" I will use to analyse it:

I may decide to “read it”, and that means just understanding the problem and the solution it brings to the marketplace, the business model behind it, and checking for very rough inconsistencies in it. When using this mindset I’m not really interested in numbers, but I want to see the numbers already there, structured, ready to be tested and changed in a dynamic spreadsheet. This is the mindset I use when seeing a BP for the very first time, or when facing ideas or very early stage initiatives.

Then some other times I may decide to use a “glasses” mindset. Once I feel OK with the general assumptions and the business model, now would be the time to check for minor inconsistencies, look at the numbers more carefully, double-check important assumptions with external sources, and really be “picky” about everything I don’t understand.

And finally, if the project deserves it, and things are moving forward, I use a “microscope” mindset, where everything is analyzed and double checked to death, always having in mind that the BP is just a road-map, I never saw a BP matching the real evolution of a company. This would be more like a due diligence analysis, and as I say, it is performed very few times, only when start-ups are really being considered for an investment.

So far, so good, I guess pretty much everyone would agree. But what I understood after seeing all kinds of projects is that using a wrong mindset can kill an idea. Every stage needs a different level of detail to read the BP. Just "reading" a BP when considering an investment would obviously be a fatal mistake. But more importantly, using the “glasses” or the “microscope” mindset on a very early stage idea could destroy innovation, because entrepreneurs need time to really mature their ideas, you just can’t impose them your views on the subject, you can’t judge them on their first visit. If they feel everything was wrong, they may not come again. They need to remain creative and to find their way.

Anyway, no matter the “mode” used to read a BP, you will always get critic opinions when showing it to an investor, so you better get used to that!