The business plan is sorely in need of reinvention. Much like fortune telling, it continues to be an elaborate, ritualistic and time-honored exercise in pre-cognition. The whole thing is about as reliable as a stock tip overheard at a racetrack.

It’s such a meaningless exercise in terms of the depth bankers and investors want from these plans. There’s no crystal ball to assure the future, but they want you to make it look that way. Not to say that there is no value to a business plan, because that would be overstating the case. A business plan is a good exercise in strategic planning that is useful in bringing considerations to the forefront, which might otherwise become nasty future surprises.

However, it’s definitely high time that we had second-generation business plans, business plan 2.0 if you will. Above all, the most important thing is the conceptual framework, the strategy that result from that concept and whether a real or perceived need in the market is being addressed. People generally dislike risk and look to the business plan to assuage the fears but the reality is risk is where the money is. If something were obvious everybody would be doing it and obviously that doesn’t make anyone rich.

Really, the single biggest thing is the concept. Does the concept get it right, does it resonate with a real need out there in the marketplace? The rest is details. There is no knowing when something will reach a tipping point. Doing a 5-year plan is pretty standard which is rather ludicrous. How exactly is one supposed to figure out when they will reach a tipping point? Should magic 8-ball be standard issue for all entrepreneurs?

For your traditional brick and mortar, capital/resource intensive businesses I can see how 5 year projections could be a reasonable request, but new and engaging concepts that are pushing a blue ocean strategy rely on tipping points. Five-year projections are entirely worthless in such a case. What would a 5-year projection for Google or for Crocs have looked like? I’m sure it would have look patently ridiculous today. The whole concept of some kind of master plan conceived in the vacuum of one’s own mind without any way to account for what’s going to happen strikes me as something my local tarot card reader would try and sell me. Realistically, anything other than an emergent strategy is entirely nonsensical.

Fundamentally, it seems no one seems to want to come to terms with the fact that they are giving you their money, which they may or may not get back. That’s why I really like the way Paul Graham set things up with YCombinator. He just looks for bright and motivated people with a good idea, puts them into a very nurturing environment and throws some money at them. No business plans, no projections and no prognostication.

This model recognizes the fact that an entrepreneurial venture is a learning process which requires flexibility and adaptability. Whether you’re talking about launching a hot new web web concept or a revolutionary consumer product, there’s just no telling when the tipping point will come, none at all. So don’t even try and answer that question. Otherwise, you’ll just be lying to and that’s no way to begin a relationship.

I mean if it’s a baseball bat company then it’s a little easier, it’s a mature industry with stable demand patterns and well-entrenched competitors. Everything can be predicated on a purely microeconomic model. Given such and such a market size, at x price, we should be able to sell y number of bats. But who wants to start a baseball bat company? That’s about as exciting as the newest version of Microsoft Word. When is a baseball bat company going to be the next Heelys? Even if this new baseball company were to take off, China will eat your lunch.

There need to be new classifications for quantifying the associated risk; starting a baseball bat company.. .. Its a different kind of risk. There needs to be a new formula because the old way just doesn’t account for the types of businesses which are emerging, and how quickly they are reaching maturity and how fast the market is changes today. For entrants into mature industries there is a lot of data to manipulate and more certainty related to market factors. Not so with new products or concepts.

You’re left to go on perceived need (or want), and the possibility of achieving mass acceptance and reaching a tipping point for the concept/product. There’s no way of knowing.

It’s not as simple as stating that mavens will propagate the product, connectors will popularize and share with their friends within 3 months, salesmen will then evangelize it…. and we’ll be cash flow positive within 9 months. It doesn’t work like that. Sometimes what is called for is not so much a business plan but a concept plan. If you really must do a business plan then I would recommend reading Guy Kawasaki’s article on the Zen of Business Plans, but really the key is to just get a good concept and run with it.

So having said all that, I’ll be getting back to putting the finishing touches to my business plan, because quite frankly, banks and investors won’t shower me with money without me doing the ritual business plan dance.