Principal Topic

The extent to which an entrepreneur’s assessment of the business plan varies from that of others may provide an indication of likelihood of acquisition of resources. This study examines the perception of quality of business plans across key dimension from two perspectives; the entrepreneur and outside experts. We analyze the “gap” in assessments and consider these relative to eventual success in obtaining funding.

Method

Fifty-one entrepreneurs seeking venture capital funding were asked to rate their plans along previously used dimensions. Summaries of actual business plans were prepared by a venture capital consulting firm. Each summary was evaluated by at least seven experienced MBA students according to the same “quality” criteria used by the entrepreneurs. Six months later a follow-up phone survey was conducted to assess funding outcome and business progress of the ventures. Descriptive statistics, cross-tab analysis and t-test were used to analyze the data.

Results and Implications

This research represents a first cut at data from a multi-data set study investigating the role of the business plan and social skills of the entrepreneur in obtaining funding. Results show that entrepreneurs’ evaluations of their business plans are significantly more favorable than those provided by outside evaluators, especially with regard to product development and competitive advantage. Because a self-serving bias may be at work in business plan assessment by entrepreneurs, and likely in the preparation of the plan, counselors, teachers and others working with entrepreneurs should help them overcome these biases. Since our study showed no association between funding outcome and outside evaluators’ assessments of the plans, we believe that venture capitalists assess other information besides the business plan when making their decision of whether or not to fund a business, as suggested in the literature. This other information might well be the way that the entrepreneur presents his/her plan, the “pitch,” which invites further study.

CONTACT: Candida G. Brush, Boston University School of Management, 595 Commonwealth Ave., Boston, MA 02215; (T) 617-353-3146; (F) 617-353-5244; cgbrush@bu.edu