Three year plans are bullshit, Dragons’ Den

I’m a big fan of the BBC’s Dragons’ Den. For anyone unfamiliar, the program consists of wannabe entrepreneurs pitching their business ideas to five hugely successful serial entrepreneurs with a view to secure investment for an equity stake in their business.

In every pitch, the Dragons demand a 3-5 year plan for estimated revenue and profit each year - those who fail to deliver these figures are looked on as unprofessional, disorganised and in most cases a bad investment. However, if the budding entrepreneurs predict revenue which increases fairly substantially year on year, without being too absurd, the Dragons are usually happy.

This annoys me for two reasons. Firstly, the majority of pitchers in the Den have no business experience whatsoever - they just have an idea that they think might be popular. They’re all looking for a cash injection but most of them also need the experience and knowledge that each Dragon holds, and their revenue predictions are usually an over-optimistic random guess.

Secondly, I believe a revenue plan for any business is a big guess. Sure, in some circumstances if you’re extremely experienced with the type of business and have tons of research behind you, you can probably make a fairly accurate guess, but in most cases it’s still a guess. This is hammered home in 37Signal’s “Let’s just call plans what they are: guesses”.

The Dragons need to stop getting so frustrated when those who stand before them don’t have an ‘accurate’ revenue plan, and start understanding that these are people with great ideas and not necessarily great business minds.