Do You Need to Write a Business Plan?

29 Comments

If you’re thinking of starting a business, virtual or otherwise, what’s the first thing you’ll do? Conventional wisdom says you should write a business plan. But Tom Stemberg, co-founder and former CEO of Staples advises you not get too hung up on them:

“Whatever the plan says, the company will end up looking different,” Stemberg says, explaining that Staples’ original business plan proclaimed the store would never deliver. But competitors began offering delivery and Staples discovered such a service would draw in larger customers. “So we changed course, as all successful companies change course — over and over again.”

However, even though rapid change is a given in business these days, there are still good reasons to write a business plan. Don’t get hung up on them but don’t dismiss the idea of writing one too quickly either.

Venture capitalist Susan Wu thinks that business plans are useful, not because they allow you to fully specify your business up front but because the business planning and writing process itself is valuable:

[Even] though the business you’re pursuing is almost always likely to change and morph into something unanticipated (and in fact, many of the most successful businesses end up nothing like what they started as,) the process of writing a business plan creates a lot of value. I’ve written a couple of business plans for startups that went on to receive venture funding, generate revenue, and have a public offering/be acquired. Writing the business plan was an extremely grueling process that forced me to think clearly about how all the dots of the business connect, and illuminated some of my assumptions that simply did not hold up under scrutiny.

Susan also disputes the idea that the web changes everything so radically that we no longer need business plans:

Yes, it’s particularly true that in this day and age, with the greatly reduced costs of launching and iterating a Web-based consumer business, that writing a business plan may seem old-fashioned. “Why bother, when I can just get a product out there and iterate constantly until I hit upon something that works?” It’s a fair point, but I think the primary benefit that results from writing a business plan isn’t that you get a document in hand that charts the future course of your business – but rather the primary benefit comes from the discipline that the process imparts onto you and the team building that happens along the way.

VC Sean Wise offers five reasons why you need to write a business plan:

  1. Creates a common starting point.
  2. Sets the goals and shares your vision.
  3. Sets the path and identifies required resources.
  4. Forces analysis.
  5. Creates confidence.

… all of which could benefit anyone striking out on their own, not just those with visions of becoming the next YouTube-type wunderkinds. Even freelancing soloists might find it helpful to work through potential problems up front and identify what sort of monetary and other resources could help them to succeed.

What do you think, startup founders and future startup founders, soloists and boss wannabes? Business plan or no?

Entrepreneurship Week USA

29 Comments

Natalie Ferguson

“Whatever the plan says, the company will end up looking different,”
Most people discuss business planning as a document that you can’t change and update or collaborate around. I can see why people recommend you don’t obsess over it as these documents are fairly worthless fairly quickly. We went about solving the problem another way, making a ‘web 2.0’ style planning tool that helps businesses and people with ideas get them moving. It’s focused around all the things you should be focused around, setting and monitoring goals and budgets and your market and keeping your plan updated alongside your business. It’s great for getting investment too because people are much happier to give their money to a business that has visible tracking and monitoring. We offer a free trial at http://www.planhq.com and, obviously would love to hear your feedback! :)

Bonny Albo

I think some sort of plan, be it strategic or business, is required for long-term success. But that’s just me. Without forethought as to where you’ll be in a year (or even a month), whether or not you’ll have enough cash or what you plan on doing for marketing on paper, you’re essentially flying by the seat of your pants.

Not that that’s a bad thing, mind you. ;) It just doesn’t put food on the table.

Mind you, I write business plans for my clients, so I may be biased.

What I’d suggest for those not sold on the business plan idea is to use a template and review it to merely fill in the blanks. You never know what oversights you’ve made until something jogs your memory. I’ve created a list of free business plan templates if anyone is interested.

Aleish

I agree to you Sharon, we are in a fast changing society now. The only constant thing is change. So, it is important that we have a exit strategy or an alternative plan.
Just want to share this article about the mportance of Creating a Business Plan

Hope this resource will be helpful to your blog and readers.

Noah Parsons

It was mentioned in an earlier comment, but the real benefit of business planning is the actual process, not the final document that is produced. The people that say, “don’t plan unless you need funding” are really talking about producing a highly-polished document for external distribution. Even these people, I’m sure, have some sort of plan in place – it’s just not in traditional word/excel format.

The key to remember is that the planning process forces you to ask the tough questions about your company: who is your target market, how are you going to reach them, what is your pricing structure going to be, what will it take to break even. Anyone who starts a business should be answering these questions and no matter what form the output takes (paper napkin, powerpoint, traditional business plan document) the important thing is that some form of planning has occurred.

[disclaimer – I work for Palo Alto Software, makers of Business Plan Pro software]

Markrmorris2

In my case my business plan became something of a self fulfilling prophecy in that looking back on it now I realize that 90% of what I put in it five years ago is now in place without a lot of conscious effort on my part. My Dad used to tell me to write stuff down if I really wanted to accomplish it, Dad you were right. As the old addage goes, aim for nothing and you will hit it 100% of the time!

devicedisposal

I think its gives a sense, what I thought, where am I going, track it. Most of the time VCs also dont read, they try to read from the product offerings, customer comments, not really Business Plan.

I think Power point presentation is good enough and easy to track.

justlearningman

Most of the valid points have already been made, I can only offer encouragement.

A business plan is an evolving document, it grows with you (or can do) and enables you to look back and make appropriate corrections to your enterprise.

It is a necessary discipline, especially if you are looking for external assistance and helps to crystallize your thinking. It’s a bit like learning a new language and helps in talks with banks etc. To know the difference between fixed and variable costs is a tremendous aid to your growth.

Good Luck! It’s not that difficult.

Fuzzz

It never hurts to think about your business and ask yourself some critical questions. It’s pretty easy to get distracted (especially with rapid iteration on the web) but I find that putting pen to paper and writing even a basic plan can do wonders for your focus. If nothing else, the exercise causes you to dedicate some thinking time and that is important for any business. If your business changes and evolves 6 month later that’s ok; just make sure you understand why.

Allocator

We ran a manufacturing and export business, and raised an insured export credit for our buyer of USD $2M without ever writing a formal business plan.

Our bank did require a cash flow statement, which I would have done anyway. Basically it was a simple Excel spreadsheet showing detailed revenue and cost line items, in monthly increments, which rolled up into sub-totals and totals. Banks mostly like to see financial rigour.

But once you get down to that level of detail, you’ve pretty-much thought out your business.

Ours was a niche market, and we knew who and where our customers were, so we didn’t really have to come up with any grand marketing plans. It was mostly relationship-building and common sense.

Unless there’s a large audience for it that is using it as a living document, it’s generally not worth putting a lot of energy into, unless you want to use it to drive your own thought process. For that however, I find simple checklists to be just as, if not more, effective.

Plans can become obsolete very quickly, and the more detailed they are the more a pain in the ass it is to keep them up to date.

Like any communication, keep it simple, know your audience, and write only to the level of detail to which you need to meet the objective or satisfy the requirement.

Somebody above also mentioned borrowing stuff. Contract language is an excellent example of that. Many terms and conditions are fairly standard. Just use the legalese presented to you by some supplier you are dealing with. If you’re not quite sure, have your own lawyer check it over, but I wrote all of our company agreements mostly with borrowed T’s and C’s, and still managed to get paid by clients as far away as Latin America, or in the case of one defaults, the credit insurer. There is much out there that one does not need to re-invent. (But don’t copy intellectual property or copyrighted material – that can get you in trouble).

One important tip for you entrepreneurs out there, apart from developing relationships with your prospective customers, is: control the documentation. Never wait for the client to have to prepare or write something (if you can at all possibly do it yourself). Always be in the position of the client only having to do nothing more than sign, or review and comment on material you have already prepared for them. It’s the best way to influence the timing of the sales process. (I even personally prepared import documents for clients in other countries that would normally be their responsibility.)

Cheers,
Allocator

Koby

I think that today business plans can be an “after thought” but I think they are still a good idea as you kind of figure out what you want to do. It does not have to be this in-depth 20 page document, but something simple that says what you are doing and what you would like to do in the future, all with some logical flow can not really hurt you.

I started my website with just a way to write, but as my wife starts something that is a little more focused I’m writing things down on what to do now and later.

Amie Gillingham

I’d have to agree with Rami on this one. We started our business out of passion (and a desire to get paid for something we were doing for free and which actually cost us money out of our own pockets to do!) but it was without any real plan to grow the business. I think we floundered a bit as a result of our inexperience. That being said, we’re doing a business plan now, looking seriously at how we want to grow our company, improve our site’s architecture, etc, and take things to the next level. It should be interesting since we’re an existing company that plans on pretty much throwing ourselves back into beta and starting again in some ways from scratch. You can only get so far without a plan. If we don’t take ourselves seriously, who will?

newtimes

They say, ‘You fail to plan and you plan to fail’. This quote, in its essence tells why we make plans at all. And it’s not just businesses who plan. We plan our life and that’s how we are what we are and we are what we will be. So planning is anyway essential for risk averse path

IS Review

leisa.reichelt

there was lots of talk about business plans at the Future of Web Apps conference in London recently. More people said either ‘don’t bother’ or ‘throw them out’ than said they were important. I think what they *actually* meant was, don’t obsess over the business plan. Get something down fairly quickly, but spend more time on the business than the plan. And be prepared to deviate from the plan and rewrite it as you learn more about your business and your market :)

wally123

to start a business u must b creative too. u do not need much capital to start with. let me give u some tips about starting a business.
1st u must be a good copycat. Copy whatever those who already achieved their goal.
2nd u must be creative as i mention earlier. Create & explore something new in business. Do things that people never do before.
3rd do not quit. A very successful individual once said,” Nobody fail in things they do. They QUIT!!!

Rami Nasser

It all depends on whether external funding is an absolute requirement to starting the business or not. If the business, say a self-funded web startup, then a business plan is not required at the beginning. Wise’s reasons to writing a business plan would be met with a properly executed design stage. The way I would do it is as follow:
1-Design Stage
2-Beta Demo
3-Business Plan
4-Seek Funding (Optional)
5-Stable Release.

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