Are Business Plans A Waste Of Time?

Should You Carefully Craft a Business Plan or Make do with a To-do List?

Are you’re taking time to carefully perfect a business plan to help ensure your company’s model is sound and that it will be a success? If so, stop. You’re probably wasting your time.

Most business plans bear no relationship to the final business model of successful companies.

• Entrepreneurs who said they would specialise in the development of new computer hardware ended up in software.
• Companies who aimed at serving the end consumer became specialists in helping distributors.

In a surprisingly high number of cases, what goes in the business plan ends up having very little to do with what the company ultimately became.

• In 2007 a survey conducted by Babson College of 100+ businesses launched by its alumni between 1985 and 2003 found no statistical difference between the success achieved by those businesses that started with a formal business plan and those that forged ahead without one.
• A study of more than 700 dotcom companies from the late 1990s to early 2000s at the University of Maryland’s Robert H. Smith School of Business found that the quality of business plans had zero impact on the amount of venture capital funding raised and does not predict which businesses get funded or succeed.

I know the advice to would be entrepreneurs is usually “go create a business plan”. But creating a detailed business plan really doesn’t make much sense (with one exception).

If you’re starting a home-based business that requires no employees, has no overhead, minimal inventory and minimal capital outlay, then you probably don’t need to waste your time or money on a formal business plan. Think more along the lines of a to-do list.

Why Have a Business Plan?

There are two valid reasons to have a business plan:

1. You need to raise external start-up capital. Banks and investors are unlikely to invest in your company if you don’t have a business plan.

2. Business plans give you something to work towards. A goal.

Am I now saying you should have a business plan? Well, yes and no! I really depends upon what you want the business plan for. Bear with me, it makes sense in the end.

Banks and Investors

If you need to borrow money from any source you will need to provide a sound business plan. In this instance the business plan is their to entice investment and get the money you need. We all know that in most instances the business plans produced in such circumstances are a white-wash and bear very little resemblance to the true plans for the company. So although a business plan needs to be produced, as far as the company is concerned it’s a total waste of time.

Company Goal

Producing a business plan as a goal oriented exercise is no bad thing. Just remember the goal isn’t fixed.

You can plan and research all you want, but the first time you encounter something you didn’t expect in the marketplace, your carefully crafted business plan goes out the window. In the real world nothing ever goes as expected.

At the beginning of your business, all you can provide are vague guesses which are usually optimistic and incorrect. The unfortunate truth is that all business plans are based on human assumption, and humans make mistakes.

It’s impossible to make a list ahead of time for things which are completely unexpected. Alternatively, try making a list of all the things you haven’t thought of! See what I mean?

Time and Marketplace

Whist you’re writing your carefully crafted, highly details business plan you’re not taking your company to market, you’re not marketing your product, you’re not receiving revenues. More importantly, you’re competitor could beat you to the punch and corner the market.

Markets change all the time. Today’s fantastic product could mean bankruptcy tomorrow.

• What happened to Betamax? Killed by VHS. What happened to VHS? Killed by re-writable DVD. What happed DVD? Killed by Blu-ray, and so on.
• Challenge: Try buying a CRT (cathode ray tube) TV!

A False Sense of Accomplishment

When writing a business plan we aim for success. Who writes a plan aiming for failure? What I’m trying to say is, we write our business plans wearing a pair of rosy coloured glasses.

We produce predictions with intricate graphs showing revenue and over optimistic assumptions of growth rate. We tend to forget these predictions are based on very little practical knowledge. It’s all guesswork really.

Be very wary of putting things down on paper, doing so gives the appearance of having actually done something real. In reality you haven’t even begun.

Are Business Plans a Waste of Time Conclusion

Writing a detailed business plan doesn’t make sense to me unless you’re trying to borrow money from the bank, investors or venture capitalists. In such cases you may need one.

Otherwise, do the absolute minimum, a to-do list. Do enough research to get started now. Just enough to convince yourself the idea is a good one and you have the necessary finances and skills to make it work. Let the marketplace prove you right or wrong. If people give you an order, you’re on to a winner, otherwise rethink your plan.

A business plan is useful only if it is constantly updated and amended. In practice, this never happens.