Let's Talk Business Plans
To be honest, I debated for some time whether I should write an article about “Business Plans.” Google the term and you’ll understand why… Everyone and their sister has written about this topic, and most major publications have multiple articles on the subject.
Why muddy the water even more?
As I combed through the mountain of information discussing business plans, I became completely overwhelmed and confused…
Just take a look at a few headlines from Google’s search results:
“Why Business Plans Are A Waste Of Time” vs. “No, Writing A Business Plan Is Not A Waste Of Time.”
“Great Businesses Don’t Start With A Plan” vs. “Why Almost Every Startup Needs A Business Plan”
“10 Reasons Not To Write A Business Plan” vs. “15 Reasons You Need A Business Plan”
Really?!?
How does this help anyone? All said, anyone that starts down this path is sure to get pretty dizzy. Given the numerous contradictions I found related to the subject, I figured I’d briefly talk about business plans in an attempt to clear up some of the ambiguity and provide a bit of clarity on the topic.
What Is A Business Plan?
So to start, let’s talk about what a business plan actually is. Traditional business plans are documents that provide a glimpse inside your business- what you hope your business or project will eventually become and achieve. They are typically quite extensive and usually include the following sections (among others):
- What your business is all about (Business Description);
- Who you and your team are and why you’re qualified (Management Team);
- Who your business will serve (Target Market);
- How it will generate income (Revenue Model); and
- How much profit you hope to earn (Financial Projections).
The audience of the traditional business plan is almost always outside financiers (ie banks, angel investors, or VC’s). Thus, most business plans are tailored toward these groups with the hope of convincing someone to write a check to get the business up and running.
Do I Need A Business Plan?
The reality is, you do not need to write a business plan for your business in order to be successful. Numerous entrepreneurs have achieved success, without going through the traditional business planning process. In fact, researchers have confirmed that entrepreneurs who take the time to write out a business plan are no more likely to succeed than entrepreneurs who do not.
So why take the time / invest the energy in creating a plan?
Although it isn’t a necessity, there are several reasons planning out your business is worth your while. First, banks and private equity investors like to see business plans prior to making loans or placing investments. Such a plan demonstrates that the founders have spent time thinking through the business and the market it plans to serve. Thus, if you’re seeking capital from traditional financing sources, you’re going to want a business plan.
Even if you aren’t relying on outside financing, a second reason putting a plan together for your business is a good idea is because research has established that individuals that plan out their businesses are two and a half times (2.5x) more likely to actually start the business than individuals that have a business idea and do not put the idea into a written plan. So if you want to increase the likelihood that you’ll get your business off the ground, put it into written form.
Finally, a properly constructed business plan helps founders stay focused while prepping for and actually launching their business. Distractions and new opportunities exist around every corner- a clear plan helps entrepreneurs avoid the temptation to abandon current efforts in favor of the next new and exciting thing or opportunity or idea. So put together a plan- it’ll help you stay focused on the task at hand.
How Do I Write A Business Plan?!?!
So now you are probably wondering how to put a proper plan together. There are literally thousands of resources out there that can help you put together a traditional business plan (I’ll link a few at the end of the post), so I'm not going to reinvent the wheel here. I encourage you to check out these resources if you are interested in getting into the nitty-gritty details of how to construct a traditional business plan.
Although I'm not going to get into the specifics of how to construct a business plan, I do want to touch on a few ways in which business plans often fall short of being truly beneficial. One of my biggest problems with the traditional business plan is that (generally speaking) it is put together with a singular purpose: to convince an individual to put cash into the business. Thus, once the business obtains the necessary level of funding, the business plan is usually abandoned and the founders move forward without a clear roadmap. However, it is at this point that having a plan is most vital.
My hope is to give you some practical guidance to help make your business plan more effective in the long run.
In order to do this, I’ve provided three items for you to consider when writing your business plan. If you keep these in mind, you'll walk away with a business plan that will serve you long after you secure your first round of funding:
- The Audience Is Management - A true business plan should not only assist in securing funding, but also help management execute on the idea for the business. Thus, you should write the plan as if you are teaching a manager or the management team how to take the concept for the business and bring it to life. Write it as if you are not going to be involved- show this hypothetical team what they need to do in order to find success with the business. By demonstrating the process required to bring your concept to life, you will (1) help investors see how they’ll make a return and (2) provide you and your team with a roadmap of what you need to do to find success. Don’t write your plan exclusively to potential investors- write it for you and your team too!
- Concrete / Measurable Goals, Milestones, And Action Steps - One thing traditional business plans often lack is specific, measurable goals and action items associated with those goals. IE Setting revenue targets is great, but get specific with how you will achieve those targets. You want to have 10 recurring customers in the first 12 months generating $25,000 in annual sales each- that’s a great goal, but what are the two, three, or four things that you are going to do to capture those customers? You plan to hire three top programmers in the first 6 months- that’s a great goal, but what are the three steps you are going to take to locate and recruit those programmers? Take some time to really dig into the “how” as it relates to your concrete, measurable goals. If there is any place to get specific in your plan, it is here.
- Simplicity Is Key - The days of 50 to 100 page business plans with detailed market research reports and meticulous financial projections are over. Length and PhD level detail do not matter. Heck, the Airbnb guys put their business plan into a 10 slide deck and look where they are at now. What is important is that your plan communicate what your business is all about and how you are going to bring it to life. Don’t add elements just to add length. Don’t include ANYTHING that doesn’t help you better understand how to bring your business to life. Keep it simple- keep it to a minimum.
Good Luck Planning
If you are getting ready to launch a business (whether a tech startup or a coffee shop), I encourage you to sit down and write out a business plan. It's a great exercise that will force you to think through the details of your venture- how you plan to find success. And if you do decide to put together a plan, make sure you keep it simple, include measurable, concrete goals, and write it so that it guides the management team in bringing the business to life. A plan structured in this way will be a guide and roadmap for you as you build your business and be a benefit long after you secure any financing.
If you want some additional help putting your plan together, check out these specific resources: