I feel it is nonsensical to conduct so many estimations in a business plan, what's your idea


4

When you write a business plan, you have to conduct many estimations. I feel these estimations are nonsense, unreliable, so writing a business plan is meaningless but to waste your much time. What do you think of it?

Business Plan

asked Feb 5 '10 at 11:12
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Steven
1 point

11 Answers


7

A business plan is, at root, simply a record of direct research, compiled in a cogent form, to allow comparison of information items. It is a record of pre-planned decisions made using those analyses. It is a picture, an attempt to bring some small order from chaos and uncertainty.

Making a decision, any decision, should involve the weighing of all four factors: Risk, Reward, Consequences, Certainty. Leaving any one of them out of the consideration of the decision, lessens the value of, reduces the value of one or more of the other factors.

'Estimates' are simply attempts to apply some logic to unknown quantity. They may not be the best tool, or even a good tool, they are simply the only tool we have available, barring the advent of the working crystal ball.

No business plan is, should or can be a 'static' document. Every action we take, every response we receive changes the data available. Every change in data should be put into the considerations used to make previous decisions and evaluated for affect and possible changes. If we did not have a plan to start from, a 'framework' within which to look, there would be no value to real world data as it appears.

answered Feb 5 '10 at 18:02
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A Business Mentor
215 points

2

Estimating the market determines whether there is a "there" there - it shows that you looked at the potential market, competitors, and have decided what portion of the market you feel your company addresses.

One can be overly optimistic or extremely conservative in determining how to approach this market ( your projections ) but in the end what is most important is that you a) defined a target, b) defined an approach to address that market, and c) you realize that a business plan is just that - a plan, and can change based on real world results.

answered Feb 5 '10 at 15:47
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Jim Galley
9,952 points

2

Here's another view point on business plans from our host, Jason, that I also agree with.
http://blog.asmartbear.com/business-plan.html

answered Feb 5 '10 at 19:32
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Starr Ed
948 points

1

"Planning is essential. Plans are worthless." -- Dwight D. Eisenhower.

Unless you're psychic, your estimates will be wrong. But without some effort to decide how big the opportunity is, there's no way to decide how hard it's worth chasing. Without some effort to establish what you need to do to chase it, there's no way to decide if you have enough resources to get it done. Writing your business plan allows you to convince people, including yourself. that your idea is valuable and achievable.

Here's a couple more aphorisms of my own coinage. I think these are very important, and they are both true.

  • "If you don't know how to get where you are going, you are lost."
  • "Planning is friction and too much of it only dissipates heat."

You need to do exactly enough planning to get traction: to establish that you know where you're going, that you're doing the right thing, and that your team can get there. Time spent planning after that is just waste.

answered Feb 6 '10 at 04:05
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User1377
407 points

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I feel these estimations are nonsense, unreliable

then they are!

But if you devote time to examine your most similar competitor metrics (revenues, for Web: unique visitors, visitors) you get a lot of insight. Once you have demistifed the revenues of your competitor into less mystical metrics (such as visitors) you calculate conversion rates.
Now you use those conversion rates (which are accurate enough) to come up with your estimates (it'll boil down to spreadsheet formulae!). Adjust your conversion rates to include years in business (if you don't have access to early years data), and possibly other factor. The most 'gut-feeling' factor you can put in is a 'better value factor', which is how much better you think customers will perceive your product than the competition and thus convert faster. You must have this, otherwise you'll just be an 'also-ran' and time will tell!

Come up with your visitor figures from your marketing plan. You already were able to calculate how much a visit is worth to you - does Adwords CPC match? If not, your other planned advertising channels.

If you feel your estimates are unrealistic/nonsense/inflated then you probably figured why it gonna fail (like most startups) rite there! Bottom line, few estimates ('better value factor', the right 'average price') and the rest is calculations. Support them with secondary (cheap) market research.

And as others confirm, your estimates will be wrong anyway. What's most likely to go estimates on 'innovative' channels conversions (e.g. guerilla marketing).

answered Apr 25 '11 at 17:06
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Simpatico
198 points
  • I find compete.com/plans too expensive for a single startup but sharing (in an incubator/angels network) it might pay off – Simpatico 8 years ago

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Normally, businesses prepare a business plan when required to do so, i.e. to obtain credit/finance/insurance or even just to open a business banking account. It shouldn't be confused with a budget as it will contain a lot more, including market research and financial projections, such as a Profit & Loss Statement, Cashflow Statement, and Balance Sheet.

Is it pointless? Well, only if its meaningless, or based on wildly unachievable targets. From the point of view of some third party, it is a very useful set of information when trying to get a picture of your business idea and objectives. Take a bank manager or a venture capital investor, they need something to "pin their hat on" so to speak. For example, they will need to have some sort of business plan to show to their board and superiors. Even a simple bank account may require one, because the Bank may have to honor your checks, and let you go overdrawn for instance. They are therefore taking a risk on you and will need something on file to show what "your business" is all about. Remember, it is your business and those in unrelated sectors, probably won't easily understand it. Banks and investors will pare down your estimations of sales and revenues, applying a type of "haircut" to projections in order to look at worst case scenarios, mid-case and best-case. This helps them define a range of expectations, they will then analyze if you could repay an overdraft under each of those assumptions. They may also already have customers in those sectors and they may have a very good idea of what your potential earnings could be.

For personal use, looking at a range of assumptions from the outset, can be useful because in 6-months time when you know the actual performance, then you can tailor your expectations to a more realistic level. It can also feel great to show a bank manager that you have outperformed original projections. This can be useful in negotiating better terms. It is therefore pointless to set targets that are too optimistic, as you aren't likely to outperform.

If you anticipate having to seek finance it is a good idea to prepare a business plan, however if not, internal budgets should help to keep you on the straight and narrow.

answered Apr 25 '11 at 18:16
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Knooq
11 points

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My opinion is that business plans have two purposes :

  • First, they are used BY THE ENTREPRENEUR : you have to, plan the worst things and the best things, it will give you several ways of dealing with the (unavoidable) issues you will be facing. Yes, the number may be far away from reality, but guess what, after several business plans, you will become pretty good at guessing the right numbers.
Let me elaborate on this first point : in the past I started a business of selling high security servers, with some rough estimates. A few months after the beginning, it happens that the sells were way lower than expected, then I quickly reassess my business. Why, because I had a plan, and like in the A-team, there can be divergence but not too much, otherwise you know that you will hit the wall.

  • But the business plan is very useful to INVESTOR. Today, if someone come to me with his business plan, I will do a little bit of work by my side to check on the numbers. If the guy is totally unrealistic, then I won't give him a dime, or at least I won't let him be the guy in charge for other things than the tech side.
answered Apr 25 '11 at 20:45
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Sylvain Peyronnet
371 points

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I don't think it's nonsensical at all. Trying to say that you know what the number is going to be, is nonsensical; but there is no reason you shouldn't be able to come up with assumptions that give you a potential idea of what the market looks like. Tweaking your assumptions both ways should also give you ranges of expected results; i.e. I might get 1 customer per week or 10 per week, how do those numbers compare, where's my breakeven?

As long as you recognize these are guidelines and / or goals, they are useful. How many people will actually hit those numbers? Probably close to 0.

answered Apr 25 '11 at 22:46
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Nick
1,171 points

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A business plan that "only" has revenue projections would be a waste. Now what is your take on: Executive Summary, Products/Services, Competition, Operations, and available capital?

answered Feb 5 '10 at 12:17
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Jeff O
6,169 points

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I won't disagree with the estimations in a business plan. The more detail of the estimates in the business plan, the more prepared you are. Thus it doesn't mean that detailed business plan will make you succeed. But it's still better to plan and estimate rather than not.

answered Feb 5 '10 at 15:37
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Jpartogi
1,342 points

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The business plan is a document that formalizes your idea for yourself. It is very hard to keep track of a constantly changing idea, market, product, service, team, etc. if you don't have it on paper so you can track the changed. I think that a business plan is a very valuable document and disregarding it is the wrong attitude as an entrepreneur.

answered Feb 5 '10 at 16:26
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Eric Amzalag
818 points

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