How important is the business plan?


7

Planning is important An orthodoxy has developed that a business plan is a critical component of a business. There are lots of business plan contests. Business planning software. There seems to be an assumption that all start-up entrepreneurs need to not only become proficient in their market but business planning (not to overlook the expectation that they also become experts in business and tax law). But do the best business plan writers really make the best entrepreneurs?

Implementing is important This is balanced with a devotional chant that "only implementation matters." A focus on getting into the market and testing things iteratively with the customer. In a commitment to the school of trial-n-error; the result is often under funding and poorly conceived systems, mistargeted products, and financially or emotionally exhausted leadership.

Where is the emphasis? As I continue to work with entrepreneurs I have a growing concern that the MBA-school consultant-driven over-emphasis on the front end business planning process over emphasizes the illusion of control, lack of responsiveness to the market, and unrealistic expectations.

In fact, I have committed a percentage of my lottery winnings (when I win) to commission a study on the correlation between start-up success and winning business plans. My hypothesis is that companies which win business planning contest actually perform at a rate less than the relevant industry averages.

But since I haven't won yet, and can't afford the time to do the study myself -- I am this community:

So, how important is the business plan to the operational launch of a start-up?

Business Plan

asked Apr 27 '11 at 05:31
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Joseph Barisonzi
12,141 points

4 Answers


2

Great question!

I've very much come around to Steve Blank's way of thinking: that the business plan is a plan to execute a known quantity; ie a business matured enough to be out of the startup phase; which can, of course be a new business with known model, just not one which is a startup.

In a startup you don't have that known quantity - you are searching for a viable business model and constantly refining your assumptions. You could say that you are searching for your business plan!

Now, that's not to say I think plans irrelevant, they're not - you should, of course, have some idea of expected income, salary costs, expenses and the like. If you can plan that, great, but a full-blown business plan with sales and marketing plans are not what is needed until such time as the business model is known.

Nonetheless you can't ignore the team executing - with an incapable team the plan is meaningless, likewise a great team executing a bad plan excellently will just fail faster!

So, how important is it? It is a useful starter estimate, but it is in no way a road map to success.

answered Apr 27 '11 at 06:20
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Matt
2,552 points
  • Thank you for the added points Matt. . . .I am now going to focus on the relationship between the plan and team-based execution. – Joseph Barisonzi 8 years ago

2

I think the analogy of a war plan is enlightening. Going to war without a plan, a strategy, is leaving its success to pure luck. There is no canonical way to make a plan. It can be kept in your head, but when many people are involved, writing it down, exposing it to critics ensure that we didn't miss something and reduce risks of mistakes.

As people know by now, even the best plan can fail with bad execution. Having a good plan reduces risk of failure, it does not provide a garantee of success.

A plan is no more than a guideline. Things rarely happen as planned, especially in war. (consider a chess game if you prefer). So anticipation in what can go wrong, plan B and plan C, are as important as predicting the success. Making plans by pure guessing of the ennemi forces, position, and reaction possibilities is not better than attacking without a plan. A plan reduces risk of failure due to mistakes.

answered Apr 27 '11 at 16:26
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Chmike
201 points

1

The value of a business plan is to force you to do the research and strategic thinking around the opportunity you are pursuing. This includes some testing of the market. It will also help you define your broad goals, especially to understand and articulate what the problem is that you are trying to solve. Of course it is out of date when you have finished it, but if you haven't gone through the rigor of this type of thinking I think you have little hope of implementing successfully.

And of course its other value is as a communications tool for investors, potential key employees and other stakeholders.

answered Apr 27 '11 at 21:22
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Susan Jones
4,128 points

1

A start up, as any project, do requires some basic elements as goals, strategy, etc. These are not only valuable, but fundamental for you to manage your company. Otherwise, its like driving a car without knowing the city streets or even what's your destiny.

The business plan itself is not as important as MBA-types say, but creating a business plan is quite useful, because you outline your goals and how you pretend to reach them, your strategy. Indeed, if you just outline these topics, you'll get most of what you need from a BP.

Its values starts to fade when you go too deep in the how-you-pretend-to-reach-them part. Generally, you end up spending too much time planning what you're going to do in a future that probably won't arrive. Its like to study a city map for half-hour, planning your route and then picking your car, reach the streets and, after five minutes, discovery that part of your route is blocked by a car crash. You'll have now to get some alternative, very different route, but your goal/destiny remains the same.

As a side note: Other things in a business plan, like marketing research, have a lot of value also, but when you're writing the BP you're too far from the moment when they are going to be useful. You may risk yourself spending time in something that isn't going to be necessary, as your start up may change its direction after some time. A better option is to wait the need for this kind of thing to finally do it.

answered Apr 28 '11 at 01:47
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Brunno Silva
320 points

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