There are many conflicting reports on the importance of putting together a business plan when starting a business venture.
If you are building a big company and looking to get millions of dollars in funding, you’re going need to write one. It’s just standard operating procedure. Potential investors and Angels need to see one. You can’t just look them dead in the eye, tap your head and tell them it’s all in there.
But while it seems obvious that ideas swirling inside the heads of potential entrepreneurs should be put down on paper, there is a growing consensus of entrepreneurs who swear the business plan is a waste of time. The longer you sit planning, they say, the more time you spend outside the market. This means no incoming revenue, the risk that someone beats you to the market and starts cashing in on your idea or your idea gets old.
One author describes a business plan as, “A conspiracy by consultants and business schools to take advantage of inexperienced entrepreneurs with more dollars than sense
.”Think Twitter. Valued at billions of dollars and still trying to figure out how to bring in revenue.
So are business plans necessary or irrelevant and obsolete?
In his book, The Illusions of Entrepreneurship, Scott A. Shane, professor of entrepreneurial studies at Cape Western Reserve University, writes launching a startup is not a linear process. “The reality is messier. The actions that entrepreneurs take to build their companies don’t occur in a set order.”
One contributor to Forbes.com says, “You can plan and research all you want, but the first time you encounter something you didn’t expect, the plan goes out the window. Once you are underway, things never go the way you anticipate.”
It is impossible to make a list ahead of time of all the things you haven’t thought of.
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Kevin D. Johnson, author of The Entrepreneur Mind, serial entrepreneur and president of Johnson Media Inc., a marketing and communications company calls them overrated. He says experience has taught him “When I get a new business idea, working on the business plan is one of the last things to do. The three crucial steps I follow before even thinking of writing a business plan is first, examine the competitive landscape to see what companies are already there. Second, discuss the idea with potential customers, and third, develop a sketch or basic prototype of the product.”
Peter Sims, author of LITTLE BETS: How Breakthrough Ideas Emerge From Small Discoveries, tells Black Enterprise, “When you are starting a new company you have an idea of where you want to go. Most entrepreneurs don’t start with great ideas, they discover them. Remember Google started as a project where Larry Page and Sergey Brin were trying to understand how to prioritize library searches. The company grew from a series of small discoveries.”
Sims, a former venture capitalist backs up his point, “I’ve seen hundreds of business plans and the only truth about them is that they never come true. What’s helpful about them is to convey a problem that needs solving and to state quickly the approach to solve them. The most important thing for a business is the people.”
According to the Wall Street Journal, “A good business plan can help you figure out how much capital you need to launch your business, how much revenue, profit and cash flow your business is likely to generate in the future.”
If you don’t have a track record, you’ll need to tell your story in a language that investors can understand. Remember an investor who’s serious about putting money in your company will want to see you’ve done your homework. Figuring out things along the way can be a recipe for disaster if you haven’t planned properly how to use your working capital.
A formal business plan isn’t critical to the survival of home-based businesses without employees, massive inventories or overhead and minimal capital. You can pretty much dive into the market without one.
But established entrepreneurs caution, if you’re launching a startup that requires funding and staff to help you build it, you may be skating on thin ice if you forge ahead without one. Going into business is often described as going to war. Wouldn’t you need a battle plan?
If you decide on going with a business plan, it should be short and used to illustrate what direction your business is headed and the people involved. It ‘s still up to you to go out and get the data. Remember it doesn’t already exist.
Johnson says, “Instead of rushing the document, take the preliminary steps before you begin writing. These steps make your plan stronger and improve your chances of success and funding.”