What’s the Straight Scoop on Business Plans?

Adam Toren

Adam Toren

by Adam Toren, cofounder of YoungEntrepreneur.com

Everyone knows that the first thing you have to do before you start a business is to create a business plan, right? At least that’s what one school of thought tells us. I’ve seen everything from comments on blogs to entire books dedicated to the belief that no business can succeed without a business plan. Some people even get a little heated over the mere suggestion that creating a business plan might not always be absolutely necessary. And these business plan purists do raise a valid point. Without any planning, your chances of success in anything are slim to none.

So the question isn’t whether or not planning needs to take place before starting a business. The question really is – what should that planning look like? Is a formal business plan always a must, or can something less comprehensive be just as effective? In our new book, Small Business, BIG Vision: Lessons on How to Dominate Your Market from Self-Made Entrepreneurs Who did it Right, my brother Matthew and I dedicate a chapter to this very question. We explore the pros and cons of creating business plans, and we detail options for formal business plan and one-page business plan models.

The bottom line is that the research (as well as our personal experience) supports the fact that whether or not an entrepreneur creates a business plan is not a determining factor in his or her success or failure. Again, we’re not suggesting that planning itself isn’t useful. What we advocate is taking a serious look at your needs and what you hope to accomplish with your planning, and then deciding what form your planning will take, based on your findings.

For example, if you plan on trying to get outside financing for your business, there is no doubt you need to create a killer business plan, designed to assure your potential funders that your idea is sound, that you’ve thought of every contingency, and that you and your team have what it takes to execute. This sort of formal plan is primarily intended to appeal to people outside your business.

On the other hand, if you plan on bootstrapping rather than trying for financing (something we also discuss at length in our book), you want a practical plan that can serve as a roadmap for your business. This type of plan is a working document that’s actually useful in the day to day operation of your company. It doesn’t have all the information that a formal plan does, and in many cases, it can be as brief as one page. Think about it: If you and your team are the only people who will see this document, do you really need to detail everyone’s qualifications and experience in the plan? Does it need to contain detailed financial projections and a feasibility study? Not likely. Of course you’ll want to create financial projections and determine your product or service’s feasibility, but there’s no reason to include that level of detail in an internal business plan document.

So, what’s the straight scoop on business plans? A business plan should serve a real purpose. And that purpose should be to support your company’s goals. If you make the mistake of putting off launching your company because you think you have to spend an extraordinary amount of time creating a formal, 50-page business plan document, the planning process can be a detriment to your momentum and creativity. If, on the other hand, you “wing it” without any planning, you’re not likely to get very far. So rather than taking sides on this issue, look at your individual situation and do what makes the most sense for you and your business. After all, as an entrepreneur, isn’t that your most important job?

About the author: Adam Toren is a serial entrepreneur, mentor, investor, award winning author of the book Kidpreneurs, and co-founder of YoungEntrepreneur.com. Adam and his brother Matthew are authors of Small Business, BIG Vision: Lessons on How to Dominate Your Market from Self-Made Entrepreneurs Who Did it Right (Wiley, 2011).

Comments & Advice:
  1. Well said. In a market saturated by business plan writers, I get everything from the pained look to all out rage when suggesting that a business plan is wasted energy for most young ventures. I feel that WORD is just another early-stage distraction and should be banned from start-up founders PC’s for the first 3-6 months.

    I am careful to not suggest that people do not plan and aspirations of funding or not, founders should be able to sketch out and quickly articulate their business / product model. But, I find that 5 – 10 minutes on a white board is far more productive and shows me not only the founders analytic skills but also that they understand how to connect the dots all the way to the end customer.

    What gets me in a ranting mood is listening to the business experts and mentors deliver their pitch saying “this is what the investors are looking for.” Not only is it laughable since most of these folks have never even met a VC much less made the rounds, but it is also insulting since most of these developing companies are so far from market ready much less investment ready that trying to sell them on the secret sauce in this magical document is just ethically wrong.

    How many of these folks will survive long enough to ship a product? How many will ever be ready to pitch a VC or angel? If nothing else, the simple math doesn’t justify building an elaborate plan. Put that energy (and any dollars earmarked for a BPlan writer) into the product, you’ll be glad you did. And if the time comes for you to sit down and actually write a full plan it will be easier and more believable because you will simply be documenting what you have already learned.

  2. Adam Toren says:

    Very well said, Startup! The sad thing is that there are undoubtedly some outstanding ideas out there that will never see the light of day because their founder is intimidated by the overwhelming business plan writing process that they think they MUST go through. It’s a shame that “planning paralysis” keeps so many from going for their vision.

    Thanks for sharing!
    Adam

  3. Brian C Lundin says:

    We believe that before spending a large part of your budget on a Business Planning Consultant you should have completed the necessary due diligence for your industry, know why you are starting your business (outside of money) and having a working “business journal” of what are learning while starting this endeavor.

    The honest truth is that new Entrepreneurs may not know this is incubator stage of their business plan. This why their is an urgency work with clients early to put them on the best path.

    This philosophy may not be the lucrative for some companies, but it should be one the most fundamental recommendations to start-ups.

    Brian C Lundin
    Amorhous Business Solutions

  4. Brian C Lundin says:

    Also remember sometimes Spell check is not your friend. Sorry the errors above.

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