To business plan or not? That is the question….

Posted on July 19, 2011 by

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Part 1 – of our business plan series.

I was recently hired by a company to do some strategy work (and yes – I have a part-time job to support my start-up addiction). This piece of work uncovered a company that has grown revenue year over year for the past 6 years despite a lack of formal strategic planning across the business (no business developement, operations and marketing plans etc).  Despite this growth, the company has hit some challenging times, largely due to staff turnover, an increasing cost structure and not keeping up with the competition in terms of product development.  To say the least – this may be a tough year for the company.

But this is not the only time I have seen this pattern of behavior play out in a company.  This situation occurs more frequently than entrepreneur’s like to think – you get so busy running your company, it starts growing rapidly and next thing you know you are so close to your business you are running it by ‘gut’ feel.  This might work for you and might work for a while – but it can be very hard to align others in your company to your objectives and logic without formal structure.  

Some people argue that formal business plans are not worth the time (and thus money) investment for companies especially small business and start-ups. I have summarize the top few reason I have found why you shouldn’t write a business plan below:

1. No evidence that a formal business plan improves the outcome of the businesses who aren’t seeking outside investment (as suggested by research conducted by my own school Babson College).

2. A start-up founder does not have the time to write a 50 – 100 page document.

3. It stifles entrepreneurial thought and action… as a start-up you are a market shifter and need to seize every opportunity you have. Being bogged down by red tape can slow your response time.

4. You can’t predict the future, so why produce a document full of assumptions and predictions?

5. Creating a stagnant road map to guide you through your dynamic adventure seems almost counter intuitive.

So now for the flip side – below is a summary of the top 5 reasons I have found to write a business plan:

1. Is your business opportunity worth pursuing? This is a tough question to answer when you are an entrepreneur in heat – so going through the evaluation process is a greater way to ensure you don’t waste any time and money low potential ideas. Hamilton and I actually pulled the plug on our first venture together after the writing the business plan – our idea wasn’t the right fit for us.  I must say I am glad we found that out earlier rather than later.

2. Grow your business or start your business profitably and efficiently. A business plan allows you to identify and allocate your resources, time and energy according to strategic importance to your business.

3. Communicate your vision, objectives, strategy to key team members (employees, managers even spouses and family). Managers especially need to understand their objectives so they can drive their efforts and your business in the right direction (it will help guide their decision-making process).  

4. Helps a company become proactive as opposed to reactive – this will reduce the everyday stress of running your company.

5. A business plan is almost a must for those seeking outside investment and/or to support a business loan application. It also aids in estimate how much money you actually need to grow your business and how you should spend that money (should you lease, hire, rent, buy etc).

While there are clear points for why or why not you should write a business plan, I believe that every organization should not have a ‘formal’ business plan (50-100pages long), but all companies should have a form of business plan (much shorter and dynamic).

Over the next few weeks, I will be writing a how to guide on keys to writing a business plan to launch or grow your business. I will cover a few sections each week (as I go through the process once again with a client).

I look forward to sharing all the tips and tools that I use and hope that all you out there who have written a business plan share yours too.

Till Next Time…

Boomer

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