Do You really Need a Business Plan?

Do you really need a business plan?

First, I want to share my bias because this question, like lots of other entrepreneurial ones, has no perfect answer. I started my entrepreneurial career while very young when, I think, there were typewriters but well before there were personal computers and software products such as Microsoft Word or WordPerfect (I am definitely dating myself with the WordPerfect reference). So, had it occurred to me at the age of eight or nine to write a business plan for my lawn cutting business, it would probably have been more work than benefit.

The truth is this: the need for a business plan is a function of the complexity of the business, a need for capital and the experience of the entrepreneur.

Let’s take a few scenarios. If a person wants to start a business, has been an entrepreneur for a long time and has the very small amount of capital required to start that business, it seems to me a business plan has little to no benefit. On the other hand, if a scientist who has never been an entrepreneur wants to start a biotech company, he or she may need to have a good business plan to help think through the business and raise money.

So, unlike even the top business schools, which still teach entrepreneurship through a business plan, I believe the need for developing a business plan is highly variable, and I find that people waste way too much time writing plans rather than getting out to market and getting customers.

If you sense my skepticism around business plans, you are correct. Another big reason I’m not a big fan of business plans is that, by writing them, entrepreneurs get caught in a set of assumptions that may not remotely resemble true market conditions.

Developing a business is not like an orchestra playing Handel’s Messiah. When conducting the Messiah, there may be small variations for tempo and such, but the central framework for the music should not change. Entrepreneurship is nothing like this at all, and it never will be.

In entrepreneurship, your basic assumptions are likely to change dramatically, even when well researched. So, where a business plan is static, the real world is quite dynamic.

Lastly and importantly, however, I don’t want to leave the wrong impression about an important point. I do believe many businesses could use good planning and research in analyzing a market. Even this is subject to some real limitations, but with any reasonably sophisticated new product or service, it would benefit entrepreneurs to do some good market analysis before starting. Now, how you format that research is not important.

I made the mistake of not thinking through my potential market at Sageworks, and it cost me a lot of time. Of course, turning financial statements into plain-language analyses was such a new idea that we really had to resort to a lot of trial-and-error in finding our market. Ironically, Sageworks was the one and only time I did write a business plan and that turned out well, so there you go!

When you’re considering a business plan, ask yourself, would my time be better spent getting the product to market and getting new customers? The answer is often yes.