The case against business plans
Do you need a business plan to start a business? A lot of people say yes, but when you consider all the facts, it's not an obvious decision. Here's why?
First of all, I've never seen any evidence that businesses started with a business plan are any more successful than businesses started or operated without one. If there is research on this, I'd love to see it.
Business plans are often compared to road maps -- a guide to help you get from here to there. I've often heard the analogy that you wouldn't drive from Florida to Chicago without a road map. So you shouldn't operate your business without a written plan either. But this analogy is pretty ridiculous when you think about it.
I live in Fort Lauderdale and often drive hundreds of miles to Disney World or Universal Studios in Orlando. Despite the great distance, I virtually always drive there without the use of a road map. I've driven there many times without getting lost. How is this possible? Because I already know the road. I know what time to leave to avoid traffic, I know where the rest stops are, and I even know where to slow down for the speed traps. All without a road map. Experience has taught me these things. Frankly, the road map is already in my head.
I've also heard that without a written plan, you won't know if you have met your goals. This is hogwash. I don't think most business people need a plan to tell them they are succeeding or failing. You can simply look at your growth, profit / loss, balance sheet and pipeline to see if you are heading in the right direction. Besides, a written plan won't tell you how to fix the business if something goes wrong anyway.
But a business plan is even worse than a road map. You can't go out and buy one at your local gas station. You actually have to create the plan yourself without much help. Imagine if you had never been to Chicago and didn't already have a map. Would you really be expected to create a map from scratch yourself? How good would that map be? Frankly, I've seen dozens of business plans and they all look suspect to me. They are basically guesses as to the future of a company and the market.
The other problem I have with business plans is that they don't address contingencies very well. To continue with the map analogy, you may have planned your trip to Chicago with the utmost care factoring in each gas station and hotel you'd visit along the way. But the odds are that your trip will not go as planned. If you are pulling into the gas station and notice that the price is $.20 cheaper across the street are you going to continue along the same plan? Of course not. That's how life is. In business, you shouldn't follow a strict plan, you need to seek and exploit opportunities.
The time you spent preparing a business plan would better be served by taking care of your customers and finding better ways to provide them value.
The only time I recommend a formal business plan is if you must prepare one to obtain outside financing. Then it is simply a cost of doing business and should not be taken too seriously for any other purpose.
My Groups
-
I Love Hong Kong Updated: Oct 17, 2009
Neighborhood
Explore friends, family, friends & family, or entire neighborhood.
Comments
Dwight Eisenhower said it: "The plan is useless. Planning is essential."
Everybody needs to plan, but that means planning, as in reviewing your plan and revising as assumptions change, using the planning to control your destination and manage long-term progress without losing site of the horizon. To follow your reference to maps, planning is navigation. Following a map without taking into account changes might be dumb, but not having a destination and not managing the journey is also dumb.
And of course what people seem to miss is that you can't have planning without starting with a plan. Then you need the rest of the process, keeping assumptions visible, managing change, the planning process. The mistake you make with this post, in my opinion, is common. And I can tell from the calibre of your writing -- I loved your last post on immigration, by the way, very nicely done -- that if we had a dialogue going you'd probably agree.
And I agree with you that "formal business plan" is probably what you're actually talking about. I've been working lately on the "not so big business plan" and the idea that the plan stays alive, though managing and change, while its format, or its being a formal written document, whether it lives in your head, on your computer, in PowerPoint, or in a long document. The plan is the combination of strategy and specifics like metrics and dates and deadlines, and it should never be static.
Two important points: all business plans are wrong, but planning is vital, because it leads to management. And no good business plan is ever finished.
Tim Berry
I
Planning, Startups, Stories.
Sorry, Tim
To continue further, I'll keep an eye on the temperature gauge, speedometer and gas gauge in my car and I'll pay attention to the road signs and any other metrics along the way. I'll also keep an eye on my wallet and adjust my spending to keep within my budget.
Tim
I agree with you both to a certain extent. I understand why people write business plans sometimes: financing: some banks demand a plan which include a year forecast on budget, resources, revenue, traffic, location, target market, risk analysis etc in-order to get approved for a loan.
Alternatively, businesses seeking goverment grants go through the same process - these are usually businesses seeking to offer a service that the government recognizes a gap. Having written a few business plans for other people myself - it is beneficial to help you learn about the market you are going into but when you have someone else writing the plan and determining the forecasts you are really not planning because you are not involved in the plan. I was writing a grant proposal for a business owner once and decided to end the project when the business owner clearly showed no interest in the plan but rather in the grant.
In summary - I would say, write a business plan if you want an idea of the market you are getting into - its your own little market research - but otherwise like Paul said sometimes just getting on with it and then making necessary changes as they come uo with one end goal in mind works just fine.