Recently, I have heard some entrepreneurs stating that “Business Plan” is a waste of time and further that investors these days do not want to look at bulky business plans. Also, there has been a flood of articles advocating the same on international websites:
Forbes: Why Business Plans Are A Waste Of Time
NY Times: Investors Pay Business Plans Little Heed, Study Finds
Bloomberg Business: Real Entrepreneurs Don’t Write Business Plans
At the same time there have also been articles refuting the above claims:
The Globe And Mail: Why business plans aren’t a waste of time
YesWare: No, Writing a Business Plan is Not a Waste of Time
3 Reasons a business plan is not totally useless
Arguments For and Against
Allow me to dig a little deeper into the issue and summarize the arguments made against Business Plans and the Counter Arguments. I would like to give due credit to the authors of above articles for their research and views.
|Argument #1: The longer you plan, the longer you are not in the marketplace. Which means no revenues, somebody could launch before you or market may change.|
- A basic Business Plan can be developed in not more than 20 to 30 hours spread over a week. Do things change so drastically within a week? It seems some people are simply too lazy to think deeper and write.
|Argument #2: It is impossible to plan everything upfront. The moment you encounter something unexpected, the plan goes out of window.|
- Failing to Plan is planning to Fail – said Alan Lakein. It is true for most situations that involve uncertainty like Project Management, Cricket/Soccer Match or Election Campaign. It is better to plan something than nothing at all.
- Entrepreneurs say Business Plan enables them to think through all aspects of business, logistics, possibilities and pitfalls of their operations and to clarify their goals. It exposes holes in your idea at a very early stage.
- Business Plan is not a static document; it is dynamic and keeps evolving based on changing market condition and lessons learnt.
|Argument #3: Venture Capitalists now a days do not bother to read a 50 Page Business Plan|
- “You should put as much time as you possibly can in writing a comprehensive business plan for your own sake”. It is not just for investors. It is a blueprint for your company, team communication, and progress metrics.
- From the information you’ve collected in your business plan it becomes much easier to generate a pitch deck, a one-pager, a financial model etc. you will have to make. It also helps you easily answer questions asked by Investors during presentation.
- Investors do ask for Business Plans although not a bulky one. You need to compress your detailed internal plan into “a very streamlined, need-based outline” for prospective investors to scan. Some need 10 Page, some 20 page and some 40 page.
|Argument#4: Entrepreneurship is about getting out into the world and doing—not simply researching and writing.|
- It is difficult to share your thoughts, ideas and vision with everyone, but a written plan can easily be shared. The business plan helps you get all those involved (co-founder, investor, senior management, partners) align in the same direction.
- Reaching out to customers without thinking through all aspects of business like market size, competition, profitability can be frustrating. Business Plan Preparation process forces you to think whether you seriously want to pursue this business.
|Argument#5: I plan to do crowdfunding, so I do not need a business plan|
- Although technically the major crowd funding sites today don’t request a business plan, they do require essentially the same information in a project format. Thus building a business plan ahead of time will improve your application and chances of success.
To conclude, Business Plans are definitely good and required by all start-ups, but you need to take care of three things:
- Length of Business Plan – It can be comprehensive for your own reference, but often needs to be tailored down as per specific need of Investors. One Size does not fit all.
- Keep Updating it regularly – Remember it is a dynamic document
- When to write the plan – You may start with just a Business Model Canvas, test the market, and then elaborate into a basic plan followed by an exhaustive plan.