This should never be the question. I have come across many folks in the innovation space who denounce business plans, suggest writing a business plan inhibits forward motion and the entrepreneurial spirit. Bah-humbug. This blog is in defence of business planning.
What I am definitely NOT saying:
1. Months should be dedicated to carefully writing a document, with perfect grammar and prose, to described the business plan.
2. A consultant needs to be hired to do something like #1.
3. An entrepreneur should stop all other activities until the business plan is written.
4. The plan needs to be written at all.
5. A business plan should be created and then followed rigidly for the next several years.
An important distinction is:
Every entrepreneur should have a well thought out business plan. ✓
Every entrepreneur needs to write a business plan. ✕
Many people dread the idea of writing a large document. Although I recommend writing things down because it generally results in a new level of thought about the subject, if it turns your stomach, find a creative way to get the same result. Video tape it. Make story boards. Put it in a series of tweets (as long as you are ok with it being public). Use one of many templates available on the web, with fill in the blanks. Another benefit to some kind of record of the plan is the ability to review the original goals and modify either the goals or the direction the business is taking at a later date when you’ve learned more.
Business planning is not the opposite of the Lean Startup method, or the enemy of innovation or entrepreneurship. In fact, a good business plan encompasses the lean startup method, because it has at its core plenty of research. And it’s fluid.
What is important: The elements of the business plan.
Can you answer the questions:
- What is unique about your business?
- What is the competitive environment for your product?
- Is there a market for your product (who is going to buy it and how much will they pay because you are solving a problem/fulfilling a need/relieving their pain)?
- How are you going to finance your business?
- Can you make enough money to support the investment required?
Most importantly: Are you being honest with yourself that you’ve answered these questions to the best of your ability? Not asked three of your friends and going with your gut. Or asked questions in such a way that you are sure to get an affirmative answer. For example, if you asked people if they would like a more fuel efficient vehicle, most would say yes. Fewer of them would be enthusiastic if it mean they had to pay twice as much for their car or double the insurance premiums.
There are times when there isn’t much data to draw on to validate your assumptions but even then there are potential customers to ask. This is the essence of the lean startup method. Get the minimum viable product into customers/users hands and see how they like it. Incorporate your findings into the business plan. But the principles of business planning still remain. As you learn from more potential customers, your plan will mature, you will be better able to answer what need your product fulfills and therefore be better able to define the market and financial plan.
Be innovative in how you determine and articulate your business plan but planning it has advantages:
- makes you think through your assumptions about the business
- brings perspective about the external environment
- helps to foresee challenges
- helps focus activities and spending
- required to seek funding from all sorts of investors: government, angel, venture capital, traditional lenders