Entrepreneurialism

Are Business Plans a waste of time?

Recently, I was able to attend a national conference in entrepreneurship along with other well-known entrepreneurs and college professors. It was interesting to see that there were two parallel sessions on business plans. One session featured a panel consisting of successful entrepreneurs challenging the practicality of business plans. The second session taught students how to correctly and quickly develop business plans.

The panel discussion intrigued me so I went to that session. The panel members had never written a business plan, at least not to start a business. Yet they all succeeded. It is not surprising that the panel didn’t use written plans. Most entrepreneurs don’t. The panel stated that entrepreneurs are naturally inclined to hold on to business plans they have written due to the time and effort invested. They said that business is constantly changing and that business plans must be rewritten or abandoned. This will allow for the business to thrive. Entrepreneurs also stated that a plan can make a bad idea work, and that a plan written poorly will likely not hinder a great idea. The session also discussed the fact that the entrepreneur is selling the venture capitalists or angel investors what it is actually selling. One panelist stated that investors will invest in your company if they believe in you. Panelists agreed that investors are looking for passion and vision, not just the idea. They need to be sure that the entrepreneur has the ability to persevere, make smart decisions, and adjust their business accordingly. All entrepreneurs agreed that it was not wasteful to require a business plan in order to be enrolled in a college course or program of study. The process could provide valuable insights, they agreed.

As a college instructor in entrepreneurship, I try to communicate as realistically as possible the realities faced by entrepreneurs. After attending this conference, I discovered that students might have difficulty reconciling two seemingly opposing points. My students are well aware of statistics that show that the majority of entrepreneurs start a business without a written plan. It would be a disingenuous attempt to convince them otherwise. The panel could be right, but why bother creating a business plan? The panel of entrepreneurs gave me the final nugget. It is the process that I believe is most beneficial.

The business plan is not the first step in planning. A plan written too early is not a good idea. To ensure that the plan is based on sound assumptions, a feasibility analysis should be done before you start writing it. Entrepreneurs can gain insight from the feasibility analysis to help them understand their business. A focus group can provide valuable insights that can be used to help develop a better business model. The most important parts of a business plan are the feasibility study results and the creation of a compelling, competitive business model. These facts, along with a cash flow analysis, can make a difference in securing the resources needed to start a new business.

My students and I also like to remind them that the importance business plans have a bearing on the type business. A retail store that requires large capital, inventory, payroll, and other requirements is different from one that has a small staff. It is very different from a new venture in an industry driven by technology that is constantly changing and evolving. For example, a business like Facebook requires a much smaller business plan than a business that is new to the sporting goods industry.

A formal plan is also required depending on the amount of capital needed to start a business. Venture capitalists will typically review at least some sections of a formal planning document as part of their due diligence.

I think the entrepreneurs were correct to point out that business owners can become too attached with a formal plan. When the business is launched, and customers begin to give feedback, it’s a crucial time. This is a crucial time when decisions can make or break the venture. Should the entrepreneur stick with the plan’s assumptions? Or should they make major or minor adjustments to the plan? Remember that the business will not run on autopilot just by having a business plan in place. As conditions dictate, adjustments must be made.

While the panel did not question the necessity for a formal business plan in general, they were correct to point out that the planning process is independent from the plan. It is possible to write a business plan without being required.

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