Why a Startup Business Plan Is Still Worth Writing

PW-39-1.jpgIt used to be the case that every startup needed a business plan. Writing a plan was just a de facto part of the startup journey. Everyone did it, usually in the early stages, no questions asked.

But recently the value of the business plan has been hotly debated with some people arguing that they have become obsolete, irrelevant, and basically a waste of time. Critics argue that entrepreneurs don’t know enough, at least not in the early stages, about their market or their users to be able to make reasonable assumptions about their proposed business, and therefore the resulting business plans often are unrealistic and are just filled with junk hypotheses.

The critics argue that entrepreneurs should, instead, focus their time and energy on learning as much about their market as they can, for example, by developing a minimum viable product and gathering feedback from potential users. Here are some articles covering the debate over the value of business plans:

I agree, to a certain extent, that business plans can be a waste of time. There’s no doubt that they are time-consuming to write. And sometimes, writing a business plan can become a “crutch” for aspiring entrepreneurs. They get stuck in a loop where they revise, tweak, and update the plan endlessly, all the while thinking that they’re “working on their startup,” but in reality they never make the leap from “planning” into “doing.”

PW-39-2.jpgI definitely do not advocate that. At some point, you have to stop tweaking the business plan and just start the business. However, I do think that there is value in spending a reasonable amount of time writing a business plan and updating periodically as you learn more. Here’s why:

1. It forces you to face the unpleasant realities of startup life.

Launching your startup will take (at least!) twice as much time and money as you think it will. A key component of any business plan is making financial projections. This entails hammering out all the nitty-gritty details, for example, estimating how much money you need to create a prototype, how much money you can actually expect to make in early years, how much runway you have before will you need to raise/borrow money, etc. Forcing yourself to put down numbers (even if it’s just a range of values) can be hard, but it’s extremely helpful, because it forces you to face the harsh reality of what needs to happen for your startup to be successful.

2. It forces you to deal with those “I’ll think about this later” problems.

There are a million and one things that you need to do when launching a startup. All too often, it’s easy to put off some of the less-fun, less-glamorous tasks. But writing a business plan forces you to spend at least a little bit of time reflecting on ALL the aspects of your proposed business, including the problems that you said “you’ll think about later.”

And this is important. You don’t want to find out later that Google Adwords which you were banking on for your online marketing campaign is actually 10x what you can afford, or that potential partners are expecting a significantly higher share of profits than you were planning to give them. Writing a business plan forces you to do a little bit of initial research across all potential aspects of the business. This leads to a more grounded understanding of the challenges that you’ll face as you launch your startup.

3. It makes sure that you and your co-founders are aligned in your expectations.

It’s also important that you and your co-founders share a common vision for your startup. You don’t want to be in a situation where one person wants to create a lifestyle company, where the goal is to grow the business slowly, while the other person wants to raise VC money immediately and take a go-big-or-go-home approach. If there’s any disagreement, you’ll want to address those concerns ASAP. Writing a business plan, where you’re forced to spell out your vision for the business in a very concrete way, can be a great way to facilitate this conversation.

Those are just some ideas I had about why writing a business plan is still worth doing, as long as you don’t let yourself get stuck in the trap of continually planning your startup but never actually launching it. Thoughts? Let me know @professorword!

Until next time,

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Photo Credit: Flickr user Yahoo, Joe The Goat Farmer

 

 

2 thoughts on “Why a Startup Business Plan Is Still Worth Writing

  1. Most people don’t understand the a lot of time that go into developing a company plan.I found a really good company that produces Customized Company Programs for all sectors .

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