Hey entrepreneur and small business owner: you may not have noticed but December was National Write a Business Plan Month.
Actually, December is a terrible month for this observance, as most small business owners are concentrating on other issues (holiday customers, end-of-year deadlines, family obligations). But since someone somewhere declared the twelfth month of the year to be the time to step back and think about the future of your business, I decided to save and share my column to read in January, so you could develop a plan when we have fewer things pulling us in different directions.
The first question you may have is: in this day and age, do you really need a business plan? In a world of 30-second videos and 280-character posts, can you really expect anyone to read a 20-page written business plan? Even if you’re courting investors, couldn’t you just send them a few slides and financial projections?
I’ve heard successful entrepreneurs boast that they’ve raised millions for a venture without a business plan. What they fail to mention is that they’ve previously started or run other, highly successful companies. So sure, if you’ve been on the founding team of a billion-dollar company, you may be able to raise millions just by sketching your idea out on a napkin.
But for the 99.99% of the rest of us, we’re going to need a business plan if we want to raise money – even if our funding sources say all they want is a few slides. Why? Because when you finally get that all-important meeting with them, they’re going to grill you on every aspect of your business. If you haven’t developed a thorough business plan, you won’t have good, polished answers to give them.
I know this from my own experience when I approached a bank for a loan for my company. We were never asked to produce a business plan. But the loan officer grilled us on every aspect of our business – our industry, competitors, operations, management, marketing. We could answer their questions because we’d already gone through a business planning process. We got our funding.
Even if you’re not looking for outside financing, developing a business plan is a critical factor for successfully starting a company. And I’m not just saying this because I’m the author of the best-selling business plan guide in the United States Successful Business Plan: Secrets & Strategies. https://planningshop.com/product/successful-business-plan-7th-edition/
Here’s why: entrepreneurs who go through a business planning process are more likely to succeed. “Writing a business plan is the sole business planning activity correlated with performance,” was the conclusion of a 2021 study in the New England Journal of Entrepreneurship. https://www.emerald.com/insight/content/doi/10.1108/NEJE-08-2020-0031/full/html In a rigorous Harvard Business Review study, startups were 16% more likely to be viable if they developed a business plan. https://hbr.org/2017/07/research-writing-a-business-plan-makes-your-startup-more-likely-to-succeed And a raft of other studies show that developing a business plan means you’re more likely to thrive and survive.
Most importantly, developing a business plan helps you make the most of your precious time. As my dear friend Eugene Kleiner, the famed venture capitalist once told me, “An investor in a failed business can make their money back. The entrepreneur can never get their time back.” https://en.wikipedia.org/wiki/Eugene_Kleiner
Creating a business plan helps you:
- Think through your entire business
- Develop a strategic position
- Identify and understand your target customers
- Consider key strategic partners
- See what management roles you need filled
- Figure out your financial needs
- Develop marketing messages and tactics
- Recognize operational challenges
Now, just because you need a business plan doesn’t mean you have to spend a huge amount of time writing, editing, and polishing a long-written document. In fact, when I talk about developing a business plan, I always avoid the term “writing a business plan.”
That’s because it’s the PLANNING and not the PLAN that’s really important. It’s the process that’s the biggest benefit – examining the critical aspects of your business, researching factors and trends affecting your success, asking yourself the tough questions.
So, sure, if you just want to sit around the coffee house, shooting the breeze about your can’t-lose business concept, you don’t need a plan. But if you want to start making money and succeed in the long run, you’re a heck of a lot better off by actually getting to work on your business plan.
Copyright, Rhonda Abrams 2022
Rhonda Abrams is widely recognized as one of America’s leading small business experts. A “Top 30 Global Guru” for Startups, her book Successful Business Plan: Secrets & Strategies was named one of the 100 best business strategy books of all time. Connect with Rhonda at www.facebook.com/MeetRhonda, Instagram and Twitter @RhondaAbrams. Register for Rhonda’s free small business newsletter at www.PlanningShop.com