There’s a lot of confusion out there about the value of business plans. Do you really need one? (Yes, you do.) Are they helpful, or are they just a pointless academic exercise, a distraction from the important job of execution?
It’s not hard to understand why there’s so much controversy over this. The reason is simple: most business plans aren’t very good. Some are downright wastes of effort.
Here are five sure signs a business plan is fantasy.
1. No strategy. Businesses that succeed do so because they do something different. That may be a better designed product, a lower price, great value for money, mastery of the supply chain or any number of other differentiators.
These aren’t tactics that start and stop as circumstances change; they’re core to the way these companies compete and win in their markets. If your business plan doesn’t describe your company in these terms, with precision and specificity, then you’re missing what it takes to win the big game: a strategy.
2. No research. A lot of entrepreneurs make the mistake of thinking that research will answer all their questions, and they do too much of it. Unfortunately, even more entrepreneurs do no research at all.
If you don’t research the environment and the mistakes that have been made before you, you’ll repeat them. You should know more than enough about your market to fill 10 typewritten pages of qualitative research notes (research isn’t just quantitative!). You don’t have to include ten pages in the business plan, but a plan with no evidence that the research has been done is bad news.
3. No analysis. What are the implications of all that research? How will you use that information to shape your strategy and tactics? What can you say about the likely effectiveness of your efforts? Collecting information is just the beginning. A business plan that doesn’t show some rigorous analytical thinking layered on top of the raw data isn’t going to be a useful management tool. Assertions and forecasts have to be supported by logical analysis.
4. No spreadsheets. If you’re not comfortable with the nitty gritty of making financial forecasts and models, that’s perfectly okay. You don’t need those skills to succeed in business. But your business plan needs them. Get help if required.
If you haven’t forecasted what’s likely to happen, or what could go wrong, you’re taking an enormous risk. Your goals could be unachievable, your assumptions could be way off — you’ll never know. Never mind that your investors and bankers will insist on this stuff. It’s a critical management decision-making tool.
5. No pain. Entrepreneurship is a hard road, and your business plan needs to be realistic. Cushy salaries and benefits from the get-go, too-optimistic growth rates or sky-high pre-revenue valuations all indicate a lack of seriousness and awareness. You’re kidding yourself, but you won’t kid investors. Entrepreneurs suffer. That’s a fact, not a moral judgment. If you’re unwilling to suffer, or you’re naïve about the task ahead, no one will back you, and you should probably just get a job.
Jay Lebo is one of the founders of Gravitas Business Architects, and has been helping companies multiply growth and outperform the competition for more than a decade.