April 2012 Issue – Expert Insight
Is the Business Plan Dead?
Professor Peter R. Russo,
Director, Entrepreneurship Programs
Many investors from the angel and venture community these days tell us that they rarely read an entrepreneur’s business plan any more. This in turn generates the question that we often hear from entrepreneurs: “Why bother writing a business plan that no one will read?” Furthermore, most experts will point out that a business plan is out of date the moment you print it. Does it have any value, then? Well, to paraphrase Mark Twain, “reports of the death of the business plan have been greatly exaggerated.” Let’s examine why.
We teach the business plan as a “process” not a “product”. The real value for your team and your venture will be created by the research that you do, the conversations that you have with customers, partners, experts and resource providers and the insights that you develop. The actual document that most people envision when they think of the term “business plan” is simply documentation of the process that you have gone through. While the document can and will become obsolete, the process lives on, as you continue to develop your strategies, and build a successful venture. It shouldn’t matter to the entrepreneur that their prospective investors may not ask to read their business plan. Through the discussions that they will have with you around your presentation, they will certainly test your business plan process. Your ability to answer their questions and defend your strategies will be a direct result of the robustness of that process.
The real value of the business plan is to the team. Initially, the plan is a process by which a team can identify the key issues that they must address and make the choices and develop the strategies that will define the business model. It is essential that the team agrees on these and the plan is a great way to get and keep everyone “on the same page”. It is not uncommon for members of a team who thought that their ideas for the business were completely aligned to learn of differences of opinion that will be identified and resolved in a business plan process. As the venture evolves and the members of the team gain new information, the plan is a valuable tool for knowledge management. Moreover, when new members join the team, the business plan can be a quite useful way to “bring them up to speed”.
So, how can we develop a business plan process that will serve our needs well? The following are some best practices:
You should get out more! You cannot develop a good business plan in a library or sitting at a computer. Yes, there is an enormous amount of data available to us today at our fingertips. And it is important to know how large our potential market is, how fast it is growing, etc. There is also a tremendous amount of data available on line or at any good business library about your competitors and potential competitors. Yet, the cumulative knowledge to be gained from all of this information is insufficient to launch a new venture. You need to get out and speak with potential customers, channels of distribution, suppliers and other partners and with experts. You may have identified what you see as a compelling value proposition, but can you find customers who agree with you? What would they expect or be willing to pay? How would they expect to buy and who would make the decision? Who do they see as your competitors or substitute products? All of this is critical information for any new venture and there is no other way to obtain it than to talk with people.
Keep It Real! This comment relates to the myth that one develops a business plan primarily to raise money. While attracting capital is an essential and sometimes challenging task for any startup, the real purpose of your business plan is to launch a successful venture. Raising money is simply one step along the way. For that reason, you and your team need to be honest with yourselves about the opportunity that you have and the challenges that you will face in pursuing that opportunity. Too often we see entrepreneurs develop a plan that simply tells prospective investors what they think the investors want to hear. The result is a plan that has no real chance of success. Recognize as well that everything will take longer and cost more than you think it should. For that reason, develop a plan that can work, even if everything does not go as you think (hope) it will. We call this a “forgiving plan”.
You’re Never Done! If you embrace the concepts that we have discussed here, it should be evident that no business plan is ever complete. The business plan “process” needs to be an integral part of how your team thinks about and develops your venture going forward. You are constantly learning new things about the marketplace and your capabilities are evolving everyday (as are your competitors’). How do all of these things impact your strategies and plans? Most new ventures choose a business model that involves choices that are not meant to be permanent. (Perhaps we chose to outsource a key process initially to get to market more quickly.) What assumptions went into those decisions and what developments, either in the marketplace or within the company might trigger a reexamination of those choices? All of these are reasons why we say that the plan document is out-of-date the moment you print it. Be sure that your team has a process in place to keep your plan current and relevant to the growth of your venture.