Why the debate about the value of business plans is a waste of time

“…I have always found that plans are useless, but planning is indispensable.”

Dwight D. Eisenhower

There has been significant discussion about whether business plans are of value, but the truth is, the practicing entrepreneur does not have time to debate such a question.   The practicing entrepreneur doesn’t have time to debate the question.   Many nascent and startup founders come to me and ask me if I can find students who will write a plan for their business.  While it is likely that I will be able to supply someone to help them, I usually tell them that I recommend they don’t do this. While it is a good exercise for students, it is also a great exercise for the entrepreneur who gets to experience the process of creating a business plan that matters as much as the final product.  It is the entrepreneur(s) who should be conducting the planning process.

On a recent Enfactor podcast, I had the chance to talk with Rupak Doshi, co-founder of OmniSync, a company that helps entrepreneurs find the resources they need to scale their companies.  He and his partner, Norman, launched this company through Launch Factory, a startup studio in San Diego, that matches vetted opportunities with founders.  In another recent episode, I talked with one of the Launch Factory founders, James Hereford, who explained that one of the key motivations behind the startup studio was the fact that most startups fail for business reasons and that good business practice can help mitigate some of those failures.   Thus, a key tenant of the Launch Factory process is application of the discipline of good business practice.

Knowing that Rupak had started two companies that had met with some success prior to starting OmniSync, I was curious about how he would rate this experience compared to starting businesses outside of this kind of program.  Interestingly, while he was completely satisfied overall with launching a company this way and highly recommended it to others who were committed to the pursuit of a startup, he admitted that one of the challenges he had was with the planning that was expected and required.    However, while Rupak finds this kind of discipline a bit of an annoyance, he also admitted that it has already been very beneficial.

When I talk to my students about new venture planning, I compare a startup to any scientific study or research project.  A new venture is based completely on assumptions. Planning and developing a strategy for a new venture is simply one of defining, examining, and evaluating those theories.  While these conjectures must be based in a deep understanding of the customer and marketplace, they are also intimately tied to the goals and values of the entrepreneur. Thus, the role of business planning is not only to share information about your assumptions with investors, prospective partners, vendors, or key employees.  It is also a roadmap that helps an entrepreneur evaluate progress along the way and provide guidelines as to when to make changes to the course. 

Most entrepreneurs are correctly filled with a sense of urgency to act.  Taking the time to record assumptions and plans takes precious time away from working in the business.  Similarly, a business plan is arguably outdated as soon as the last word or number is inked.  While I can’t deny that both are true, like the opening quote to this blog, I contend that a business plan is a vital business discipline that can provide a number of benefits, including, a record of assumptions, insight to the planner, and a valuable method of communicating vision and strategy to key stakeholders.  A good business plan encourages intellectual honesty and it helps a business founder to avoid the danger of falling in love with their solution to the customer problem.  A business plan can provide the entrepreneur with three important opportunities.

1:  A chance to define and reflect upon goals

The first step in this process is to understand your goals.  Do you want to make money now, that is to generate an income, or do you want to build a scalable company that can create future wealth?  Typically, it is unlikely you will be able to do both.  If you want to create a nice income for you and your family, you will employ a different strategy than if you want to build a scalable enterprise that will generate future wealth.  Likewise, you may have an overarching social mission in mind when you start your business.  If so, profitability may be secondary to that goal and you will need to build a strategy with this in mind.

2: A venue to explore market impact and financial feasibility

Once you have done some soul searching and determined your goal, the next step in business planning for a new venture is the feasibility analysis.  The primary goal of this process is to test your assumptions related to the impact of the business in the marketplace and the financial feasibility.   One of the exercises I have my students undertake is to map out their market impact compared to the financial feasibility.  This kind of visual can help a founder determine whether this is a worthwhile pursuit. Many of the key assumptions you need to evaluate are included in the following questions.  It is important to understand that in order to test these assumptions you must ask questions of, and most importantly listen to the responses from prospective customers. 

  • Who are your customers?

  • What are your customers’ unmet needs?

  • How are your customers addressing this need today, however poorly?

  • To what extent are your customers hurt by not being able to meet this need effectively?

  • What is your proposed solution (product, service, or combination)?

  • How will your customers benefit, and can you quantify those benefits?

  • How will your business make money?

  • How big is your addressable market?

  • How much money will it take to get each customer?

  • What will your relationship to your customer look like? 

  • Who are your most direct competitors, and how does your solution compare with theirs?

  • How well does the business fit with your core competencies?

  • How can you involve customers in creating a superior solution?

  • Can the business generate sustainably high profits?


3. A format to map out the details of the future and tie them back to goals

The third step is to put together a plan for how you plan to grow the company.  Once you have determined that this is a feasible business concept, you will want to develop a 3-year plan for growth with some discussion of your plans for the business all the way to exit.  This is important because your strategy will differ depending upon how you want to exit.  For example, if you plan to exit via an acquisition, you will want to identify the ideal target from the beginning and grow with that in mind. On the other hand, if you want to build a family company that you will pass on to your children, you will want to consider this as you structure the company ownership.  Moreover, if you plan to build a company for a public exit, you will want to build it with the kind of transparency needed for an IPO from the beginning. 

In the end, business planning for a new venture begins and ends with the goals of the entrepreneur.  In our conversation, Rupak cautioned that a startup is a tremendous amount of work and that it is costly in terms of both time and money.  The life of a startup is not for everyone.  But should you decide it is right for you, I believe, that like Rupak, you will find that the discipline of business planning can be beneficial by providing you with clarity and insight that just may help to mitigate some of the risks of a new venture.

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