A Business Plan Will Put You Out of Business Before You Have Even Begun
A study completed by Babson College suggests that for those who are not seeking outside funding, having a formal business plan or not having one at all made no difference in the ultimate success of the business. This is not to say that having a plan is useless. Having short term plans that can change as the industry and market your startup is in changes, is far more beneficial than having a long term business plan that will yield to nothing as soon as you hit print on the copy machine.
While it is argued that business plans are useful for funding access and joint ventures, it is time for startups to start taking a “Show, Don’t Tell” approach to business.
Plans don’t always work out and that is not the end of the world. The ability to bounce back with agility from short term plans often proves easier and much more valuable in the long run.
Below are three problems associated with Business Plans that will make you want to never write one again:
The Timing Problem
Useful opportunities are often time dependent and as we all know, timing is especially cruel to the startup eco system. Markets move quickly and challenges come one after the other in waves, making the idea of writing a business plan seem redundant. One day your product is the next big thing, the next day a competitor with a more sustainable competitive advantage puts you out of business. While you focused on planning, they focused on doing. Now your competitor has the ability to capture the part of the market you missed out on due to timing. That is the name of the game.
The goal is to fail fast, learn fast and keep moving.
Remember, many opportunities present themselves once you have started selling to customers and not a minute before. Therefore It is more important to develop relationships with new customers, new partners and new stakeholders as quickly as possible than to spend excruciating time planning the outcomes of those relationships.
While some of your peers are spending their time writing extensive business plans, come up with a business model canvas that will guide your decisions on determining the right opportunities for your startup. The goal is to fail fast, learn fast and keep moving.
The People Problem
While you can prove your idea is valuable on paper .i.e. in a business plan, you simply cannot prove it is viable until you conduct fieldwork market validation.
Business plans can often convince you that your product or service is worth committing time, money and energy to by making predictions from a distance. While predictions may mean something to investment bankers, it often falls short in startup ecosystems. Most companies that are predicted to win big often end up losing big in the long run. ‘Valuable’ and ‘Viable’ mean two very different things. While you can prove your idea is valuable on paper .i.e. in a business plan, you simply cannot prove it is viable until you conduct fieldwork market validation.
How many people are willing to pay for your product or service now? What about in the next 10 days? In the next 10 months? In the next 10 years?
Viability will often determine the probability of success your startup faces. Therefore It is important that you validate the extent to which your technology is solving a problem for real people, and prove that your assumptions and hypotheses on the success of the product are true. How many people are willing to pay for your product or service now? What about in the next 10 days? In the next 10 months? In the next 10 years? The only way you can attempt to crunch these numbers accurately is to adopt the Learn Startup approach: build, measure and learn in a market with real people. Focus on doing the fieldwork before you decide to write a business plan, it’ll often pay off in more ways than one, including increasing your odds of raising future capital from major VCs, acquiring a qualified team and fixing ‘real-time’ mistakes.
The Money Problem
Putting your money where your mouth is, is proof to future investors that you believe in the high potential of your idea.
Entrepreneurs often claim that they need a business plan to convince venture capitalists and angel investors to provide them with enough funding to, at least, build a product and complete market validation. This makes you wonder what entrepreneurs who are looking to start small to medium scaled businesses are doing with their personal revenue streams. If you can’t 1) invest your own savings into your startup, 2) approach a bank for a personal loan under your own name, or 3) even set up a Kickstarter account — a great way of conducting stage 1 market validation — is your idea really the bees knees? Putting your money where your mouth is, is proof to future investors that you believe in the high potential of your venture. Moreover it will ensure whether or not your idea has a fighting chance of making it in the real world.
Furthermore funding is tricky business and often times than not venture capitalists and angel investors will not give you capital for an idea or product that has not been validated in a chosen market. Remember, the best ammunition to bring to an investment pitch, is the number of customers already using and paying for your product.
Unless your product is going to cost tens of millions of dollars to build, it is far more valuable to track your progress than to extensively plan your process. Focus on the importance of having an action plan instead of a business plan and your business should be on its way.
