Written by: Matthew Murray, Managing Director, Notable
Business plans are one of the first things any entrepreneur has to tackle, and a well thought out plan is widely thought to contribute to success. Not convinced? Statistics on business planning from around the world show its many benefits. Compared to not having one, companies with business plans are:
- Twice as likely to get investment or secure a loan, and 50% more likely to observe business growth,
- Have 63% higher sales growth and 58% higher profit growth.
And one-third of new businesses that fail do so because they don’t have one, according to another study.
But business plans get their fair share of criticism too. Some experts say they’re a waste of an entrepreneur’s precious time. Others suggest that the numbers in favour of business planning confuse causation and correlation: successful entrepreneurs might be more likely to write business plans, but that doesn’t mean their success was because of their plan. This makes sense; if you go to the trouble of making a great plan then you’re more likely to be the kind of person who makes a success out of your business.
So what does this conflicting evidence tell us? Words of wisdom from the most profitable entrepreneurial industry—technology start-ups—give a good idea of what a business plan is worth and more importantly, what lessons can be learned. The first thing any tech founder will tell you is that any plans you make will usually become outdated shortly after starting your company.
“No business plan survives first contact with a customer,” is a famous line from Steve Blank, one of the most successful Silicon Valley investors.
“Your business will likely have changed by the time anyone gets around to reading your business plan”, says Dave Hornik, another well-known VC.
One of the most common pieces of advice in the start-up world is to keep testing your assumptions: “…turn ideas into products, measure how customers respond, and then learn.” These are wise words from Eric Ries, who began the lean start-up movement.
Finally, make sure you have your homework done and up-to-date for loans and raising funding. According to Guy Kawasaki, business plans will still be needed for banks or investors.
You’ll notice these pieces of advice from different exports range, however, the key message from these experts from the tech world is that your business plan needs to be a living document: you need one, you need to use it to test your ideas, and you need to keep it updated.
The benefits of keeping your business plan updated are numerous:
- You always have an up-to-date, realistic document to communicate with banks, prospective employees or business partners, and investors.
- The more real data (like sales and costs) that go into your plan, the more accurate it gets. So as your company gets off the ground, updating your business plan will help you prepare even better for the future.
- It keeps you aware of any opportunities or risks. Frequently updating your business plan keeps your thinking clear and organised. It’s a good way to ensure the overview you have of your business is current and grounded in evidence. Other research shows that regularly going through the process of business planning is beneficial, and increases confidence. Even from the outset, entrepreneurs who write a business plan are more than two and a half times more likely to get into business.
- Entrepreneurs should be resourceful. If you’ve spent time on your original plan, it’s a waste not to get as much continuous value from it as you can.
So what are good practices to keep your business plan updated? When writing the original plan as well, as when modifying it, it’s better to keep things targeted and to the point. A shorter plan will be easier to keep up to date, will keep you focused on the important factors, and be more readable for others. Futurpreneur’s business plan resources cover the essentials (like cash-flow and SWOT analysis), and it’s best to focus on those.
And what about how often to review your plan? Best practice says at most quarterly and at least once a year. But entrepreneurs starting out will want to revise more often, especially as soon as sales numbers start becoming clear.
Overall, it’s clear that business plans are most useful when you keep them in tune with the reality of your circumstances. Tech start-up best practices like idea testing and investor readiness can be applied to business planning for any entrepreneur in any industry. Nowadays, markets are constantly changing and being disrupted. This brings a lot of uncertainty but also a lot of opportunity. A “living document” business plan keeps you prepared and ready to make the most of those opportunities.