Are Business Plans Useful Anymore?
When I launched my business in 2005, I knew that I needed a significant document that would help me get loans, build a strategy, and define my business case. This type of document is otherwise known as a business plan. Entrepreneur.com defines a business plan as a “written document describing the nature of the business, the sales and marketing strategy, and the financial background, and containing a projected profit and loss statement.”
My business plan was purposeful; it helped me play out scenarios that I never could have imagined. It gave me insight into a market that I thought I knew and into a consumer group I thought I understood. It was the crash course on my business that I needed.
Business plans are very useful for getting traditional business loans. Sometimes investors will ask for a business plan. However, with the fairly recent emergence of tech startups and private investors, business plans are considered to be too cumbersome to read and now investors are asking for pitch decks instead which are significantly different.
Frankly, I think if you are launching your first business, a business plan is a great rite of passage. It is not necessary, but it will ultimately push you to do the significant amount of research, financial modeling, and timeline planning that has to be completed in order for you to grasp the commitment of your new business. Once you’ve conquered your business plan, you will have considered a myriad of factors for your business that will, in turn, end up populating your pitch deck.
There are several articles and resources on how to write a business plan; the sba.gov website being one of them. I believe that if you do at least one or two business plans in your lifetime, then you will be well equipped to answer many of the deeper questions that interested investors may ask but which will not be a part of the pitch deck.
Companies with business plans do significantly better. One study from the University of Oregon, published in 2010, aggregated research on the business growth of 11,046 companies and found that planning improved business performance. Interestingly, this same study found that planning benefited existing companies even more than it benefited startups. Another study found that companies that plan, grow 30 percent faster than those that don’t plan. To reinforce the connection between planning and fast growth, yet another study found that fast-growing companies, companies that had over 92 percent growth in sales from one year to the next, usually have business plans. In fact, 71 percent of fast-growing companies have plans. They create budgets, set sales goals, and document their marketing and sales strategies. These companies don’t always call their plans “business plans” but instead often refer to them as strategic plans, growth plans, and operational plans. Regardless of the name, it’s all forward-looking planning. Finally, a 2017 Harvard Business Review study found that writing a business plan makes your startup more likely to succeed by 17 percent. These companies were more likely to go after investors as well.
Is writing a business plan becoming a thing of the past? In some ways, yes. But, my advice is to complete a business plan because things of the past have a way of coming back, don’t they?