The Right Time and Place for Business Plans: Not What we Previously Thought.

For more than a decade I ran an Entrepreneurship Centre helping thousands of clients each year and I’d now like to apologize to them. At the time, it was common place to promote and teach business planning as a start-up best practice.  In fact we eventually built our entire service offering around the business plan and the individual components of a fulsome plan.  We didn’t know any better.

I started having doubts about this strategy when I learned that banks were making moderate sized business loans based almost solely on the applicant’s ability to pay back the loan, not on a critical assessment of the business plan. Similarly to a car loan, you could get a business loan if you had a good credit rating and history; the bank manager didn’t test drive the car to determine if you were buying a lemon, they were simply concerned about your ability to pay back.  At the same time I began to collect a lot of evidence that suggested that most successful business owners had not in fact written a business plan – at least not in the early days of their new venture and many of them were returning to the Centre years later to now write one.

It seems there are a number of issues with business plans that we had previously overlooked (an oversight that many are still making today):

1.       A really good (seemingly) business plan could be written without ever talking to a potential customer.  Many great business plans are simply not based on any market need, justification or reality – but they read really well!  Case in point: see any number of prize winning business plans submitted at business plan competitions, most never coming to fruition.

2.       Good business plans include actions plans, implementation time lines and concrete strategies; in other words, an execution document. These are all valuable and necessary tools, but an early-staged business plan is usually based only on speculation about the market, client needs, buying cycles etc.  As such, these seemingly good action plans and strategies are (again) not based in reality and tend to waste a lot of time and resources when the entrepreneur tries to implement them.

3.       Well-articulated and well written business plans are often used as a proxy for good business ideas. Good plans often disguise as good potential businesses, but in reality most written at an early stage are merely a work of fiction, at best a quality research paper not based on actual knowledge of the market or client interaction.

Like winning in sports, you need to do it to be good at it – you can’t just learn about it and plan for it in isolation of actual experience.  All the information and data you need to start a good business needs to be gleaned the old fashioned way – talking to customers, suppliers, and other key industry players then crafting a viable solution based on real needs. There is also a fair amount of trial and error involved in getting to a viable business. Most businesses will adjust (pivot) with experience so the plan is likely wrong before it’s even written.  We need to pay a lot more attention to business models vs. plans at an early stage. Business plans are usually taught and written much too early in the process. Entrepreneurs need to concentrate first on getting the model right (www.businessmodelgeneration.com) and validating the customer problem/solution fit (http://steveblank.com/2009/06/25/convergent-technologies-war-story-1-%e2%80%93-selling-with-sports-scores/) before starting on the business plan.

There is still a valuable place for business plans – it’s just not as soon as we once thought.  As educators and coaches, we need to direct early staged entrepreneurs away from business planning and towards:  talking to customers; learning and adjusting; and, building profitable, scalable business models. The business plan can wait until they actually know what they should be doing!