Do you really need a business plan?

Recently someone asked me whether he needs a business plan for a social enterprise.  As a strategy professional I would have liked to say that business plans are absolutely essential.  But the truth is that statement does not reflect reality – many businesses without documented business plans do well, just as many businesses with impressive business plans fail dramatically.

Many business plans don’t even pass the common sense test.  Filled with vague phrases such as “value addition”, “superior products” and “become the provider of choice”, they become meaningless propaganda.  Remember Webvan’s 2 hour delivery window for home delivery of groceries at the height of dotcom boom?  Remember when “eyeballs” was the catch phrase?  I was never sure if they were counting two per head or only one.

You’ll counter that of course any business plan is useless unless the strategy is sound.  So let’s ask the question in another way: If you’re sure you already have a great strategy, why do you need to bother creating a 70 page business plan?

In my view, whether your business is social, anti-social or asocial, there are only two reasons to create (or update) a business plan:

a)      To CLARIFY (for yourself) the business objectives and what it will take to achieve them:  Theprocess of creating a business plan requires you to answer several questions about the business such as your objectives in starting the business, your competitive advantage, the efficacy of your operations, your management team, and of course your financial requirements and projections.  To do this well, you need to have the humility to thoroughly question your assumptions, pressure-test them from opposing points of view and be willing to arrive at a very different answer than the hypothesis you started with.

b)      To COMMUNICATE business objectives and what it will take to achieve them: Use the business plan document to informinvestors or employees about the purpose of the business, its long-term strategy, operational approach, financial health and requirements, etc.  In this case, it is important that you communicate clearly and in sufficient detail.

So, before sitting down with pen and paper (or more likely – screen and keyboard), ask yourselves this question: Why are you bothering to create a business plan?  Do you want to simply capture your current business objectives, strategy and operations to communicate with investors/employees?  Or do you want to use the b-plan creation process as a tool to pressure test your assumptions and perhaps change your course of action?

To all the entrepreneurs out there: do you agree?

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