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The Myth of the Business Plan

October 10, 2011
URL: http://www.entrepreneur.com/article/220440

What entrepreneur hasn't been told of the need for a written business plan? But most, when asked whether they have one, would cast a guilty look at their shoes. Well, fret no more. Continuing research at Babson College, regarded as having one of the top entrepreneurship programs in the country, finds no statistical correlation between a startup firm's ultimate revenue or net income and the supposedly requisite written business plan.

"Some of the heroes of today's would-be entrepreneurs, such as Steve Jobs, Bill Gates and Michael Dell, did not have business plans in hand when they embarked on ventures that changed the world," the study noted. The research debunked the business plan more than three years ago, but the myth lingers.

Don't get me wrong: I'm all for having a business plan in the verb sense. I'm just not a big believer in the noun form. Writing a formal business plan invites the paralysis of analysis.

If you must write a business plan, see Exit Strategy, for the five critical questions your business plan should answer. Because yeah, sometimes you need one.

It distracts the entrepreneur from slaying dragons and thinking big thoughts. The result usually is a long-winded missive that's out of date almost the moment the ink dries.

Should you think through business-planning issues such as how you're going to move from thought to action, how you're going to find customers and how you're going to pay the bills? Absolutely.

Related: An Introduction to Business Plans

Should you agonize over writing everything down in a format that some scholarly journal says is the way to do it? "Unless you're entering a business-plan competition, no," says Julian Lange, a co-author of the Babson study. "Your time would be better spent out on the street, learning all you can from potential customers."

Won't lenders want to see a business plan? In my 10 years as a banker, I only saw one business plan, and it was out of date. In my eight years as a financing consultant and two decades as a business borrower, no lender has ever required one--at least not the kind you learn to write in business school. An SBA lender, for example, may request a business plan, but what it really wants are some cash-flow projections.

Although the majority of unsolicited requests for venture capital are 30- to 100-page tomes, many of the deals that are financed shortcut the process with a killer executive summary and an introduction by a trusted advisor. No VC or private investor is going to walk away from a spectacular business concept and the wherewithal to turn it into a success just because there's no written plan.

Related: Elements of a Business Plan

The biggest problem with business plans is that they offer pages of blah, blah, blah about the wonderfulness of the entrepreneur and the whiz-bang product followed by a few measly paragraphs about how every person in China is going to be a customer. Then pages of numbers promise huge returns but offer little more than wide-eyed guesses. The topper--if it's included--is the offer of a percentage of ownership based on an overblown estimate of the company's value.

Great business plans may earn you an A in business school, but in real life you only get A's for achievement. So stop dotting your i's and crossing your t's, and go out there and slay something.

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