Starting a Business

No Plan, No Problem?

Though formal business plans have been getting some flack, you still can't skip the planning process.

In January, I really enjoyed the fuss surrounding Kelly Spors' column in The Wall Street Journal, " Do Startups Really Need Formal Business Plans? " But I'm also worried about it and the misunderstanding it may create.

The column cites research that questions the need for formal business plans for all startups. It tells stories of would-be entrepreneurs who failed despite their seemingly impeccable business plans and stories of successful startups without business plans. It mentions investors who invest in businesses, not plans. And it concludes that business plans are overrated.

The concept that a plan itself means very little isn't a new idea. Who would think spending a year doing a business plan is a good thing? Or that investors buy plans, not people? Or that formal business plans spell success?

Business plans are sometimes overdone and misused, but the planning process is critical. All businesses, not just startups, need planning. About 60 years ago, Dwight D. Eisenhower said, "The plan is useless; it's the planning that's important." That's still true today.

In fact, all business plans are wrong. They're the work of humans guessing the future, dealing with uncertainty and making assumptions. Still, the planning process is absolutely essential. A startup entrepreneur's planning process should start with a plan and continue with a plan vs. reality review, progress tracking and course correction. The planning process is as vital to business as steering is to driving; it takes near constant correction to stay on track.

Planning is about controlling your destiny. Establish your business goals and outline the steps needed to achieve them--don't just react to events. While your plan will be wrong, of course, how would you track what is going wrong without it? You can't have a route without a starting point and a destination, but even the most well-planned route may require some detours.

For the best results, planning should be concrete and specific. For each step in your plan, create dates, deadlines and clearly assigned responsibilities. You can't track your progress and steer your company efficiently with vague generalities.

Now here's the tricky part: As with so many good things, plans can be overdone. It can be easy to obsess about future details, wasting valuable time and resources. But most startup entrepreneurs will quickly realize the value of moving forward and getting going. All you need to do is focus on priorities, play to your strengths, and work on core competencies, positioning and differentiation. You don't need a 100-page document to do that, but you certainly need to do it.

In real-world planning, form follows function. When new businesses seek investors they usually need formal plans. Investors who say they don't need formal plans still need to see your strategy, focus, priorities, commitments, dates and deadlines. The content has to be there, regardless of the format.

If you're not showing your plan to outsiders, don't bother writing more than bullet points. Keep it short. If it fits on the back of an envelope, great; nobody really suggests measuring the value of planning in pounds or pages. If you can fit strategy, milestones, dates, deadlines and cash flow on the back of an envelope, use the envelope. If you would rather put it in PowerPoint slides, do that.

Although you may not need a formal plan, all businesses need to go through the planning process. There will always be examples of businesses with great plans that fail and businesses with no plans that succeed, but I feel it's very dangerous to tell startup entrepreneurs they don't need a plan. The truth of the matter is most of us need more planning, not more rationalizations for not doing it.