Five Harmful Myths About Business Plans
Entrepreneur's New Year’s Guide
As the pace of change quickens and business planning becomes more vital, untruths and mythology about the subject keep coming up. I'd like to clear them up.
Myth No. 1: Investors don't read business plans.
Experts who should know better claim investors don't actually read business plans. Some investors say they don't. A quick straw poll of the group of angel investors with the Willamette Angel Conference (for which I am investment chair) revealed that most of us do indeed read the plans.
What really happens is that investors will often reject a business on the basis of a pitch or a summary. The plan becomes more important as investor interest increases. This dynamic leads to some natural confusion. You can't get the investment without the plan, but you can get rejected without the plan.
And another thing going on is the coolness factor, which is related to the pleasure of being the contrarian. Investors like to say they don't read business plans but don't acknowledge that they have staff analysts who do.
Myth No. 2: A pitch presentation is better than a plan.
This one is particularly fashionable these days. It's like saying, "Don't write a screenplay; just do a movie instead." A business pitch or pitch presentation summarizes a business plan. In its core, it takes some planning to have an idea what the business is going to do, and a pitch presentation without a sales forecast, milestones, projected growth rates, market focus, product or service messaging--core components of the business plan--is empty.
Investors can tell from your pitch whether you have a plan. The lack of planning shows up all over your pitch, your elevator speech and in the whites of your eyes. They see it immediately when they ask you about different options and alternatives. Just as a screen writer with a movie, you need to know your plan well, even if your audience sees only a well-crafted summary.
Myth No. 3: Planning wastes your time.
Not if you do it right, adopting a process, tracking changes, keeping it alive and managing the company with it. What some experts are doing is putting up a straw man, pointing to those extreme cases in which some people let the development of the business plan become an end in itself--something that gets in the way of business rather than helping to optimize it. I had a friend who spent years developing business plans hoping to "get financed." Spending months and months developing the plan--and doing nothing else--is not a good idea. However, that doesn't mean you shouldn't focus on the plan at all. Just don't let it sap all your time and energy.
Myth No. 4: Research doesn't support the value of planning.
What a crock. These studies come up from time to time. It's a lot like confusing running the Boston marathon with exercising regularly. The studies ask successful companies whether they had a business plan, and many of them say no. The problem here is confusing the old-fashioned formal business plan document--which may or may not exist--with their having a plan. Many entrepreneurs echo the same misunderstanding, saying they didn't have a business plan, meaning a formal document. But if the studies asked whether the entrepreneurs had developed strategy, prioritized, calculated starting costs and planned cash flow, study participants would probably say yes.
And consider this: If you polled successful adults on whether they studied hard in high school, what percentage of those who did would say they did? My guess: fewer than half.
Myth No. 5: Planning cuts into flexibility.
If you plan a destination, does that keep you from changing the route? If you write a plan once a year, do you mindlessly do whatever it says "because it's in the plan"? That's just dumb. The plan and the management of the business work together like a planned destination and steering. Both require course correction. It would be silly to plan just once a year, or once in a business lifetime, and then execute blindly. Real planning involves the plan and the regular planning review, course corrections and management. The plan helps us prioritize and focus and set long-term directions and short-term steps; the regular planning review benefits from the plan because it helps us mind the important long term while we manage the immediate short term.
Does having a GPS in a car force you to stick to the planned route? How about a GPS with real-time traffic and weather information?
Does having flight and hotel reservations force you to follow through regardless of cancellations, weather or disappointments along the way?
A bit of truth, myths aside.
The plan is a map, but you still have to keep your hands on the wheel. If you think your business is better off without a plan, think again.
A well-crafted business plan can steer you through a changing market successfully. Even as things change--and they will--the plan keeps the reference points of interrelationships between the different parts so that you can manage change more effectively.