The debate around the relevance of business plans is one that continues to divide opinion. Although conventional wisdom suggests a business plan has a role to play in determining company success, increasingly, and especially in the startup world, some are shunning it.
However, business plans are an essential component of business success, especially when you consider that many businesses fail. A good business plan is where an entrepreneur interprets results from tests on his or her business idea or business so that they present a strategy that has the best chance of success. This validation is one of the key differences between a powerful business plan and a document that is irrelevant.
If you want your business to succeed, whether it is to attract customers, raise funding, or hire the right team, you need to get serious about implementing a strong business plan.
Related: Business Plans: A Step-by-Step Guide
Why a strong business plan Is still relevant
Beyond the business plan acting as an instrument that banks and investors use to make funding decisions, it also serves a number of other key purposes. Primarily it allows you to think through your business and proposed strategy in a way that talking about it never can. The only real way a business plan can be put together is by testing assumptions and interpreting the results. There is no escaping the fact that the business plan will always remain inaccurate to some degree given you are trying to predict the future. However, the margin of error will be smaller, the higher quality the business plan is. Validation leads to quality.
Who your exact customers are, what they want from your product or service, how much they are willing to pay and what the competition is doing are questions you cannot answer by sitting behind a computer. Face-to-face interactions with potential customers, suppliers and competitors are what will confirm or dispel initial assumptions. Even if your initial assumptions are correct, talking to your customers will inform you immensely, and the value it will bring to your business will be immeasurable.
This is exactly what the founders of Airbnb did to create their home-share platform. The assumptions you test can be fed through the entire business plan, including the financials, to develop a plan that has real context layered in.
How to get serious about your business plan
To prevent your business plan being full of untested assumptions that render the business plan irrelevant, focusing on validation, as discussed above, is the best way to show intent. Given much of that validation will come from face-to-face meetings, there are a number of tools you will already be familiar with in order to "find" your customers and competitors to validate. Using Twitter search, Facebook and LinkedIn Groups, are a great way to seek out people you want to talk to.
Beyond this, all niches have leading publications focused on serving their community. For example, if your target market was coffee lovers, sites such as Coffee Lovers Mag would be a great place to start to find your audience.
Once you find them, the right questions to ask to get the right information and inform your businessshould focus on understanding what the main pain point is for customers and to identify how you could provide a solution. So listen to what they say and probe further to get to the root cause of their problem. Then develop a solution and iterate with the customer until you get it right. This structures your "market research" to get information in the right way and analyze and interpret in a meaningful manner. This information can then be populated in the qualitative and quantitative parts of your business plan.
This form of validation is not a one-off exercise. Staying close to your customer and understanding what’s working and what’s not is a core part of business success. As such, validation is an iterative process of testing and revising assumptions in your business. Feeding the outcomes of your iterations into your business plan helps to ensure your business plan doesn’t lose its relevance.
Ensuring your business plan remains relevant
Unfortunately, once prepared, many businesses do not return to their business plan after production. It gets shelved and forgotten about. However, the propensity for someone to ignore her business plan is directly proportional to the quality of her business plan.
Building a plan in the way outlined above will inform you of the key assumptions and risks in your plan. Reacting to what happens in real life allows you to adapt your business plan assumptions and narrative so that you are developing a document that is tailored and relevant for your business.
This relevance will be evident to banks, investors and potential hires. Consequently that level of detail and self-awareness will stand you in good stead to raise capital or hire the best.
Extracting the right elements of your business plan that allows you to manage your business on a day-to-day basis is important as it lets you know what’s working and what is not. That is why a simple dashboard that illustrates your Key Performance Indicators (KPIs) and an Early Warning System relevant to your business, is often overlooked, yet an important component of any business plan.
Despite business plans seeming to lose their prominence, high business failure rates should provide the necessary impetus to develop plans that are well thought through.
A game-changing business plan needs to be three-dimensional, so it distills lessons from the real world, allowing you to test and revise assumptions. This iterative process will give your business the highest chance of success while increasing your credibility with investors and your team.
Related: How To Write A Business Plan