THIS MORNING I read yet another article on “Why business plans don’t work.” It seems that these things crop up periodically, perhaps when people are frustrated, or just trying to display their mental superiority.
I hope I’m a little more humble than that.
Here’s how I view it: If you have unrealistic expectations of a business plan, then of course you’re going to be disappointed. Some people expect that a plan will remove all risk, and force reality to align with your desires.
Let’s look at a common scenario: You’ve built up your business as far as you can with the money in your own pocket, so now you’re looking to leverage others’ investment. Quite reasonably, they require you to create a business plan. It’s not an illogical request – they do this because they want to know:
- What exactly they’re investing in
- Whether they can align with the upside, the downside, and the risks
- That you’re personally dedicated to the cause and willing to work extra hard
- That you’ve thought through everything and don’t have major blind spots
Any investor with half a brain realizes that you can’t force reality to comply with the plan. But it’ll be your job to manage your stakeholders, to ensure that they continue to learn and adjust while you’re doing that too.
We all know that the business plan is already becoming ragged even as the ink is drying. That’s where many become discouraged and cynical – they use it as an excuse to declare that the whole exercise was worthless.
Not true. Even if you shredded the plan as it emerged from the printer, you still:
- Know what the business is about
- Have carefully thought through the upside, the downside, and the risks
- Increased your personal dedication to the cause and are more willing to work extra hard
- Have found and worked through a bunch of blind spots which could have destroyed the business
THAT’S the true value of the business planning exercise.
How come I’m not a huge fan, then, of doing the monster business plan exercise? Partially because I did a number of them myself, but I also think that I have a more nuanced view. It’s about investing an appropriate amount of effort for a practical return.
When you’re just starting out, exploring a cool idea you have, you might get by with just a little planning. If you’re starting out as a hobby, your “plan” may be on the back of a bar napkin. If you’re relying on this to keep your family fed, I’d hope that you’re ending up with something that’s at least three pages.
When you get to the stage of asking for other peoples’ money, by all means go through that exercise of producing the 30-page or even 50-page plan. You’ll work your butt off, but develop an incredibly detailed understanding of what you’re trying to do.
At other times where you’re going through a major transition – a change of ownership, a business pivot, changing the structure – you may be back to the 3-page or 5-page plan. It depends on the degree of change you’re looking at, and how many people need to become aligned.
Sorry, you’ll never be able to convince reality to comply with your plan. The value really is increasing your focus and level of understanding – and helping those around you to become active supporters.