You Don’t Need a Business Plan
Sunday, March 7th, 2010
(My “Tales from The Startup” presentation that I gave last Wednesday got featured on Slideshare, was tweeted about, and just in four days it collected almost a thousand views. For me, those were pretty surprising results for a presentation that I just intended to put out there to help the listeners focus on the presentation, not writing stuff down. So thanks everyone for your attention and hopefully you got something out of it.)
Anyway, in the presentation I made a statement that “You don’t need a business plan” which generated some response. To clear that out, even I do believe that, I don’t think that business plans are completely worthless. The current way of making them might be.
Business plans and plans general have their place, you just need to think when and when not to do them. If you think you will get some value out of a business plan, by all means, do one, but don’t do it because someone tells you to. The greatest thing in entrepreneurship or doing startups is that you don’t have to do anything, you’re your own boss. If you think something is useless, don’t do it, but know that you’re personally responsible of that decision.
Another reason I wanted to state that was because the presentation was given to students studying business, and from the personal experience, I know that academia and business schools overvalue all kinds of planning. What they really teach us, is to do different kinds of plans and documents, not actually how to make great products or build successful businesses. This may be because it’s a lot easier to teach how to do documents that match some criteria than teach how to think well. So I wanted give these students another perspective.
The problem I see with business plans, or any ritualistic artifact that people unthinkingly appreciate, is the standard use and format of them. Usually the plan will have to have like description of the product, company financing, market summary, indirect effects, competitions, projections and other things. It’s also accustomed that in your plan, you will need to sound convincing and sure about these things even you’re not. You need to guess, make assumptions or even lie to make your plan to sound good. But also you might know things that are actually true, but now you’re mixing truths with assumptions and lies. When you give this kind of document to someone, you’re not telling the truth. After a while even you might believe that what you wrote is true. This is just terrible.
Another problem is that writing a business plan is not necessarily that easy, small or a fun task. For startups that think about doing Minimum Viable Products and other sacrifices and ways to cut the time to the market and be front of the customer sooner, should really think if writing some documents with no apparent customer value is that useful.
I see the value in the planning, finding about knowing what you don’t know and need to know, but making some document that has just as much truth and use than most of religious artifacts seems just stupid.
You have mentioned several good points in your post. As I also see it, the most valuable aspect of making a business plan is forcing yourself to consciously consider some of the forces affecting your business and acknowledging them. Most likely one's not able to fully analyse these factors, but at least being aware of them is as valuable. I'd say that this might apply well to new startups who have none or only little experience in running business.
Yeah, that's true. Planning is useful, but generally plans not so much. “No plan survives the battle.”
I think more appropriate term or activity would be business design or designing a business. Like you can design products, you could design businesses. How this differs is that designs are useful, something you can work with and you formulate them from things you know and can control.
You wouldn't make product plans, stating like “During this year I will create a great product that everyone will love, it's going to cost me $100 to do, it will be blue since all the competitions are blue, and I will sell 1M units of them to SMB.” Or an architect, instead of designing the building would just what he wants to will do a floating building rather of making the hard work actually designing one. Instead of writing some plan, you design and think a bit how you make things work in your business.
I made the mistake not to mention any other appropriate tools, like for example the Business Model Canvas(http://www.youtube.com/watch?v=A7CNobPt4lQ & http://www.businessmodelgeneration.com/).
To a business plan it has some advantages like 1) it will take you few minutes to few hours (not weeks to months) 2) because of that you can do it every week or month (not have to update some monolithic document or face it's becoming outdated) 3) you can do it collaboratively with other people (which is really hard with a business plan)
When it comes to the financial side of a business plan, it provides the first acid test. Despite the fact that there is nothing sure or certain about anything in the future, it is highly valuable to create a set of scenarios to provide guidelines. By doing that before jumping into the cold water it might be a bit easier to see the alarming signals when the occur.
All in all, the role of biz plan should be questioned. One should carefully select the parts of it which help to challenge one's thinking and ideas in order to further develop them. It would have been nice to hear your presentation, my ideas and comments are only based on the initial blog post and my own still rather minimal “experience”.
Karri, this is an excellent post. The business plan itself is very overrated as a good management tool. However, business planning itself is a very underrated management tool. I've seen plenty of business plans that were strictly done as an exercise with no thought behind them. Meanwhile, I know plenty of business owners with no formal plan, but with an excellent planning process.
I document my business planning with a web-based tool, but I do not have a formal business plan document. I do not need a formal business plan, but I absolutely need a good planning process to focus my business idea and plan my major expenses. I am then able to compare what really happened to my planning and make changes. Without this process, I would not know what to change.
University courses must teach students how to develop a good planning process, including the thought processes needed to evaluate a business concept. However, boiling a class down to creating a document is a short-sighted way to teach business planning.