Is a Business Plan Really Necessary?

It takes a lot of time and effort to write good business plan. Sometimes I wonder if all that time and effort could be better spent actually starting the business rather than researching and writing and editing. It really is a lot of work.

It clearly depends on the nature of the business you are starting. Actually I am doing both now--starting one business without a plan and one with a plan, or should I say trying to start them. It is never a given that they will get off the ground.

Remember rapid cycle failure. Instead of spending months writing a business plan, sometimes it is better to lay out your plan in a simple concept paper--three or four pages. Scoping out what you plan to do helps you think through the process and is highly recommended.

Then get to it. If it seems like it is beginning to work, you can always go back an write a detailed plan. If not, you have not wasted a lot of time.

If your business requires capital that you are going to ask others to put into the company, unless it is a small amount coming from close family and friends, a business plan is a must. People who invest want to know that you have very carefully thought through the concept and have looked at every important aspect of the business.

Can you clearly describe what you plan to do? What is your product or service? Who are the customers? Who is the competition? What is the experience of the management team? What do the financials look like? How much capital is required? How do I get paid back? What are the risks?

You have to be able to answer each of these, plus a few others thrown in for good measure, in great detail. Now that doesn't mean that the investor will always read the complete business plan, but you better be prepared to answer any questions that is asked. The business plan is critical in your preparation for this important exam.

When I write or read a business plan, the one thing I know for sure is that the business will not turn out exactly as the plan projects. But it is a road map and critical planning tool.

So, if you do not need outside investors, write a concept paper and spend your time starting the business. Do not waste months writing a detailed plan.

If you need investors, write the plan. Do the research and learn the material. The test is not the quality of the plan. The test is do you know the business well enough and are you experienced enough to make the right adaptations when the plan falls apart.

You are the plan--not the document--and you are the focus of investors interest!

Stress Test for Entrepreneurs

If Stress Tests are able to tell us if a bank can survive tough times, then maybe entrepreneurs should take a stress test before starting a new venture. And if current trends continue, the government may require such a test before we are allowed to start a new venture!

So, what would a Stress Test for Entrepreneurs look like? Here are a few sample questions:

1. Do you have a clear idea of what you want to do and are you committed to sticking to it until it succeeds or fails? If the answer is yes, you fail the stress test. To be a successful entrepreneur, you have to have a clear idea of what you want to do and then make adjustments as you begin to implement. That does not mean reacting to every event but it does mean learning and adapting. The one thing you can be sure of, no new venture looks exactly like the business plan that was originally drafted.
2. Do you have financial resources to survive while you learn and adapt the plan until it is profitable? The correct answer is of course "yes". There is no shortage of good ideas. The problem is that most do not work as planned initially. A good entrepreneur, given enough time, is capable of solving the puzzle. Unfortunately, what often happens is that we run out of money and resources before we get there?
3. Are you prepared for rejection, criticism and failure? Again, the answer better be yes. Entrepreneurship involves selling--selling the idea to investors, to future employees and of course customers. And maybe most importantly, to friends and family. While you think the idea is brilliant, you will get many more "No's" than "Yes's". Entrepreneurship is heroic until it looks like it may fail, and then people start to question your judgement--why are you putting yourself or your family at risk? And, of course the odds are not necessarily in your favor.
4. Is your idea potentially a billion dollar venture? If you answer yes, again you fail. First of all, if you think your idea is likely to create a billion dollar venture, you probably need counseling for grandiose thinking. Sure, we are told to thank big and we should. But we also have to be in the real world. Do you know the odds of a new venture turning into a multimillion dollar business much less a billion dollar business? You have a much better chance of being successful with a small idea, maybe even several small ideas. Only the most experienced entrepreneurs with proven track records are able to secure the resources to run with big ideas.
5. Is the pain of Not doing it greater than the pain of Doing it? The correct answer is yes. This, of course, is fundamental to basically all decisions we make, but especially true for entrepreneurs. There will be pain in the process. The question is, will there be more pain and regret in not doing it? For many of us, the rewards that come from adventure and following our dreams outweigh the risks.

OK, how did you do? Entrepreneurship is not for everyone. We all should carefully assess ourselves and our current life situation before taking the plunge.