Are business plans obsolete?
John Caddell has an interesting post over his blog titled “Startups, ditch your business plan!”. According to him “the business plan is an entrepreneur’s lifeline. It has near-mythic qualities: the ability to distill an entire business into one short (or long) document, the ability to attract investors and even the ability to predict the future.”
Despite those (supposed) qualities, however, some recent studies are starting to show that the practice of using formal business plans as a corner stone of business ventures is not as widely spread as the theory suggests. Caddell mentions, for instance, a recent study that appeared on the Inc Magazine, outlining the following statistics:
- 60% of the Inc 500 CEO’s said that they had no business plan at the start
- of the 40% who did 65% said that the company strayed significantly from the original plan
- only 12% of the Inc 500 CEO’s carried out formal market research before kick starting their company
The study highlights two possible reasons for those statistics. Firstly the amount of change that is taking place in most industries offer little information and no certainties upon which to write a business plan. The second reason is connected with the fact that entrepreneurs usually need to seize opportunities on a millisecond, and there is no time to be wasted on writing extensive documents of doubtful value.
Business plans are still necessary (not for completely logic reasons, yet necessary) but the practice of writing 100 pages books detailing aspects of a certain company or business segment that could not be true the day after will inevitably need to be reviewed.
In my opinion the main message of those findings is that the our economy is not only changing enormously, but the speed of such changes is also accelerating. The consequence is that old business school concepts such as mission statements, business plans, total quality management and the like may no longer be suitable.
You can read the complete Inc Magazine study here.
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I have to say that each of the two business plans I wrote and put into practice are no longer good in their original forms. Business changes and entrepreneurs adapt. When you set out, you might be thinking one thing, only to be side swiped by another.
A business plan forces you to get very real about your idea (ie competitiors, workforce structure, etc.) but they aren’t a roadmap.
I think Jason makes a good point, because there will be changes, but the benefit of the plan is to think of all of the other aspects of a successful business. This isually where businesses fail. It is not that their idea is bad or that they did not have a business plan. It stems more from all the little things that constantly eat at your time and energy that causes problems.
I would say you need some type of plan as a blueprint and expect to updated it periodically. If you are doing it for outside funding then it has to be much more formal.