Is Having a Business Plan an Advantage or Disadvantage for Startups?

Nate Vickery is a business consultant mostly engaged in providing marketing advice to startups and SMBs. He is also the editor at Bizzmark Blog.

It stands to reason that you need to have a plan for anything that you want to succeed in. Naturally, this rule applies to launching a startup too, but very frequently we witness that entrepreneurs, even some experienced ones, decide to go into business without this important document. How come that although even research studies have shown that a solid business plan has numerous benefits and that it can help business owners in many respects, including developing a new product, generating sales, identifying potential problems, or adapt to the ever-changing marketplace, people still underestimate and neglect a business planning process?

Of mice and men

One of the most common reasons why entrepreneurs avoid writing a business plan is, believe it or not because it doesn’t guarantee that they will succeed. We can’t deny this, but the fact that plans do fall through from time to time isn’t a reason to go through life without any planning whatsoever, especially when it comes to business. Moreover, if your business plan is flexible, you can easily adjust and fine-tune it to address all the unexpected circumstances along the way. According to the Panel Study of Entrepreneurial Dynamics II, a business plan significantly increases the likelihood of going into business, and there’s a good reason for this. Namely, collecting and analyzing data for a business plan means that you’ll have to spend a lot of time researching markets and creating business projections. All this will pay off in the end because you’ll learn a lot of important stuff and you’ll be well-prepared for any challenge ahead of you, including a plan that can fall through.

Money matters

Coming up with a good business idea isn’t easy, but realizing it properly can be even more difficult and for that you need money. Luckily, there are investors who know how to recognize a profitable idea and fund it. There’s just one tiny detail: they have no intention of giving you a cent of their money if you can’t present them in black and white why your idea is valuable and bound to succeed. You see where this is going? No business plan, no money. Even if you want to crowdfund your startup, you still need to put your ideas, goals, projections, and budget on paper. However, bear in mind that nobody will settle for a half-baked, poorly written drivel that doesn’t relate to relevant pain points, that doesn’t offer any solutions, that is full of pie-in-the-sky arguments and bombastic promises, or that is too long and written in technical jargon. Instead of that, take advantage of a step-to-step guide to writing business plans, and impress your investors. And that is not all. Many investors will expect you to update them regularly on the progress of your startup in accordance with that plan. The easiest way of doing this is by finding key performance indicators and presenting them monthly through a KPI dashboard.

Adrenaline rush

Entrepreneurs are energetic people who can’t wait to get down to business. This action-oriented attitude is exactly what it takes to make it in this field, but it can interfere with the process of starting a new business which requires a careful planning. It’s understandable that writing a business plan can be a tedious task for someone who has their mind set on more concrete actions, such as hiring employees or setting up a shop, but if you want to do everything properly and eliminate business risks at least to a certain degree, you need to deal with your executive summary, business description, development, and financial summary, before starting to design your business cards. When it comes to the length, the times have changed and you no longer need a 20-40 page document. Actually, many successful entrepreneurs say that shorter business plans are more likely to be read.

Playing by ear

A knack for business is one thing, while wild guessing is something completely different. Without a business plan, you have to rely on making assumptions, and this strategy is nothing more than a shot in the dark. This is especially risky when you’re dealing with business projections and profits, as crunching numbers is the only way to get it right. A business plan can help you make data-backed decisions, and avoid unexpected expenses or a shocking drop in profits that could be forecasted.

What’s the score?

If you have a business plan you’ll be able to track your results and see what aspects of your business process you need to work on and improve. In order to be successful, you first need to establish what success is and strive towards that goal. Also, it will be much easier to realize if the time comes to call it a day. Did you know that 50% of all new businesses fail within 5 years? The idea of going out of business can be extremely emotional and scary for many entrepreneurs, and a proper business plan can shed some light on the numbers and show them that their money is going down the drain. This can be a powerful wake-up call that will prevent an even greater financial loss. 

To cut the long story short, if you want to run a successful startup, having a business plan shouldn’t be observed as an advantage or disadvantage, but as an absolute must.

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