Every business needs a written Business Plan under the guidance of an experienced accountant (check out Howlader & co. if based in London). Whether it’s to provide direction or attract investors, a business plan is vital for the success of your organization. But, should you spend some time developing a plan for your business, or just dive in and start, figuring things out as you go?
As a matter of fact, there has been plenty of debate on this topic, but no one has pulled together the scientific evidence to determine if planning is worthwhile—until now. But, before we dive into the data, why do we even need to look at research on business planning?
It seems like most advice on starting a business includes writing a business plan as a necessary step in the startup process. If so many people encourage you to write one, business plans must add value, right?
Well, over the past few years, there’s been a lot of controversy about the value of writing plans for the business. People look at certain companies that have been very successful but haven’t written business plans. In the end, concluding that planning is a waste of time. But it is not!
What Is Business Plan?
A Business Plan is a written description of your business’s future, a document that tells what you plan to do and how you plan to do it. For example, if you jot down a paragraph on the back of an envelope describing your business strategy, you’ve written a plan. Or at least the germ of one.
In general, business plans are inherently strategic. Meaning that, for instance, you start here, today, with certain resources and abilities. And you want to get there, at a point in the future (usually three to five years out). Not to mention, at which time your business will have a different set of resources and abilities.
Related Read: Restaurant Business Plan — How To Create A Lasting One
As well as greater profitability and increased assets. Business planning is not an activity you undertake only when you’re getting your business up and running. It should be something you return to, time and time again, to revise and improve upon based on new knowledge.
But, it’s not as simple as it might appear. Just having a plan doesn’t guarantee faster growth. It’s the kind of plan you have and how you use it that really matters.
Why Is Planning For A Business Important?
Well, the research shows that it’s really not a “write a plan” or “don’t write a plan” conversation. What really matters is what kind of planning you do and how much time you spend doing it. After all, taking the time to plan is a bit of a trade-off. The time you spend planning could be time spent building your company.
Why not just “get going” and learn as you build your company? Instead of taking the time to formulate a strategy and understand your assumptions about how your business might grow? That said, the main benefits of having a Business Plan include;
1. Business Plan increases chances of Growth
Basically, one study found out that planning can help companies grow 30 percent faster than those that don’t plan. This study found that plenty of businesses can find success without planning. But that businesses with a plan grew faster and were more successful than those that didn’t plan.
Another study published in 2010 aggregated research on the business growth of 11,046 companies and found that planning improved business performance. Interestingly, this same study found that planning benefited existing companies even more than it benefited startups.
Action: Carve out some time to set goals and build a plan for your business. More importantly, re-visit your plan as you grow and revise it as you learn more about your business and your customers.
2. It’s the Building block for Startups
It turns out that startups, especially ones building highly innovative businesses, should create shorter, less detailed plans. That’s because these innovative startups are learning new things about their products and customers. Especially at a very fast pace and their strategies change more frequently.
Simpler plans—Lean Plans that can fit on a single page—get updated more frequently and are more helpful to these companies because they can review their strategy at a glance.
Meanwhile, more established companies know a lot more about their products and customers. And therefore, they can craft more detailed strategies that are less likely to change as quickly. For these companies, more detailed planning is generally more helpful.
3. Helps define the Growth curve of Businesses
Above all, businesses grow faster with a plan. Whereas, studies also found that companies that did a good job defining their value proposition do even better than companies that have a hard time defining their customers’ needs.
These researchers also found that having a plan is less about accurately predicting the future and more about setting regular goals. As well as, tracking your actual progress towards those goals. And again, make changes to your business as you learn more about your customers.
As an example, Silicon Valley Businesses like to call the act of changing strategic direction “pivoting.” All it really means is that you need to stay nimble, keep your eyes open, and be willing to make changes in your business. Then again, as you compare your actual results to your goals and gather additional feedback from your customers.
4. Being prepared matters when you’re seeking funding
Over and over again, you hear venture capitalists talk about how much the team matters in a funding decision. Beyond just the team, you also hear them talk about passion—how much the entrepreneur believes in the idea.
But, it turns out that there is something that trumps passion when VCs make their decisions. Research shows that how well an entrepreneur is prepared is much more important than how much passion they have.
However, this doesn’t mean that VCs will ask for a business plan. In fact, they probably won’t ask for one. What it means is that entrepreneurs need to have done some planning, in some form, so that they can be prepared to talk intelligently about their idea. In addition, expound on their target market, their sales and marketing strategies, and so on.
5. When you start planning is important—the earlier the better
So, if business planning increases your likelihood of success, and in fact helps you grow faster, when should you start working on a business plan? Research shows that entrepreneurs who started the business planning process early were better at what the scientists call “establishing legitimacy.”
That’s a fancy way of saying that these entrepreneurs used business planning to start the process of talking with potential customers. While on the other hand, working with business partners, started to look for funding, and gathered other information they needed to start their business.
Furthermore, entrepreneurs that did a good job of using their business plan to “establish legitimacy” early were more likely to succeed and their businesses tended to last longer.
6. Planning makes you more likely to start your business
If you’re like most entrepreneurs, you like to dream up new business ideas. And also, you constantly think of new ways to improve existing businesses and solve new problems. But, most of those dreams never become a reality. For one thing, they live on as ideas in your head while other entrepreneurs see the same opportunity and find a way to make it happen.
It turns out that there’s a way to turn more of your ideas into a viable business. A study published in Small Business Economics found that entrepreneurs that take the time to create a plan for their business idea are 152 percent more likely to start their business.
Not only that, but those entrepreneurs with a plan are also 129 percent more likely to push forward with their business beyond the initial startup phase and grow it. These findings are confirmed by another study that found that entrepreneurs with a plan are 260 percent more likely to start their businesses.
7. You’re less likely to fail if you have a business plan
Nothing can absolutely prevent your company from failing, but it turns out that having a plan can help reduce your risks. Yet another study of 223 companies found that having a plan reduced the likelihood that a business would fail.
Having a plan didn’t guarantee success, unfortunately. But, those companies with a plan had better chances of success than those that skipped the planning process. So, having a plan and updating it regularly means that you are tracking your performance and making adjustments as you go. If things aren’t working, you know it. And, if things are going well, you know what to do more of.
8. Your success depends on the type of planning you do
In the end, creating a business plan seems like common sense. You wouldn’t set out on a trip without a destination and a map, would you? It’s great to see research back up these common-sense assumptions. The research also validates the idea that the value of business planning really depends on how you approach it.
It’s not about predicting the future as if you’re a fortune teller at a carnival. Instead, it’s a tool that you use to refine and adapt your strategy as you go. By continuing to understand your market as it changes and refining your business to the ever-changing needs of your customers. With this in mind, therefore, your plan shows how you will get from here to there. But,
How Do You Write A Business Plan?
Whether you’re a founder, a new owner, or just beginning to think about starting a business, demands come at you fast. Like tasks, to-do lists, meetings, and more. So, amidst that rush, the idea of writing a business plan—much less following a business plan template—often feels time-consuming and intimidating.
However, if done right, the payoffs are enormous. And eventually, it’s more than the old cliche, “A failure to plan is a plan to fail.” In fact, a wealth of data now exists on the difference a written plan for a business makes. Especially for small or growing companies.
The jmexclusives recommends starting with a Lean Plan. It’s a simpler form of planning where you can start by documenting your business concept on a single page—something I call a “pitch.” From there, iterate, gather feedback, and adjust your plan as needed.
If you are asked to produce a business plan document, you can do that, but it’s not critical to your long-term success.
An effective Business Plan includes:
- Executive summary — a snapshot of your business
- Company description — describes what you do
- Market analysis – research your industry, market, and competitors
- Organization and management — your business and management structure
- Service or product — the products or services you’re offering
- Marketing and sales — how you’ll market your business and your sales strategy
- Funding request — how much money you’ll need for the next 3 to 5 years
- Financial projections — supply information like balance sheets
- Appendix — an optional section that includes résumés and permits
1. Research, research, research
“To write the perfect plan, you must know your company, your product, your competition, and the market intimately.” In other words, it’s your responsibility to know everything you can about your business and the industry that you’re entering. Read everything you can about your industry and talk to your audience.
2. Determine the purpose of your plan
A business plan, as defined by Entrepreneur, is a “written document describing the nature of the business, the sales and marketing strategy, and the financial background, and containing a projected profit and loss statement.” However, your business plan can serve several different purposes.
3. Create a company profile
Your company profile includes the history of your organization, what products or services you offer, your target market and audience, your resources, how you’re going to solve a problem, and what makes your business unique. When I crafted my company profile, I put this on our About us page.
4. Document all aspects of your business
Investors want to make sure that your business is going to make their money. Because of this expectation, investors want to know everything about your business. To help with this process, document everything from your expenses, cash flow, and industry projections. Also, don’t forget seemingly minor details like your location strategy and licensing agreements.
5. Have a strategic marketing plan in place
A great business plan will always include a strategic and aggressive marketing plan. Typically, this includes achieving marketing objectives such as:
- Introducing new products
- Extending or regaining the market for existing products
- Entering new territories for the company
- Boosting sales in a particular product, market, or price range. Where will this business come from? Be specific.
- Cross-selling (or bundling) one product with another
- Entering into long-term contracts with desirable clients
- Raising prices without cutting into sales figures
- Refining a product
- Having a content marketing strategy
- Enhancing manufacturing/product delivery
Each marketing objective should have several goals (subsets of objectives) and tactics for achieving those goals.
6. Make it adaptable based on your audience
The potential readers of a business plan are a varied bunch, ranging from bankers and venture capitalists to employees. Although this is a diverse group, it is a finite one. And each type of reader does have certain typical interests. If you know these interests up-front, you can be sure to take them into account when preparing a business plan for that particular audience.
7. Explain why you care
Whether you’re sharing your plan with an investor, customer, or team member, your plan needs to show that you’re passionate and dedicated and that you actually care about your business and the plan. You could discuss the mistakes that you’ve learned, list the problems that you’re hoping to solve, describe your values, and establish what makes you stand out from the competition.
I hope that the above guide was useful in your preparation for your brand, business, or even product marketing campaigns. However, if you’ll have additional information, contributions, or even suggestions that demand our attention, please Contact Us.
By the same token, you can share your thoughts in the comments box below this blog post. All in all, below are more useful and related topic links that might best interest you.
- Transaction analysis: gaining an edge
- Return On Marketing Investment: What Is It?
- Writing Business Plans: A Step-by-Step Guide
- 7 Tips for Creating Effective Plans for Business
- Conducting a Market Analysis for Your Business Plan
You can also read and learn more about How to Start a Business: A Step-by-Step Guide