I have consulted with more than 50 entrepreneurs over the past 4 decades. Each was convinced that their product or service was going to dramatically impact the marketplace and bring them great success. Unfortunately, many of them failed. What has become apparent to me is that there was a key element that was missing for many of the failures, and was always present for those ventures that found success.
The key element is a business plan. Too many inventors and entrepreneurs assume that a business plan is something you take to a bank or send to investors to raise venture capital. While it’s true that no bank or investor would fund a company without a business plan, it’s also true that every company I have ever been associated with that failed didn’t have a business plan. Maybe there’s a reason that banks won’t part with their money without a business plan from an entrepreneur.
A business plan consists of a number of questions. None of them are easy to answer, and all require significant levels of accurate and insightful research. That tends to be the biggest reason many people don’t take the time to successfully complete one. Besides, they’re so convinced that their idea is such a breakthrough that a business plan is not worth the time. Here are some of the actual excuses I’ve encountered when inquiring about the status of the business plan:
- “There’s nothing else out there like my product. It’s a no-brainer.”
- “I don’t have time to do all of this. Besides, if I’m not ‘first-to-market’ someone will beat me to the punch.”
- “I know this stuff. Why should I have to do all of this work?”
- “I know a lot of people who made millions with ideas nowhere near as good as mine.”
- “I’m working on it. I just think it’s going to have to happen on a parallel path with the launch of the company.”
Beneath the surface of many of those statements is an “If I build it, they will come” mentality. By the time they determine that no one’s coming it’s too late. Here are the 5 pain-points that emerge for a new venture without a business plan:
- Startup costs double or even triple from initial assumptions.
- Monthly expenses consistently exceed monthly sales and income.
- Contracts, rents, leases and number of employees continually sap cash-flow.
- The opportunity is more elusive than originally assumed.
- Competition emerges and quickly diminishes potential for profitability and growth.
There’s much more that happens, but what’s critical to understand is that all of those assumptions, poor decisions and unexpected events could have been anticipated and managed with a solid business plan. And that’s the greatest value of a business plan: the ability to anticipate and manage decisions.
- It will help you accurately estimate startup costs and calculate income versus expenses.
- It will clearly define your customers, your opportunity, price sensitivity, and brand position.
- It will put you on a path to sustainability.
- It will guide decisions with regards to partnerships, alliances and vendors.
- It will give the insight to manage your marketing message and anticipate competitive threats.
Yes, it’s hard work. But in my estimation every hour spent on a good business plan will save thousands of dollars and weeks of lost sleep during the formative years of the company.
There are numerous options for business plan formats from document templates to software programs. Use the one that’s best for you and your disposition. The business plan you will ultimately craft will be the most important document you create. Don’t start a new business without it.