How much planning is for you?
There was just one whale of an interesting article in Tuesday’s Wall Street Journal. That’s January 9th. The article was “Do Start-Ups Really Need Formal Business Plans?” by Kelly Spors.
There is an entire industry out there urging people who what to start a business to become involved in formal business planning. The article mentions that a search on Amazon for “business plan” got over 19,000 hits. The article continues that academic institutions have a vested interest in teaching planning to entrepreneurs. “It’s much easier to teach than intuition.”
I’ve done the big plans when I was searching for big money from investors. I’ve done the back of a cocktail napkin thing also. Neither approach seemed to have a great impact on the outcome of the endeavor. Both approaches required me to think about two aspects of the business.
First, did I understand the market? Could I make a sale; how often and for how much? Not had I done lots of market research, but did I or someone in my group know the way a given market operated. Did we know the players? Did we have contacts? On a day to day basis did we know enough about the environment to make the business generate cash? Certainly things would change over time and there would be surprises, but starting today in our given environment could we muddle through.
Second, did I have some grasp of the numbers? By numbers I mean cost, selling prices, overhead, taxes and such. The grasp comes in understanding how they fit together in a way to make a profit. Did I have an understanding of cash flow, sources of funds, collection requirements, and so on?
Market potential is an area where finance and sales cross. How big is a market? How much money can I make there? How much money are other players taking out of that market? Can I take some from them or is the market expanding to accommodate all players?What I’ve found and those quoted in the article reinforce, plan, but not too much. A plan is not doing business. It is a tool for organization. As they told me in the Army, “When the first shot is fired all bets are off.”
My experience with investors in small businesses is that they are much more interested in the people than in some plan. Even the venture capitalists in this article said they didn’t care much about big plans. The most important part of a business is the people in place on the front lines. Everything will change and those that adapt will be successful.
If you want to be in business go out and do it. Don’t get tied up in planning. You’ll learn more in a month on the job than six months of research.
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2 opinions for How much planning is for you?
Greg Balanko-Dickson
Jan 12, 2007 at 8:51 pm
Hi Jim: I agree and disagree with you on this one.
The “people” side of any business especially the startup and its founders are crucial. That said, there are many ways to do a business plan, it does not and should not be 50-100 pages. 10 pages is plenty and maybe 20 with financials.
(Disclosure: I have authored a book on business planning)
You make a great point about understanding your market and your numbers.
VC’s and investors want succinct information when trying to assess an investment opportunity. Often shorter is better whether a Power Point or a well written summary.
In researching my book and in reviewing U.S. and Canadian studies of business failures, I found that bankrupt and successful firms had similar business plans and financial plans.
The major difference between success and failure was that 81 percent of successful firms periodically took stock of where they stood with respect to their goals, and they followed up by making adjustments to their practices and expectations. The sad news is that less than 33 percent of bankrupt firms with financial forecasts in their business plans actually compared their results with their forecasts, and only 40 percent of those took any remedial action when their forecasts differed from their goals. (Source: Failing Concerns: Business Bankruptcy in Canada, Characteristics of Business Owners 1992 by U.S. Department of Commerce)
Plus, if an entrepreneur chooses to go the bank route, most bankers will ask for a business plan.
Jim Lane
Jan 13, 2007 at 11:44 pm
Years ago, I asked several venture capitalists about which elements they found most important in a business plan and their answer was “is there a market.” The numbers told them you had looked into all the nooks and crannies, but that they were largely of no paarticular value because, by the time the VC firm had ramped up and gotten into the effort, all the numbers will have changed.
I’ve found the same thing to be true.
Jim
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