Are Business Plans Relics of the Old Economy? Don’t Jump to Conclusions
An article in The New York Times in late 2014 examined the trendy premise that business plans are “an old economy relic” and that because business is moving faster than it was a decade ago entrepreneurs are dispensing with plans, going straight to market with their new product or service and then using feedback from customers to chart their next moves. Apparently the justification for this approach is that entrepreneurs don’t have enough information to prepare a plan; however, this misses many of the key advantages associated with taking a little time to think beyond the present moment. Another reason that some entrepreneurs in the tech industry aren’t interested in a voluminous business plan is that their main goal is developing a new app goes viral and gets them acquired and hired by a larger and more established company. In that situation, the relevant issue really boils down to project management and an intense marketing blitz.
The article begins with the story of an entrepreneur who found that all the hours that she’d spent on her business plan got her nowhere when she couldn’t land the location she was hoping for. The experience caused her to swear off ever doing the same thing again in terms of business plan preparation; however, when a different opportunity came up a year later she found that the work previously done was invaluable as a starting point for selecting and building a brand for her new venture and provided a foundation for e-mail contact platforms, loyalty programs, customer-management strategies and social media promotions. The article provided several other nuggets about the planning process that should give growth-oriented entrepreneurs pause before “winging it”:
- View the planning exercise as an opportunity to think through various scenarios that might play out after you have taken the initial step. As noted in the article, planning allows you to “make your mistakes on paper, rather than in real life”.
- Even when you believe that the market will guide you if you can only get that product or service into the hands of customers, you need to have some general idea about basic business life-and-death issues such as revenues, pricing and the initial target market.
- Planning is what’s most important, not necessary the plan itself, and entrepreneurs need to establish priorities—figure out the most important thing they need to do next—and focus on action steps for those priorities. The planning process is also the best time to take a hard look at what might not be working so that scarce resources are not wasted.
- Even if you aggressively move into the market, treasure the feedback you get from initial customers and use it as a basis for gaining a solid understanding of how those customers see your product or service. This will allow you make changes to improve the customer experience and demonstrate to investors and other business partners that you have a grasp of how the market works.
The article noted that the format of business plans has shifted from the thick binders to short videos or slide decks; however, this has not changed the need for entrepreneurs to be able to provide the important metrics of the proposed business and explain in detail the assumptions they have relied upon in deciding to press forward.
Source: E. Zimmerman, “As Start-Up Strategies Evolve, So Does the Role of a Business Plan”, The New York Times (December 4, 2014), B6. Resources referred to in the article include B. Cooper, P. Vlaskovits and E. Ries, The Lean Entrepreneur: How Visionaries Create Products, Innovate with New Ventures, and Disrupt Markets (New York: Wiley, 2013); and R. Abrams, Successful Business Plan: Secrets and Strategies (6th Ed) (Palo Alto: PlanningShop, 2014).