After conjuring up a brilliant business idea, I would immediately start writing a business plan. Like a skilled magician, I could make a marvelous business plan appear before your eyes in just a few days. It would be complete with colorful graphs, in-depth market research, and detailed financials. The plan would be ready to execute. And I was sure it had as many pages as possible. Why? I once heard an investor say that he only considers investing in companies with plans that make a thump when you drop them on a table. After years of practical business experience, I realized that I didn’t make a good magician and I was only fooling myself. Now I know better.
Experience has taught me that when I get a new business idea, working on the business plan is one of the last things to do. The three crucial steps I follow before even thinking of writing a business plan will work for you, too. First, examine the competitive landscape to see what companies are already there.What do they do poorly? What can you do differently to create a competitive advantage? Second, discuss the idea with potential customers, asking basic questions that determine how much they would value your product or service, which is perhaps the most important preliminary step to writing the business plan. Third, develop a sketch or basic prototype of the product. If it’s a service, map out vital steps and describe customer experiences.
By the way, when you are finally ready to write the business plan, make sure that you find professional help in areas that aren’t your expertise. If you don’t understand how to project cash flow for the next five years, don’t attempt it. Likewise, if you don’t know anything about marketing, which is likely the most important part of your plan, you shouldn’t be writing that section. A business plan should be a collaboration, not a solo endeavor. As a well-respected serial entrepreneur once told me, investors are skeptical of any business plan written by one person.
Even the academic world, known for resisting change, is reassessing the importance of the business plan. Candida Brush, chair of the entrepreneurship division and director of the Arthur M. Blank Center for Entrepreneurship at Babson College in Wellesley, Massachusetts, put it best in a recent interview withEntrepreneur magazine:
“Students come in here saying they want to write a business plan, but that’s the last thing they need to do. The only way to get to a point where you have a truly entrepreneurial idea is to use a creative approach. Observe. Reflect. Do mini experiments, as opposed to sitting in the library reading case studies. . . . And for us, even that plan is about the process, not creating a 50-page action plan. If you get married to a bad idea, a business plan means nothing.”
Babson students are encouraged to do three feasibility studies before moving forward with an idea or writing a business plan. The studies are similar to the steps I mentioned above. More universities and entrepreneurs should adopt this approach.
In short, too much emphasis is still placed on writing a business plan when you have an idea. There is an epidemic of “Frankenplans,” business plans that are a sloppy amalgamation of various business plans or templates; having the document itself seems more important than the quality of the actual plan. Instead of rushing to finish the document, make sure you take the crucial preliminary steps before you begin writing. If done thoroughly, these steps make your business plan stronger and greatly improve your chances of success and funding.