Every year some 10 million business plans are written around the world. There has been a lot of discussions among experts whether business plans are of actual use or not. This is an important question because writing a business plan can take up a lot of startup time that can be invested into absorbing resources and into getting things done.
Some experts argue that it is useful to come up with a business plan to think through what you want to do for the development of the product or service, marketing, financial projections and more. Then you can get input from trusted business/finance advisers.
Zacharakis and Shepherd in a 2001 paper speculated, in ambiguous and uncertain environments, where the claims made by an entrepreneur are difficult to verify, venture capitalists’ subjective evaluation of the entrepreneur’s personal qualities, such as his or her “passion,” is psychologically functional because it often boosts the VCs’ confidence in their evaluation of the business plan.
This and some other studies suggest that business plans provide a platform, a formal document, to communicate the goals, achievements and analytical skills of entrepreneurs with the outside world particularly with investors and bankers. This is important to gain legitimacy needed to continue as an entrepreneur needs the positive attitude of its stakeholders to survive.
In addition, the quality of a business plan would reflect the cognitive preparedness of the entrepreneur who offers it—that is, whether he or she would be ready to take the proposed venture forward if resources were provided. Hence, it is an opportunity for the entrepreneur to demonstrate whether he/she is ready to take up the challenge.
On the other hand, some others suggest that you should not go overboard with a 50-page business plan. In reality many start-ups have to deviate from their plan. So you may end up spending a lot of time and efforts on something that might not be so useful after six months or one year and we all know the most valuable asset of entrepreneurs is their time.
Developing a concrete plan for business operations has the potential to convey a false sense of certainty. Plans and projections are based on a planner’s or manager’s best guess as to how a business will evolve; however, there will always be unforeseen circumstances, such as overall economic climate and new competition entering the market.
Entrepreneurial ventures succeed partly because employees have the license and opportunity to offer creative input. Business planning tends to be a top-down and inflexible endeavor; in other words, founders articulate missions and goals, and employees are subject to pursuing these aims. This process may not allow employees sufficient freedom to influence either the company’s long-term objectives or its short-term strategies.
Although effective business planning strives for objectivity in order to obtain honest and accurate results, it is virtually impossible to be completely fair and dispassionate when envisioning a future course for your business. Wishful thinking may skew results for even the best-intentioned planners.
In sum, business planning has several advantages especially for funding a new business. In reality entrepreneurs almost never start their ventures with writing an extensive business plan. Instead, they spend time on validating their idea, by developing a minimum viable product, and quickly scan the market to see the size of the market and competition intensity.