Failure is always an option. For every Facebook, there are a thousand failed businesses. Some collapsed when their “new technology” wasn’t so new. Others crumbled when their co-founders began to disagree. Statistically speaking, we all know it’s very hard to create a successful business from the start.
Many of these companies started with an attention-grabbing, innovative, and passion-fueled approach. They storm the castle, catapulting themselves forward into the exciting world of pitch decks and venture capitalists, all while leaving behind the monochrome business plan1 of the past.
Traditional business plans and even well-designed pitch decks are not a holistic approach. The dull business plans of yesteryear fail to generate passion and interest, and often do not even provide sturdy internal testing. The colorful pitch decks of today can generate short term enthusiasm but quickly deteriorate from their lack of thorough depth.
The best approach is one that harmonizes with the modern pitch deck but also doesn’t throw away the wisdom of prudence from old-style plans. Rather than focusing on a black and white templated structure that is unchanging from one project to the next.
This more thorough approach is even backed by science. In a meta-study performed by the School of Business Administration at the University of Chicago, researchers were able to conclude that there is a positive association between entrepreneurs who have business plans and those that have successful businesses2. Even before understanding the specific benefits a business plan can offer, the data reveals that those who pursue these plans are doing something right.
A good business plan can be an invaluable resource that is tailored to the project at hand. An extraordinary business plan will: save entrepreneurs from the pitfalls of “winging it”, shore up an idea into something truly foundational, and engage partners and investors.
Failure through Freehand
It would be disingenuous to say that no business has ever succeeded without a specific business plan. Some may have lucked out by shooting from the hip, and only bothered to take more careful aim when it became necessary to sustain their growth. For the most part, these lucky few are most definitely few and far between. Relying purely on pitch decks and charisma often leads to gaps in knowledge critical to business success.
In a rush to turn an idea into reality, things like organizational structure may fall by the wayside. A good idea may generate excitement, but without a clear understanding of target demographics, a marketing strategy, financial projections, competitive differentiation, a deep understanding of the industry size and movement, and an analysis and understanding of competitors.
Being told a business or idea is destined to fall apart stings. That sting is negligible compared to the slap of investing time and money into a project which was unstable form the start or could have been refined so that it could succeed. Business plans are the perfect opportunity to take a long look in the mirror and understand all the flaws, opportunities, risks, and advantages to your idea.
Prudence through Planning
Business plans create an invaluable deliverable to communicate strategy with investors and partners. Writing down explicitly what you mean to say avoids miscommunication. This planning protects you and your company from easily avoidable problems down the line. Learning everything you can about how your business will operate and what strategy you’ll use to proceed is just another way to give yourself an advantage.
The process of talking through the competitive landscape into which your business might enter, understanding the dynamics and size of that industry, and understanding the history of the competition is almost as important as the plan itself. All of these factors can help to generate your business’s positioning. Understanding your positioning is in turn critical for understanding your plan of attack. Often, “obvious” things remain unsaid during business strategy meetings only to later reveal themselves as deep-seated misunderstandings. Creating a strategy and communicating that strategy through a business plan can help ensure that all stakeholders are on the same page and recognize the commitments they need to make moving forward.
Success through Storytelling
The final and arguable most valuable part of the business plan is its ability to share your thoughts with others. They can be a way to prove yourself and demonstrate that your idea is well thought through and sophisticated. Investors demand intelligent risk management. They don’t avoid risk altogether, otherwise, they would miss out on opportunities, but they do expect a minimum commitment and understanding of the industry in which their money will be spent.
Business plans let entrepreneurs walk others beat by beat through the story they’re telling and point to exactly where they want their project to end up. This story must be internally sound, logically consistent, and thoroughly researched. It equally must be pragmatic about the unknowns and inevitable scenarios. All of these in combination – including the real pragmatism – can prove to investors, banks, or even potential partners that your business strategy is well-thought-out and sound and can consequently compensate for any unjustified doubts investors or partners may have.
Ultimately, in 99.9% of cases…you do need a business plan. And that plan needs to be gripping and thorough. It needs to complement your pitch and tell your story. The data we’ve seen supports this.
To learn more about business plans and where to start try here.