A business plan is one the most important things when establishing a business, or is it? Let’s take a look at the role of business plans in small businesses.
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Why do people make business plans?
Most entrepreneurs make business plans because they think the business won’t succeed without one or they’re planning to use to source funds. Those are the major reasons why entrepreneurs make business plans, even with concrete business plans over 80% of South African startups will fail within the first year and over 90% won’t make it to the third year.
How can a startup with a business plan that costed over R5 000 fail, the plan even included a three-year forecast and everything looked good on paper. Why then did the same business fail within one year, what is it that the business plan missed?
Are business plans worth it?
I wouldn’t advise anyone to spend their hard-earned money on making a formal business plan. Even seasoned investors know that a business plan doesn’t carry much weight. Unless your investors are government employees with no practical experience on running a business.
Only someone who hasn’t successfully built a business before will be impressed by a business plan that takes forever to read. Most investors won’t even look at a business plan that’s over 2 pages long; you are taking up their time for something that will not really materialize.
The business environment changes so much from the time that the plan is drafted to implementation. You will have to improvise so much so that your original business plan will be worthless as you won’t follow it.
What about the multitude of articles online that emphasize the importance of a business plan? Those articles are mostly written by content creators; who likely have no experience in running a business whatsoever.
Downsides of business plans
Business plans don’t account for pandemics or epidemics that might break out; they don’t account for the dramatic disruption in the business landscape that might happen due to technology. They don’t address the possibility that your capital will burn out after a failed marketing campaign.
If you feel like you can’t start without a formal business plan; then you are probably not ready to tackle the challenges that come with entrepreneurship. Instead of focusing on a business plan; you should focus more on the vision and mission of the company and create a business structure around that. This structure should be flexible enough to change and adapt when circumstances dictate.
Should you not have a plan?
Not having a plan at all would be suicidal, you have to have a plan. You must know the direction that your business will take. The details will never go according to your plan, but what’s important is moving closer to your goals.
You should have a structure or framework that highlights how you plan on achieving your goals. Even these can be inaccurate at times but they generally push you to the right direction. A formal business plan that’s more than 20 pages long will not add that much value.
You should make a business plan if you are planning to apply for government funding. They will always require it. But if your main aim is to apply for funding from angels, then you should use pitch desks instead or even PowerPoint.
This is mainly based on my views and experiences; you are free to add your own. Do you have any thoughts or questions? Comment below.