Business plans are notorious for having a short shelf life. Many entrepreneurs discover soon after launching their startup that their initial plan wasn’t grounded in reality or didn’t guide them in the way they’d hope. So instead of starting over, they end up scrapping their plans altogether.
In fact, the usefulness of business plans has been questioned again and again and some experts flat out think formal business planning is a waste of time. This may leave you thinking, do you really need a business plan for your startup?
Many experts agree that building your business plan can be valuable to a startup or established business—as long as it’s done correctly. It will serve as a roadmap even as the business evolves and can be a key document for attracting investors and lenders. Here are four tips for giving your business plan a long shelf life:
1. Start your business first.
Sure, you definitely need to think through some basics before starting your business or you will make foolish mistakes. But many start-up entrepreneurs and small business owners today prefer a “lean” approach to launching their business. This approach—coined by Eric Ries in his 2011 book “The Lean Startup”—involves doing minimal upfront planning and then evolving the business model after the launch through testing and gathering customer feedback. The idea is that the best way to develop a viable business model is by trying to sell your products to real people—not sitting in an office writing out a plan.
In other words: It’s hard to write a realistic business plan before you’ve tested your concept in the marketplace. “Too many startups begin with an idea for a product that they think people want,”Ries writes on The Lean Startup. “They then spend months, sometimes years, perfecting that product without ever showing the product, even in a very rudimentary form, to the prospective customer.”
Before you write a lengthy business plan, consider starting to sell your product and service so you have some real-world experience to design your business model around.
2. Don’t constrain yourself with needless specifics
Business planning doesn’t mean you have to outline every specific about how your business will be run, down to minute details and elaborate financial projections. In fact, adding such details will only risk that your plan becomes irrelevant faster.
Rather, longtime Harvard Business School professor William Sahlman says business plans should address four key things:
- The people: Who will run the venture? Who will be the outside parties that provide key resources and services?
- The opportunity: Describe the business model: What will the business sell? Who will the customers be? How will it make money?
- The context: What external factors, whether the economic environment or demographic trends, could affect the business’s success?
- Risk and reward: Describe everything that could go right or wrong, and determine how the team will respond to the various good or bad scenarios.
What you don’t want to do is bog down your business plan with too many numbers and projections, Sahlman writes in Harvard Business Review: “What’s wrong with most business plans? The answer is relatively straightforward. Most waste too much ink on numbers and devote too little to the information that really matters to intelligent investors. As every seasoned investor knows, financial projections for a new company—especially detailed, month-by-month projections that stretch out for more than a year—are an act of imagination.”
3. Plan only two to three years out.
Thinking you’ll know the state of your business in five years is foolish. Things change, often quickly. It’s better to devote your time planning for the next two to three years and then update your plan as your business evolves. “If your product or service is still on the drawing board, don’t get sidetracked by plans for future versions,” writes well-known entrepreneur and Virgin Atlantic founder Richard Branson on Entrepreneur. “As a general guideline, looking two or three years ahead is best, but the nature of your business and feedback from your investors will help you determine just how far ahead you should plan.”
4. Keep refreshing it.
Look at your plan as an imperfect, yet living and breathing document. You probably won’t get every piece right the first time around and will need to edit and update your business plan as circumstances and realities change and you have more experience running your business.
So, how often should your review and update your plan? Instead of keeping it on a high shelf—or worse, buried at the bottom of a desk drawer—keep your business plan very accessible and make a point to review it regularly, recommends Tim Berry, founder of Palo Alto software and a business-planning expert. “You should be updating your business plan every month, every week and every day; whenever things change, you update your plan,” Berry writes on Entrepreneur.com. “And things always change.”
Even though that advice may seem hard to follow, Berry admits, at least aim to thoroughly review and update your business plan at least once a year. Talk to your customers, find solutions to your challenges, and consider new market opportunities. Reviewing your plan annually forces you to think through the big-picture issues and opportunities that you may not have time to think about every day while you’re trying to grow your business.
Remember that your business plan is only worth as much time and effort as you devote to it. If you never look at don’t update it regularly, you probably shouldn’t have wasted time writing it in the first place.
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