Finance Globe

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Unconventional Wisdom: Can You Succeed Without a Business Plan?

If you’ve been thinking seriously about starting a business, you’re probably well aware that you should write a business plan. It is, after all, one of the first steps most experts will advise you to take on your entrepreneurial journey. The Small Business Administration calls the business plan “an essential roadmap for business success” and places it at the top of their suggested 10 step process to starting a business. Surely, if the SBA says the success of our business depends on it, it’s a no-brainer, right? We should expect to fail if we don’t first cross every ‘t ‘and dot every ‘i’ on an official, professional quality business plan before launching a new business. Actually, that’s not necessarily true.

Recent research suggests there is no statistical difference between the success rates of businesses who charted their course with a formal plan before opening their doors and those who dove in without one. In fact, according to a study by authors of the bestselling entrepreneurial advice book Hearts, Smarts, Guts, and Luck, 70% of successful businesses started without a written business plan. Entrepreneurship expert Steve Blank even goes so far as to call business plans “the leading cause of startup death.”

That’s not to say, if you’ve already written up your business plan, you’ve wasted your time. Or that you should blindly jump into a new business venture totally unprepared. Of course, as with most projects (especially one as major as starting your own business), it is wise to have some kind of plan in mind before you get started. Developing a plan helps to clarify your vision and to determine what resources you’ll need to launch your business, including estimated startup costs. If you expect to get a loan from a bank or support from investors a carefully organized and fairly detailed plan is a must, for obvious reasons. However, if you don’t need anyone else’s money or approval in order to get started, it is possible to achieve your dreams with a less formal plan in place.

Case in point: the creators of Facebook hadn’t really figured out how to turn their idea into a profitable entity when they first got started, but they didn’t let that stop them from getting it off the ground. They figured out many things as they went along, through trial and error. By the way, the point here is not that avoiding the work of writing an official business plan will guarantee you the same level of success as Mark Zuckerberg. It is that, for some of us, our creative energy may be better spent on just getting started and testing things out in the real world than on developing a fancy 20-100 page business plan, which is essentially only guesswork anyway.

Imagine if Zuckerberg and friends had sat on their idea for as long as it would have taken to hash out the nitty gritty details of how to get from point A to point B and beyond instead of focusing on just getting their idea out there and allowing it to evolve as it did. Facebook might have suffered the same fate as Iridium, a satellite technology company that spent years obsessively planning their work and working their plan only to end up filing for bankruptcy a short 9 months after its official launch. The problem? In the eleven years it took to perform all the meticulously planned steps in Iridium’s business plan before finally rolling out its featured product the market had changed. Their product had become irrelevant and useless, but the company’s founders were too busy following their sacred business plan to notice that.

It’s impossible to predict everything that will happen to your business and in the marketplace before you get out there. Trying to do so may divert your attention away from things that can contribute significantly to the growth of your business. For example, when Ryland Arnoldi and Sam Seidman first started Wrapped, which is now a thriving paper goods and interior design products company, their goal was simply to make and sell wrapping paper with a unique artistic flair. Had they written up a formal business plan to that effect and followed it meticulously they would have stuck to wrapping paper only and probably would not have survived for long. By being flexible and willing to explore options outside of their original expectations they realized the need to diversify their product line, which has contributed tremendously to their company’s profitability.

So, can you succeed without a business plan? Yes, and no. There are countless examples of companies who have. And, as in the case of Iridium, several more whose precious business plans have actually contributed to their failure. But that does not mean you should avoid doing your homework or planning anything at all before investing too much of your blood, sweat, tears, and money in your startup. Rather, the thing to avoid is getting so hung up on devising and adhering to the “perfect” written business plan that you are unable to focus on the things that really matter, the ones that directly affect your company’s growth. That is, getting out there, getting tuned in to your market, building a strong customer base, developing your product and allowing it to evolve if necessary to best meet the needs of your customers.

Current, unconventional wisdom says that a formal business plan is no longer essential in most cases. However, having some kind of plan before taking on such a huge responsibility as starting a new business is never a bad idea. Whether your business plan is painstakingly mapped out across multiple spreadsheets and professionally typed documents, scrawled out on the back of an envelope, or tucked away in your brain somewhere, you should consider it fluid, or a work in progress. Your business will have a better chance of succeeding if you do.

Sources: Business Insider, Forbes, Harvard Business Review Blog Network, Houston Chronicle, Small Business Administration, Wall Street Journal
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Monday, 30 January 2023

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