Business plans are a waste of time. No VC wants to see a business plan nowadays. Focus on your business and develop a prototype instead of wasting time by writing useless documents.
I'm sure you heard such statements before and it’s true that most VCs won’t be requesting a 50 pages business plan. Still, I'm a huge fan of business plans and would suggest that every entrepreneur create one before starting to implement a new venture. To explain why, let's quickly look at some common elements of a business plan:
Vision and mission
Products and services
As a founder of a business, assuming you've already completed your research, you should be able to get down these elements onto a page each in a just few hours. If you can't do that, let me ask you these questions - How are you going to pitch to investors if you can't break your idea down into a snappy executive summary? How do you know if your market is large enough if you haven't yet analysed it? How do you know if your product is differentiated enough if you haven't even checked on your competitors? And how do you know what your run rate is going to be if you don't have a financial plan?
Reasons to Set Up a Business Plan
Now you've spent a few hours writing your business plan, what are you going to do with it? It doesn't contain anything you didn’t already know before, right? Let's dive into the reasons why I still think you need to write a business plan:
1. Set realistic expectations
Many founders are obsessed with their idea and completely blind to outside opinions that may challenge them. Having a realistic business plan helps you as an entrepreneur to get a clear picture of the potential of your venture. If your target market has a size of $50M, and you need $30M revenue to break-even, be honest with yourself and admit that you should review your plans first.
2. Make elaborate decisions
A business plan helps to identify any potentially huge mistakes, since they often only appear obvious once the entire venture has been outlined on paper and all pieces have been brought together. A business plan also helps you to set up a clear roadmap for your company, be it for the product, the marketing, or for the first hires. With a solid plan at hand, you support yourself by having a clear focus and not getting stuck in the details.
3. Raise money and hire key employees
While maybe investors might not want to read your full business plan, they can be a perfect starting point for creating your pitch deck later on. Summarize your business plan on a few slides, add your team and a catchy slogan - there's your investor's pitch. After raising money, the most important resources to a startup are key employees and founders. A watertight and realistic business plan helps to make essential early hires easy, as the best talents will only be willing to accept equity in a start-up they're fully convinced of.
Ultimately, a business plan helps you to get feedback from possible customers, partners, and investors. It's a good idea to have it reviewed by a neutral and experienced professional to get a second opinion and add real-world industry experience to your numbers and ideas.
Apart from my personal opinion, there is scientific research that suggests that business plans do have a large impact on the performance of ventures. Further information can be found here:
The multiple effects of business planning on new venture performance. - 2010, Journal of Management Studies
Evaluation of the effectiveness of business planning using Palo Alto’s Business Plan Pro. - 2010, Department of Economics, University of Oregon
Should entrepreneurs plan or just storm the castle? A meta-analysis on contextual factors impacting the business planning–performance relationship in small firms. - 2010, Journal of Business Venturing
Legitimating first: Organizing activities and the survival of new ventures. - 2004, Journal of Business Venturing
The effects of pre-venture plan timing and perceived environmental uncertainty on the persistence of emerging firms. - 2004, Small Business Economics