As TowsonGlobal prepares for its third annual Business Plan Competition, it is a good time to reflect upon the value of a business plan. If approached with the right attitude, the plan (and the planning process) can be a terrific asset and motivator for an entrepreneur. It can be a living, breathing document that sets a path for success and allows for adjustments to that path.
A well written, well thought-out business plan can help business owners in obtaining the funding from banks, venture capitalists, and angel investors that is necessary for expansion or to get their businesses running in the first place. It helps create a map towards its goals. It helps entrepreneurs stay on track, to remain focused on the purpose of their businesses and on what steps need to be taken to get there. In simple terms, a business plan increases entrepreneurs’ chances of success.
Tim Berry, founder of Palo Alto software, conducted a survey in which 3,000 business owners participated. He found that out of those who had completed a business plan, 36% secured a loan 36% secured investment capital, and 64% were able to grow their business. On the other hand, out of those who had yet to complete their plan only 18% secured a loan and 43% were able to grow their business.
In his survey, Berry found that “writing a business plan correlated with increased success in every one of the business goals included in the study. These were: obtaining a loan, getting investment capital, making a major purchase, recruiting a new team member, thinking more strategically and growing the company.”
Despite all of these benefits, there are those who do not believe business plans add value. Some do not deem it necessary because they have succeeded without having created a formal plan. It should be noted that writing a business plan is not a defining factor of success. There certainly have been businesses that have succeeded without the help of a business plan.
However, any business requires some type of understanding of the market, of setting some type of goals, of thinking through how those goals will be achieved… and that is planning in its simplest form. Otherwise, the company is disorganized and will fail to grow to its full potential.
Going through the planning process may actually be more important than the actual finished document for a number of reasons. Planning requires the entrepreneur to think through the whole business and helps solidify understanding of the opportunities and challenges. It also demonstrates the entrepreneur’s level of commitment to the business and how “committed” he or she will need to be in terms of time, money and other resources. It can help instill confidence in the idea and that all the needed steps are being taken. Planning also can help ensure the effective use of resources.
Still, if one has developed a plan (long or short), why waste all that good work. Following up, comparing the plan versus actual results; measuring results and correcting where needed is all part of making the most of the planning process.
Also, check out my earlier blog posts: Do I Need a Business Plan and Getting It Right: How to Write a Winning Executive Summary.