Nationally known columnist and author Rhonda Abrams recently wrote a column in USA Today entitled “Why bother with a small business plan?” In this column she references the research of a well-known entrepreneurship professor right here in our own backyard, Dr. Bill Gartner. Dr. Gartner researches and teaches for Clemson University at the Clemson at the Falls location. In this particular research, Dr. Gartner showed that individuals who completed a business plan were six times more likely to actually launch a business than those who did not. Whether you are a new business or an existing business, take a moment to read about the importance of a business plan and how it relates to your future success.
Why bother with a small business plan?
By Rhonda Abrams for USA TODAY
In this day and age, do you really need a business plan? After all, everyone’s in a hurry. In a world of 140 character tweets, can you really expect anyone to read a 30 page written business plan? Even if you’re courting investors, couldn’t you just send them a few slides and financial projections?
The concept of developing a business plan has come under fire in recent years. People have challenged the necessity of creating one, even for the most complex businesses.
I’ve heard successful entrepreneurs boast that they’ve raised millions for a venture without a business plan. What they fail to mention is that they’ve previously started or run other, highly successful companies, and those millions came from venture capitalists who’d made a fortune backing their previous enterprises. So sure, if you’re one of the founders of Google or eBay, and you’ve got another good idea, you may be able to raise millions just sketching your idea out on a napkin.
But for the 99.9% of the rest of us, we’re going to need a business plan — even if our funding sources say all they want is a few slides and some financial projections. Why? Because you can certainly expect that when you finally get that all-important pitch meeting with them, they’re going to grill you on every aspect of your business. If you haven’t developed a thorough business plan, you won’t have good, polished answers to give them.
I had a similar experience myself. We had approached a bank for debt financing for my company. In our loan application documents, we were never asked to produce a business plan. But the loan committee grilled us on every aspect of our business — our industry, competitors, strategic position, operations, management, marketing. Because we had completed a business planning process, we could answer their questions quickly. We got our funding.
Even if you’re not looking for outside funding, developing a business plan can be a critical factor for successfully starting a company. And I’m not just saying this because I’m the author of one of the leading business plan books and was a business plan consultant for over 15 years.
PREPARATION: Six steps to a successful small business
OPENING YOUR BUSINESS: Six weeks to start your small business
In a highly regarded study that followed would-be entrepreneurs over a three-year period, Professors William Gartner of Clemson University and Jainwen Liao of the Illinois Institute of Technology showed that individuals who intended to start a business were six times more likely to actually launch a business if they completed a business plan. So, sure, if you just want to sit around the coffee-house, shooting the breeze about your can’t-lose business concept, you don’t need a plan. But if you really want to start making money, you’re a heck of a lot better off by actually getting to work on your business plan.
Creating a business plan helps you:
• Think through your entire business
• Better understand your true financial needs
• Secure funding
• Attract key management
• Develop marketing messages and materials
• Identify key strategic partners and customers
• Recognize operational challenges
Now, just because you need a business plan, it doesn’t mean you have to spend a huge amount of time writing, editing, and polishing a long written document. In fact, when I talk about developing a business plan, I always avoid the term “writing a business plan.”
That’s because it’s the planning and not the plan that’s really important. It’s the process that’s the biggest benefit — examining the critical aspects of your business, researching factors and trends affecting your success, asking yourself the tough questions.
When developing a business plan, you’re likely going to change some aspects of your business. I’ve known entrepreneurs who, as a result of developing a business plan, decide that a concept isn’t viable and decide not to go into a particular business. That’s great! I always say that the process of developing a business plan gives you a chance to make your mistakes on paper instead of real life. That’s a heck of a lot cheaper and takes up a lot less time.
Creating a business plan may seem like a lot of work, and it can be. But there’s also a lot of payback. Even in today’s world, a business plan improves your chance of success.
Rhonda Abrams is president of The Planning Shop, publisher of books for entrepreneurs. Copyright Rhonda Abrams 2010.