It's the act of developing a business plan that is important, not the plan itself. There is also much more to a business plan than just projecting revenues.
If you are realistic, planning forces you to actually think critically about things like startup and ongoing costs, cash flow, suppliers, sales pipeline, time/resource requirements, the window to achieve profitability before you run out of money, and most importantly the critical steps you need to take before you start.
After you're in business the game changes. Then it becomes much more about flexibility and adapting to new information and changing situations. There is no doubt that if you blindly stick to a plan no matter what your business will fail, but this doesn't discount the value of the up front planning process.
“Sure, thinking about the future can help. But writing it down and thinking it’s any sort of plan is foolish. The truth is you’re not going to know what to do until you’re actually doing it.”
I think that’s a very short-sighted and foolish comment to make.
A business plan can have many uses, but here you’re thinking about the internal uses (rather than for raising investment or other external validations). For internal purposes, a business plan achieves several objectives:
1) It sets out a clear, common vision for the business. You can have endless conversations in the coffee shop or over a beer, but once you see them in writing, things take on a clearer reality. So the first internal purpose of a business plan is to ensure that all the founders are on the same page and clear about it.
2) It ensures you’ve given at least some token thought to all the key elements of a business. If you’re smart, before writing your business plan, you’ve had a look at a few templates and noticed what is supposed to be in there. Based on that, you’ll spend time thinking about things such as logistics (if relevant), cash flow, marketing, sales, market research, competitor analysis… All those are things that should be at least considered before you commit the next 3 years of your life to chasing an idea.
3) As part of this, a business plan helps you to validate, more explicitly, by putting some numbers into it (those should be very conservative numbers for sales and very exaggerated numbers for costs) that all these different aspects of the business are viable. It’s worth doing that tiny little bit of work to ensure that it is even possible theoretically for your business to turn a profit.
4) If you have more than 2 founders (and even if you only have 2), a thorough business plan can also be a management tool, by making it clearer what the essential parts of the business are and thus making it easier to coordinate those tasks between all the cofounders.
It’s funny, I wouldn’t be surprised to hear the typical SV start-up moaning about business plans, but 37-signals, of the “getting real” school, should understand better than many other people that making sure the business is cohesive and has the potential to be profitable is very important. A business plan can do just that, and all that for only a handful of weeks of work on the side... seems like a bargain.
I’ll just add also that planning – which is the only purpose you’re considering – is actually, imho, the least important use of a business plan. Just because it has the word “plan” in the name doesn’t mean it needs to be a glorified gantt chart.
re: #1, "Common Vision": You don't need to write a plan to have a clear/common vision. A conversation and a short written paragraph or two does the trick. I agree that written documents can provide some clarity.
re: #2, "Ensures token thought to key elements of a business": If you need artificial structures to ensure that you think about something important, you're in trouble. Sure, whip up a spreadsheet with some prices and churn numbers to get a sense of the scale you'll need for a SaaS offering. Sure, poke around at ad rates in your vertical if you're going ad-supported. But the key is thinking about it and learning about some of the realities-- not a formal document.
re: #4 "a management/coordination tool" - Huh? In a 4 person business, people are going to refer to the business plan to know what they should be doing? Naw, they should be referring to customer feedback, 1-page feature summaries, visual prototypes, notecard stories, and app/biz analytics....
The point of their gripe is that things change. Dramatically. You'll look back at the assumptions that are core to your business plan and laugh about how stupid you were (I know I would if I'd written one). Some of the exercise is valuable-- to stretch muscles you're going to need (thinking about monetization, distribution, etc)...
But at the end of the day, it's usually akin to a virgin trying to write a sex manual-- no amount of research/planning is going to make it a good/accurate plan.
But at the end of the day, it's usually akin to a virgin trying to write a sex manual-- no amount of research/planning is going to make it a good/accurate plan.
It doesn't need to be accurate. Even a virgin can benefit from thinking about what he's going to be doing once it all starts happening. I'll also add that running a business is a lot less instinct-driven than sex (well, for most people... I know some exceptions!).
rere: #1 - it's quite possible that a short paragraph is not enough to set out all the key elements of a multi-year venture. In my experience, in fact, that's pretty much always the case.
rere: #2 - Not everyone has been running businesses since they were born. Artifical structures help in running a business just as they help in many other things.
rere: #4 - you don't need to refer them back to the plan all the time, but it helps split up all the stuff that needs to get done so that it's easier to assign ownership for chunks of it. Of course in a start-up everyone does a bit of everything, but that doesn't mean everyone should step on each other's feet constantly.
I am as shocked as swombat by this post from the "Getting Real" team and want to reinforce two key points about a business plan:
1. It keeps the founders on the same page both in terms of vision and key objectives.
2. It's an agreement on how you will keep score: what are you going to measure.
If you don't have a set of goals and a simple outline for how you plan to achieve them you can end up diverging from your cofounders/partners. I have always found it useful to have a one page plan that gets reviewed/updated every 6-12 weeks in small ways and every 6-12 months in a in a large way. These updates need only take an hour or two but it forces you to look up from firefighting and urgent but less important questions to have a discussion about focus and key next steps.
Unfortunately "business plan" has two very distinct meanings: a "tool for selling investors on your firm" and an "operating plan." You need an operating plan, it doesn't have to include three years of imaginary financials (although a couple of key targets that get measured routinely can act as a very useful compass).
I would agree except that they have taken funding from investors (e.g. Amazon) and owe them a briefing on results and some plan for the next quarter/year. Otherwise they risk getting out of sync.
I think their funding is from Bezos, not Amazon, and yeah, they probably talk to them once in a while about what they're up to, but that's sort of different from a business plan. They didn't get any money until well after they were a going concern, either.
In general if you take money from an investor they want to know not only what you have been up to but what you hope to accomplish. They could have a different relationship with Bezos but I would doubt it given the way that he manages Amazon.
I think that a Business Plan is a working document that needs to change and evolve with the environment that your business is in. What I like about a business plan is the fact that it helps you to think about how you are going to run/operate your business and to put in down in writing forces you to think about it.
If you are realistic, planning forces you to actually think critically about things like startup and ongoing costs, cash flow, suppliers, sales pipeline, time/resource requirements, the window to achieve profitability before you run out of money, and most importantly the critical steps you need to take before you start.
After you're in business the game changes. Then it becomes much more about flexibility and adapting to new information and changing situations. There is no doubt that if you blindly stick to a plan no matter what your business will fail, but this doesn't discount the value of the up front planning process.