Experts in business planning like Guy Kawasaki, and our own Tim Berry, are all talking about the recent Wall Street Journal article “Enterprise: Do Start-ups Really Need Formal Business Plans.”
The article is based on a study conducted by Professor William Bygrave of Babson college. Bygrave advocates a “just do it” approach to starting business ventures and his study suggests that there isn’t a compelling reason, unless you’re seeking significant outside financing, to spend the time writing a detailed business plan.
This study examined whether writing a business plan before launching a new venture affects the subsequent performance of the venture. The data set comprised new ventures started by Babson College alums who graduated between 1985 and 2003. The analysis revealed that there was no difference between the performance of new businesses launched with or without written business plans. The findings suggest that unless a would-be entrepreneur needs to raise substantial startup capital from institutional investors or business angels, there is no compelling reason to write a detailed business plan before opening a new business.
I agree with his findings in large part but the 10-second sound-byte that’s resonating in the business community, that business planning isn’t necessary, is dangerous. The experts realize this and I thought it would be useful to throw a spotlight on their commentary as it relates to Bygrave’s findings.
Guy Kawasaki’s blog post “Is a Business Plan Necessary?” highlights my concern with the message that’s coming out of the study.
… don’t draw the wrong conclusion from this study: “Analysis, planning, vision, and communication are unnecessary.” This isn’t true. What is true is that a business plan should not take on a life of its own. It is a tool—one of many that may help you get funded (or, more accurately, hinder you from getting funded if you don’t have one) and may help you get your team working as a team. But it is not an end in itself.
Jeff Cornwall, Director of the Belmont University Center for Entrepreneurship, in his blog post “To Write a Business Plan, or Not to Write a Business Plan” reminded me that it’s important to look at the subjects of the study and how the sample group may have affected the outcome.
That is only true if would-be entrepreneurs have done all of the homework that goes into writing a sound business plan. I know for a fact that the population Bygrave surveys in this study (alumni of Babson) get very good training in new venture analysis and planning. So his subjects all should know how to use these tools in preparation to launch their ventures. It really doesn't matter if they actually go the final step and write it down in a formal business plan.
College educated professionals that received specialized business training, like the ones that took part in this study, are more likely to succeed without a business plan because they’re trained to think about and plan business ventures as if they were completing a business plan checklist. Going through the business plan process will be a more valuable experience for somebody that lacks a business background, or history in the industry they plan on entering, and I’d argue that a business plan in these cases would increase the chances for success.
Entrepreneurs want to launch businesses, they don’t want to write about them. Most of the people that buy Business Plan Pro, a software program I work on, buy it because they have to – somebody asked them for a business plan and they’re trying to get their plan done as fast as possible so they can get to the fun stuff. The process of preparing a business plan, and the end result might just be an Executive Summary or a product description, helps these entrepreneurs define the problem they’re trying to solve, map out a strategy for solving it, and define goals for gauging success. The process is what’s important here, the end result, a formal business plan you can print is really only important if you need something from somebody and that isn’t new news. Business Plan Pro can walk the entrepreneur through the process of completing s simple product description or through a more detailed and complete business plan – the process they go through depends on their needs. Some of our customers never publish their plan but the planning process always leaves them better prepared to launch their business.
Don’t use the 10-second sound-byte that’s coming out of this study as an excuse for skipping the planning process. Look at the details of what the study really says and heed the words of warning from the experts. If you want to succeed – plan for success.
The analysis revealed that there was no difference between the performance of new businesses launched with or without written business plans.