Why Business Plans Are Bad, But Business Planning Isn’t

SIBP-Blog-NEW-B-5One of the questions I’m most frequently asked as a business coach is “Do I really need a business plan?” It happens once every few weeks, and I’m asked by surprising variety of business owners, startup founders and soon-to-be entrepreneurs. Unfortunately, I still don’t have an easy answer, and by trying to provide some context for my take on the subject, I’ve gotten something of a reputation as a business-plan skeptic.

It’s time for me to set the record straight: I’m a huge believer in business planning, but I’m not a fan of business plans. If that sounds strange to you, allow me to explain. These two concepts aren’t as closely linked as you might think.

Let’s start by talking about business planning. There are many worthwhile approaches to business planning — from the business model canvas method to something that’s really just a glorified checklist — but they all share the same basic goal. They allow you to ask important questions about how your business will actually function, and they force you to test your assumptions and nail down your value proposition. The better you plan out the specifics of your business, the more clarity you have when it’s time to launch.

Business planning means answering questions like:

• What are your products or services, and what do they do for your customers?

• What does your market look like?

• How are you competitively positioned?

• What’s your unfair advantage?

• What does your team look like?

• What are your financial projections?

There’s a ton of value in answering those questions. The process isn’t always easy or fast, but it’s absolutely necessary for thoughtfully launching your business. In fact, I don’t know how you would start a business without doing some kind of business planning.

A “business plan,” on the other hand, doesn’t actually do that much for you. If you take a look at what’s required to produce a detailed business plan, and really break it down to its core elements, there’s not much to it. It’s essentially just a longform narrative explanation of the business concept.

My biggest problem with business plans is that they deliver diminishing returns. While there’s not much to most business plans in terms of depth or long-term usefulness, they do take a significant amount of effort to create. If you never actually see a benefit from that investment, it’s functionally a waste of both your time and your energy. When your resources are already stretched thin, as they always are in starting or growing a business, it’s hard to see the value in creating a traditional business plan.

There are certain cases where a business plan is absolutely needed. If you’re seeking out debt financing, for instance, you might need it as part of a package to show to a commercial lender. Old-school angel investors often want to see longform business plans, as will partners and advisers who come from a traditional business background. If that’s the case, you may just have to suck it up and put one together.

This creates a strange situation where there’s value in having a business plan, even though the business plan itself isn’t actually useful. The good news is that if you’ve already done the heavy lifting in your business planning, putting together a business plan shouldn’t be that onerous.