Whenever we have those ‘light bulb’ moments and great ideas pop into our heads, conventional business wisdom teaches us to scribble down the idea as fast as we can; after which we take out time to examine the feasibility and viability of the idea. When this is done, we are then required to devote our resources into the creation of a business blueprint i.e. the business plan. This plan is supposed to describe (in detail) the main idea, the business model, the market, and the operational steps necessary to convert the idea into a successful business within a specified time-span. Not only does the business plan show the roadmap, it is also said to be a vital tool in raising finance and getting the necessary support and resources to execute the business idea.
However, my experiences as a business owner and a SME consultant have engendered the need to question this wisdom. I have had many entrepreneurs ask me questions such as: are business plans really needed, do they work, is there something better, etc. In an attempt to provide answers to such questions, let’s examine the value of the business plan in light of its uses as a roadmap and a tool for raising finance.
To start with, we live in a world of fast paced change. The dynamism of the modern day business environment has obligated businesses to be highly flexible in structure. This has led some to argue that the business plan is an obsolete business practice due to the need to constantly change business strategies.
However, one factor which is common to today’s successful businesses is their ability to change with the times while remaining true to their essence. The business plan is more or less a long term plan built around certain core ideas and values which serve as the very essence of the entity. This makes it a necessary document even in a highly volatile business environment. Certain elements may change along the way, but through these changes, the business plan helps to monitor the direction of the business in line with set standards.
Also, we should consider the fact that in using the business plan as a roadmap, the entrepreneur is forced to think through his idea bit-by-bit until he arrives at the workable model. This is an invaluable experience in the entrepreneurial journey.
On using business plans as a tool for raising finance, I have found the success rate to be relatively low. To most investors, the business plan is just a bunch of assumptions. They would rather have the business model canvas and a proof of concept. With these, savvy investors can make their decision on whether or not to invest. The business plan might be required for clarity, but it is not a vital requirement.
In addition, the idea of bankable business plan is outdated because entrepreneurs are continually advised not to start businesses with bank loans for obvious reasons. Moreover, banks will rather provide loans to ‘proven businesses’ and not ‘risky start-ups’.
Judging from the two issues raised, it is safe to conclude that although the business plan is of decreasing prominence both in operational and financing matters, it remains an essential document for entrepreneurs especially at the start-up stage.
VERDICT: The business plan is necessary mainly because it helps to fine-tune ideas and arrive at a workable business model. Moreover, you are better of with it than without it.
Do you agree or disagree? Kindly, state your thoughts in the comment section below.
