by: neil
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Traditional business plan is changing?

I came across a very relevant discussion on the Linkedin On Startups group here which questions the need for writing detailed business plans in this day and age especially for Web businesses where nearly everything has been re defined. There are some very good arguments both for and against the need for these business plans and here are just some great points which were brought up:

Michael Waldrop – “Business plan is nothing more than a tool for the financial institutions to judge your worthiness. I would say a 6 month plan is more realistic in today’s market.”

David Ramacitti -“The important thing isn’t whether a nice document has been produced, the important thing is that the erstwhile entrepreneur has thought through the business idea, and most specifically has given a good deal of thought to who his or her customers are going to be. ”

Michael Krueger -“Business Plans are necessary, but conforming to a traditional format is not. Perhaps you could offer an alternative to a business plan for your business. The following three questions must be answered regardless of whether you intend to draft a business plan:

1.) What is your product or service?

2.) What separates your product or service from competition?

3.) How will you make a profit?

While these 3 questions seem very basic, they must be answered before your company will be taken seriously.”

While these are just some of the views shared in the discussion there were an equal number of views for writing a traditional business plan to have a clear idea of the financials and the direction a business was looking to take. The consensus however seems to be that the idea of what a business plan should be is changing to align with the changing scenario of web and technology based startups where the dynamics are somewhat different. Most seem to agree it’s not so much about having a detailed document displaying a forecast of revenues versus expenditure over the next few years but more about having a very clearly thought out vision of offerings, differentiators, markets, customers, pricing and other key factors which every entrepreneur should have a crystal clear picture of.

There are a lot of factors which need to be considered while debating the relevance of a business plan in today’s context:

1. The more known or traditional a business is, the more value the actual business plan vs the planning can bring. Think a restaurant, consulting firm etc. The more unknown or out of the ordinary a business is, the more valuable the planning process vs the actual business plan or end result. Think innovative idea, product or service.

2. If you are a single entrepreneur, doing everything yourself and do not need money – you need the business plan “to help you remember”. Even in this case, if you are starting a business on the side (low risk), you can do much more with just trial and error (unless you need to invest to something big first). If you are looking for funding (loan) – you need the plan to communicate to the banks as that is their “language”, for business loans etc.

3. If you are a team, you need the document to help build the mutual understanding of the overall plan. Yet again the more unknown the market the more value is in the actual planning and less in the document and vice versa. Here the business plan plays a different role. One of a common vision.

To simplify – you would not build a house without a very detailed plan, but you can put up a tent without one. The worst thing you can do is “believe” that you can make a detailed plan for unknown and be successful by sticking with the plan, because you can’t. Nobody can… Yet at the same time, if you “believe” you can build a best house without a good detailed plan and not planning, is the worst you can do for “known” situation.

The startup profiles within our own Grow VC community are a prime example of what investors and stake holders need to see before they can paint themselves a picture of a startup and what it’s all about. Once they’ve been able to see that founder has put some thought into these key foundations for the venture, it builds a perception of confidence and clarity into the entrepreneurs plan.

A lot has changed for a range of businesses today. The minimal costs with which something can be started, the ability to create awareness and market an offering, the way a business can be built online , built through a virtual office, the way it can be funded and so much more. Is it time the traditional business plan also undergoes change?

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This entry was posted on Monday, October 25th, 2010 at 11:19 am and is filed under Entrepreneur Motivation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.