5 Dangerous Business Planning Myths
by Tim Berry, Guest Blogger
- Created: August 12, 2009, 6:37 pm
What would happen if we redefined dieting and exercise as, say, exaggerated starvation dieting and brutal injury-prone-over-exercise such as running a marathon without training first? People would advise against diet and exercise, right?
That's about what happens when you swallow some or all of the fashionable myths about business planning, which are currently being bandied about. You end up getting the idea that the business plan is a bad thing. And that's a shame, because planning, done right, is good for every business.
I know: you'd think that's obvious, but then there are these pervading myths that interfere with the obvious:
Myth #1. The cool entrepreneurs don't plan.
This reminds me of high school, how the cool kids claimed they didn't study. Now, today, the really cool entrepreneurs say they didn't have a business plan. But this is a magic trick that's going on, done with smoke and mirrors.
What's the trick? They set up a straw man vision of business planning as a stiff formal document full of useless information that takes forever to do, associated with obsessive behavior and wasted time. For example, take Don't Be Like Those Dumb Entrepreneurs Who Waste Months Writing a Business Plan, which is the actual title of a serious post by Henry Blodget, editor of the Silicon Alley Insider, interviewing Kevin Ryan, founder, and also presumably his boss.
If you pay attention, although it seems that Kevin Ryan is bashing business planning, he actually knocks useless market research and complex financial modeling, as if either of those were the entirety of business planning.
Blogger, investor, and wildly successful writer Guy Kawasaki gets quoted knocking business plans, but if you read beyond the headlines, he's actually knocking the excess detail and obsessive behavior, not business planning. And when Wall Street Journal columnist Kelly Spors wrote Do Start-Ups Really Need Formal Business Plans? she included that word 'formal,' which makes a world of difference. Knocking 'formal' business plans doesn't mean businesses shouldn't have a planning process. Unfortunately, unless you read closely, it sounds like it does.
I say get beyond the trick. Take business planning as a process that involves changing assumptions and regular review and corrections. The end is not a document, it's a collection of goals and objectives, steps, tasks, dates, deadlines, and useful summarized manageable financial projections, which might live on the computer and never get printed out. It's a step in a process that helps to manage change and steer the business.
And those cool entrepreneurs? Don't believe they became successful without strategy and planning. They're talking about the document, that dusty old-fashioned business plan lost in a drawer, not the planning.
Myth #2. Investors don't read business plans. Pitches are better.
Sounds nice, especially if you're also swallowing that business plans are a pain myth (see #5). That's another very trendy idea. Truth is, though, investors want you to have a plan whether they read it or not. Without a plan, as soon as they start asking questions, you look dumb and they see it. Slide pitches and elevator speeches are more fun, easier to take in, but they need a plan to rest on. It's like the relationship between screenplays and movies: I don't want to read the screenplay, but when I see the movie, I can tell if there was one or not.
On the other hand, having just a summary, just a pitch, without actually working out the guts of a plan? That's just dumb. For that I put on my angel investor hat, and say that I wouldn't want to deal with somebody who didn't have objectives, steps, market, differentiation, management team, financial strategy, and a clear exit plan. And by the time you've got that, you should have written it down, but just for yourself. The document is just output. Know the plan, don't sweat the document that much.
So the point of the business plan isn't who reads it; it's about having thought it through, and then being able to follow up, revise, look at results, and make corrections. The plan is for the writer, not the reader.
Myth #3. Business plans are only for startups.
Sure, why would an existing company want to review goals and set task assignments, responsibilities, dates, and deadlines? Why would an existing company want to project sales and expenses, and track actual results against plan? Not to mention cash flow.
This dangerous myth grows out of the truth that a business plan is sometimes the only way to get a full view of a startup that's still just in the planning stage, while an existing company has a lot of ways to show itself. But planning isn't just about describing the company to outsiders, it's about running a company. Think about steering a car, maps, destinations, and related metaphors, and then remind yourself that planning's not about creating a huge document. Think about a plan as only as big as you need it to be, it might live on the computer and never get printed, and you'll see what I mean.
Myth #4. Business plans must always include extensive market information.
It's not that market information isn't good, but too many people think it's not a business plan if it doesn't have a big fat market research section, with validation, and detailed market profiles.
That's not really true. A fresh look is always good, but lots of companies live in their market day in and day out, and the association of planning with market research makes them reject planning. You can plan your business based on what you know and plan to do, without always including market research. You keep running plan vs. actual comparisons and if sales suddenly spike or tank, then you might revisit your market assumptions.
Lots of business plans have market analysis. That doesn't mean all of them do, or that not having the time or resources for extensive market research is a good reason to neglect your planning.
Myth #5. Business plans are a pain in the anatomy
No, not really. They shouldn't be. If you don't like planning your business, maybe you should keep your day job.
Don't sweat the editing or formatting. Don't obsess on it. Don't do market research you won't use, or overly complex financial modeling. Don't do more than you'll need to run your company. Do write it down because you'll want that recording so you can go back and track what's changed and in what direction, and use it to coordinate course corrections.
If you don't have a business plan event, so that you don't need the formal plan for outsiders, then don't do the extra work involved in producing a formal business plan document. Don't describe your history or management team if no outsider will ever read it. Think of it as related modules, start anywhere, get going, and use it while you build it.
You write it down so you can track how it ends up being wrong, and then change it. And it will be wrong, but that's okay, that's part of the process. Record your assumptions and note how they change. Then it's easier, because you have it planned, to manage the changes as they happen. Your plan tells you how things are related.
Concretely, here's a suggestion for what that non-formal not-printed-out business plan might include (and don't sweat the writing or editing, use bullets, keep it simple):
- Strategy: how you're different, what's your special market focus, core competence, differentiators. Think: what are you not doing?
- Review schedule
- Milestones (dates, deadlines, who's responsible)
- Sales forecast
- Expense budget
And understand that what makes it work is the management that follows. Regular reviews, watching changed assumptions, making course corrections.
About the Author
Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, blogging at timberry.bplans.com. His collected posts are at blog.timberry.com. Stanford MBA. Married 44 years, father of 5. Author of business plan software Business Plan Pro and www.liveplan.com and books including The Plan As You Go Business Plan, published by Entrepreneur Press, 2008.
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