According to The Kauffman Foundation, in 2014, an average of more than 500,000 adults in the United States became entrepreneurs in each month during the year. Chances are, some of these entrepreneurs had a business plan — and many did not. Were the entrepreneurs with business plans more likely to succeed?
When building a Startup, most founders understand the need for having some sort of business plan. Banks and potential investors require it, and most business schools today still say it’s essential to increasing the likelihood of success. Despite this, some insist that the business plan is dead.
Show versus Tell
In the June Entrepreneur article, ‘The Business Plan is Dead’, Matt Brown challenges the typical business plan approach: “Business plans are often cited as the first thing an entrepreneur should write for a start-up, but no business plan has ever survived the realities of the market,” he says.
Brown also cites Brad Feld’s philosophy on the relevancy of the business plan for entrepreneurs, or the ‘Lean Startup’ approach: “Today, it’s clear to me that business plans for Startup companies are a historical artifact that represented the best approach at the time to define a business for potential investors. In the past decade, we’ve shifted from a ‘tell me about it’ approach (the business plan) to a ‘show me’ approach (the Lean Startup). Rather than write long exhaustive documents, entrepreneurs can rapidly prototype their product and get immediate user and market feedback.”
Those who make the claim that business plans are dead ultimately know that founders still must provide all the “pieces” involved in a business plan and be able to answer all investor questions. Founders must understand the problem, solution, opportunity, target market, and their levers financially. So while the document may be dead, the research and work behind the document still exists and needs to be done.
Most agree that 200-page business plan documents are cumbersome projects that often render themselves obsolete in a fraction of the time it took to create them initially. But the camp of “dead business plans” removes too much of the responsibility around planning as an entrepreneur, often misleading entrepreneurs into thinking that they don’t need to do anything. The “dead business plan” claim at times mistakenly confuses the formal, traditional document with the process for setting a strategic roadmap and financial forecast.
That’s why our team recommends a strategy that we refer to as “Lean Planning;” a hybrid approach that allows for agile thinking and execution without setting aside the critical aspect of a planning mindset. A strong lean plan should be a living, functional tool that guides your business growth and that can easily be revisited to serve your needs, whether that’s forecasting for the coming year, getting a loan, or seeking investment.
Our own company relied entirely on lean planning to transition from an “out of the box” software company to a SaaS company, and we still use the process today to maintain a daily pulse on business. We’ve also seen that our team’s focus on lean planning has driven cultural benefits: the approach itself fosters a mentality of agile, continuous testing and improvement. Ultimately, the best business plans involve a blend of anticipated outcomes and space for agile responses when circumstances evolve differently. Today’s founders are not wrong to question seemingly dated models, but should always temper a “lean” approach with some of the critical research and tentative planning that goes into deeply understanding their market, customer, and industry.