If you are one of the new age of entrepreneurs, who hates the thought of doing a business plan as a first step in starting your new venture, you will love this message. More and more professionals agree that a better strategy is to explore and fine tune your assumptions before declaring a specific plan with financial projections based only on your dream and passion.
In the process, you may save yourself considerable re-work and money, or even decide that your dream needs more time to mature, before you commit your limited resources or sign up with investors to a painful and unsatisfying plan.
I just finished a new book on this approach, Beyond the Business Plan, by Simon Bridge and Cecilia Hegarty, which outlines tradeoffs and recommends ten principles for every new venture explorer. Here is my edited summary of their ten principles, which I like and may convince you that you don’t need a business plan at all–or at the very least will help you write a better one later:
- A new venture is a means, not an end. A new enterprise should be pursued primarily to help you achieve your goals, like providing a better life for others, satisfying a passion of yours, or enjoying the benefits of a technology you have invented. In that context, it could be a social enterprise, or even a hobby, and a business plan may not be beneficial.
- Don’t start by committing more than you can afford to lose. New ventures are usually exploratory and risky in nature, so don’t let any business plan process convince you to commit more than you can risk as a person if your exploration fails. Start with an effectual approach, which evaluates risk tolerance, and suggests more affordable means to an end.
- Pick a domain where you have some experience and expertise. Don’t handicap yourself by starting something for which you have to build or acquire knowledge, skills, and connections from scratch. No business plan will save you if you are just picking ideas at random, copying others, or because the story sounds attractive.
- Carry out reality checks and make appropriate plans. Before a business plan has any validity, some work is required to validate that your technology works, a real market exists, and your assumptions for cost and price are reasonable. Don’t be totally driven by your own passions, the emotional enthusiasm of friends, or even third-party research.
- The only reliable test is a real one. Market research techniques for trying to predict the market’s response to a new venture can be costly and are often unreliable. Testing for real is the assumption behind approaches such as Lean Startup. It is also what explorers do – they go and look, instead of trying to predict from a distance what they will find.
- Get started and get some momentum. Too much hesitation will kill any new venture, as markets move quickly and difficulties mount. Getting started helps to generate momentum and the sense of having done something, which provides encouragement, more incentive to keep going, and can carry your startup over obstacles. Early perseverance pays off.
- Accept uncertainty as the norm. You will never remove all uncertainties, so accept them and plan your activities in an incremental fashion. Too often, a business plan is seen as a mechanism for eliminating uncertainty, lulling the founder into complacency. Eliminate major uncertainties before the plan, and update any plan as you learn.
- Look for new and best opportunities. Many useful opportunities are either created by what you do early, or are only revealed once you have started and can see out there. So keep your eyes open and respond to new customers, new markets, and new partnerships. You will also find that looking hard also eliminates opportunities that are not acceptable.
- Build and use social capital. Social capital is people and connections. No entrepreneur can survive as an island. Social capital is as important as financial capital for all ventures. As with all capital, you can use only as much as you have acquired to date. If you have no social capital, no business plan will likely get you the financial capital you need.
- Acquire the relevant skills. Three basic skill sets are required for successful delivery of almost every venture. These include financial management, marketing and sales, and the appropriate production ability. If you don’t have the relevant skills and knowledge, take the time to build them, or find someone to partner with, before you attempt any business plan.
If you do decide after exploring these principles to continue building a conventional business, especially with investors and employees other than yourself, I’m still convinced that a business plan is a valuable exercise. You should do it yourself, to make sure you understand all the elements of the plan, and facilitate communication of the specifics to your team and to investors.
In essence, building a complete and credible plan is the final test of whether your venture has “legs,” meaning that the opportunity matches your resources, skills, opportunity, and a level of risk you are prepared to handle. The entrepreneur lifestyle is all about doing something you enjoy, without undue stress, uncertainty, and risk. Are you having fun in your venture yet?
Image credit: CC by plantoo47.