Do we really need Business Plans?

Almost all entrepreneurs will have been told, at some point or another, that they need a business plan if they intend to succeed. However, ask whether or not they have one, and most will cast a culpable gaze at the ground. Well, no need to worry anymore.

Research at Babson College, which offers one of the top entrepreneurship programs in the United States, finds no correlation between a startup firm’s ultimate revenue or net income and the supposedly vital written business plan.

“Some of the heroes of today’s would-be entrepreneurs, such as Steve Jobs, Bill Gates and Michael Dell, did not have business plans in hand when they embarked on ventures that changed the world,” the study noted. The research deemed the the business plan obsolete more than three years ago, but the myth of its importance still lives.

Don’t get me wrong: I’m all for having a business plan in the verb sense. I just don’t believe in business plans in the noun form. Writing a formal business plan invites the paralysis of analysis.

It restricts the entrepreneur and prevents them from slaying dragons and thinking big thoughts. The result usually is a long-winded missive that’s out of date almost the moment the ink dries.

Don’t get me wrong: Of course you should still think through business-planning issues such as how you’re going to move from thought to action, how you’re going to find customers and how you’re going to pay the bills.

Photo courtesy of Plantoo47

Photo courtesy of Plantoo47

However, agonizing over writing everything down in the format that a scholarly journal tells you to probably isn’t as good a idea. “Unless you’re entering a business-plan competition,” says Julian Lange, a co-author of the Babson study, “Your time would be better spent out on the street, learning all you can from potential customers.”

But do lenders not need to see a business plan? In my 10 years as a banker, I only saw one business plan, and it was out of date. I’ve worked as a financing consultant for eight years and a business borrower for two decades, and I’ve yet to meet a lender who requires a business plan–at least not the kind you learn to write in business school. An SBA lender, for example, may say they want a business plan, but what it really wants are some cash-flow projections.

Although most unsolicited requests for venture capital are tomes thicker than War and Peace, many of the deals that are financed tip-toe around the lengthy process with a killer executive summary and an introduction by a trusted advisor. No VC or private investor is going to walk away from a spectacular business concept and the wherewithal to turn it into a success just because there’s no written plan.

The biggest problem with business plans is that they offer pages of blah, blah, blah about the wonderfulness of the entrepreneur and the whiz-bang product followed by a few measly paragraphs about how every person in China is going to be a customer. Then pages of numbers promise huge returns but offer little more than wide-eyed guesses. The topper–if it’s included–is the offer of a percentage of ownership based on an overblown estimate of the company’s value.

A faultless business plan may earn you top grades from your business school professors, but in reality, you’ll only get A’s for achievement. So stop dotting your i’s and crossing your t’s, and go out there and slay something