For many entrepreneurs and business managers, the thought of progressing with a new business venture without a detailed business plan might seem unimaginable. Indeed, start-up businesses are often advised to create a thorough business plan that includes all costs and forecasted sales revenues. And these estimates and predictions are before a new product or service has seen the light of day.
The uncomfortable truth is that behind any start-up plan there can be little more than a catalogue of educated guesses. The uncertainty is further amplified for truely innovative business ventures.
With any new business venture we can be certain there is plenty of uncertainty ahead. And so where do the numbers in the business plan originate from? Even with prior market research, the revenue numbers cannot be more than guesswork or wishful thinking. And if a business plan is needed to decide whether or not to press on with a new venture or the basis on which a bank will provide a loan, then you can bet that the numbers will be manipulated to achieve the desired decision. Ultimately, the numbers say what they need to say to get the desired result.
But the reality is more likely that “a [business] plan will only survive until first contact with the customer”.
During a presentation from a highly experienced business angel and venture capitalist, he admitted to the audience that he never read more than the executive summary and a quick scan of the numbers in a business plan. What mattered more than the accuracy of the figures was whether he believed that the people could make the venture a success. The numbers were only considered as what might be feasible.
Borrowing from a bank means creating a business plan that ticks all their boxes. In today’s economic climate, a bank loan comes with strings attached. Any strings that mean sticking to the plan could be the very cause that the venture eventually fails. Start-up ventures need to remain responsive. Maybe that’s why more innovative fundraising alternatives exist, such as Kickstarter and Indygogo
management concepts such as Lean and Agile advocate starting up a businesses without fixed business plans. Instead, the focus is on continual learning by testing business assumptions and changing course as necessary. These tactics, supported in books such as Lean Startup and Business Model Generation are fast becoming bibles for innovative ventures. The approaches are a framework to support innovation for both start-ups as well as more established businesses.
Maybe its time to turn to alternatives to traditional business plans. And instead, focus on conducting small experiments to test how a market responds to a new product or service rather than assuming that you know how it will respond.
The only way to know how well your product fits the market is to test it.
Do you have any experiences with implementing a business plan? How well did the actual figures stack up to the estimated ones?