Entrepreneur's Corner: Why You Need a Business Plan
By Peter Fry, EDC Entrepreneur in Residence
The entrepreneur who gets funded without a plan is like the yeti. There are rumors, indistinct tracks in the snow and alleged sightings, but ultimately no one can show you where they live.
Many business people think business plans are a waste of time. They know that everything will change before the final page has emerged from the printer. They want to keep their options open and feel that a written plan will over commit them.
Although I sometimes get paid to write business plans, I really prefer and recommend that business owners write their own plans, or at least the first draft. They are more likely to live the plan if they have invested time in developing it.
The most common reason for putting a plan in writing is to attract funds, often from a bank, sometimes from private investors, sometimes from a public source. We have helped many businesses get funding from programs administered by the Iowa Department of Economic Development, and in every case, at least a basic business plan was needed.
Although the primary motivation for developing a business plan is to attract investment, there are other benefits, and these go well beyond the existence of the final document.
First, the planning process is a good opportunity to question and think through every aspect of your business strategy. To translate what is in your head about the business into writing, you will have to think through decisions on everything from pricing to distribution. In the case of mature businesses, the process of reminding yourself why certain decisions were made can in itself lead to new insights about better ways to run a business.
One company I worked with last year had a pricing strategy that had been effective in the early years, but which was preventing it from growing to its full potential. The planning process involved analyzing different options and looking at their likely long-term impact. This highlighted the effects of taking a new approach or failing to change direction.
Second, business planning is a good way to engage people who work for you and get them more deeply involved in the business. Those who contribute to the design of their own future are more likely to buy into that future.
Third, a good plan is a living plan, a yardstick against which you can measure the progress of the business. Every month or quarter you revisit the plan and see if you hired the people you thought you would hire, grew the customer base in line with projections and, whether you hit your targets or not, you can use the process to figure out what went right and what could be improved.
Writing a business plan helps business people get away from day-to-day activities working IN the business and gives them a formal excuse to work ON the business. We see many business founders at EDC who need help with making this transition, which is essential to achieve sustained growth, and something with which we can assist.
