Don’t write a business plan

“You need a business plan” is the mantra of MBA types.

As they say, businesses don’t plan to fail, they fail to plan! Who could argue with such a clever turn of phrase?

Let’s do some quotes:

  • “Without a business plan, how will you know whether you can make a profit?” (source)
  • “A complete business plan should include five-year financial projections. These projections will assist investors with making decisions about your business and help you to know how much funding you will need to get things rolling.” (source)
  • “Many businesses fail due to poor planning. It is important for every business owner to understand the entire depth, flexibility, strength and weakness of their business plan.” (source)
  • “Adjust your business plan as needed, but be sure to not stray too far off of your original idea.” (source)

Surely those Harvard MBA grads are correct! After all they don’t give out those MBAs for nothing — you have to at least start a business yourself! Oh wait, you don’t have to do that? Oh. But that’s what those MBA online programs say…

Trouble is, this advice is inconsistent with how real (small) businesses operate, as you can often see for yourself in the same articles that promote the use of the business plan.

For example, Kenrya Naasel writing for Latina.com starts by saying “A business plan is the most important document you’ll ever create.” (And you thought your website’s home page was important? Ha.) But later she quotes a successful entrepreneur who admits “We operated with no real plan for years” and “Things don’t generally go as planned.”

That’s one thing everyone can agree with: Things don’t go as planned. Yeah, so how are you supposed to write a three-year projection with a straight face?

Or take Sean Davis of Success on my Mind who tells us “Writing a business plan is your most important step,” but then admits that his past two (successful!) projects were “simply an idea I ran with.”

The telling part comes in the comment section where Sean adds:

Now that I think back on it, I’ve done plenty of marketing that led sites to success… but it was all from trial and error. Had I known BEFORE what I know now, I could have had a plan and reached my goals much earlier.”

Here inlies the fallacy. You never “know before what you know now.” If success is “all from trial and error,” how exactly do you write a plan?

Marketing is trial and error! Features, messaging, the path to customers, your competitive edge, your pricing model — all this gets figured out as you go. You can’t know what’s going to work ahead of time, so why is Sean concluding that he should have written a business plan?

Business plans are just guesses, and they’re almost always wrong.

The very idea of “planning” is ridiculous:

  • If you had written a business plan in 2007, what would your assumptions have been? Investors love “Web 2.0,” MySpace is how to reach young people, the economy is growing without limit, and products with demonstrable ROIs will get healthy slices of corporate budgets.Of course every assumption in your plan was reversed in 2008. The world economy exploded. Getting money from budgets is like squeezing water from rock. MySpace is dead, long live Facebook. The term “Web 2.0″ is passé. Twitter went mainstream and might be more important for “word of mouth” than blogging.Good thing you spent all that time planning.
  • At the beginning you don’t know anything about what your business will look like. Your product will evolve to fit the market. You’ll test marketing messages on AdWords and make unexpected discoveries about what works. Good and bad luck shape your company. You have no answers, no predictive power. Nor should you artificially pin yourself down! Even a “plan” buried in a drawer makes you less likely to consider the radical new idea that changes everything and makes you successful.
  • Have you tried actually writing a plan? Go ahead, try it! Be sure to include your mission statement, your vision, your five-year profit-and-loss statement, decide who will be your key personnel, define your pricing strategy, explain the risks, position yourself against competitors.Now be honest, where did this data come from? I’m guessing you reached right up your ass and pulled it out. For the five-year plan you were so deep you tickled your spleen. You know this is crap; why are you doing this when you could, oh I don’t know, just talk to potential customers?

But enough from me. What do VCs have to say about this? What if you’re trying to raise money, don’t you need a business plan? What do other entrepreneurs say?

  • From Venture Hacks, a great blog written by entrepreneurs-turned-VCs: “Don’t send a business plan to investors. Nobody reads them and nobody executes them. … Document your detailed plans on a napkin.”
  • From David Cowham, Bessemer Venture Partners: “Nothing slows down a VC as much as a comprehensive business plan.”
  • From Mike Moritz, Sequoia Capital in a Guy Kawasaki fireside chat, “Five-year plans aren’t worth the ink cartridge they’re printed with.”
  • I could fill three pages with links to 37signals railing against business plans (did you like that pun y’all?). From When was the last time you looked at your business plan: “[All three businesses] are still alive but have also completely rethought their original plans. They’ve changed focus, services, salaries, partnership arrangements, etc. … If these companies’ one year projections were so far off, imagine how worthless those year three (or five) projections turned out to be.” Or, from The only plan is to learn as you go: “Stop presuming you can be right in a world of massive uncertainty. The only plan you should make is to plan on improvising.”
  • A study found that “quality of business plans had zero impact on the amount of VC funding being raised.”
  • From VentureBlog, VC David Hornik derides an article on Wired and TechCrunch about how to raise money: “VCs tend not to read business plans because a) they are too long and b) your business will likely have changed by the time anyone gets around to reading your business plan.”
  • From Business Insider, Kevin Ryan, founder of six companies, says “I don’t do a detailed plan. If a VC focuses a lot on the details on the financial model, I won’t work with them.”
  • From Steve Blank, “In the real world, most business plans don’t survive the first few months of customer contact. And even if they did — customers don’t ask to see your business plan.” And then from an article called Startups are Inherently Chaos: “As a founder you need to prepare yourself to think creatively and independently, because more often than not, conditions on the ground will change so rapidly that the original well-thought-out business plan becomes irrelevant.”

Do I really need to go on, or are you sufficiently bludgeoned into not writing that business plan?

In fact, stop reading this article and do something useful like A/B test a landing page.

UPDATE: Here are 10 tips on what you should do instead of writing a plan.

What do you think?  Is there value in writing a plan?  Leave a comment.

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  • http://www.cmsmarket.com/ Will Mavis

    I would like to thank you for justifying my lack of business plan. However, I don’t think planning is ridiculous. I think people that can keep their plan entirely in their head and execute on it without ever writing anything down are the exception. I think it would help most people to write down what they are thinking on paper. I also think in a company with more than one person, having something written down will ensure that everyone agrees and that expectations are understood. I wouldn’t spend a long time on a business plan. I think it will become clear if a business plan is a good idea for your business by going through the process quickly and see if anything comes up that wasn’t already fully understood.

    • http://blog.asmartbear.com Jason

      Working out your thoughts and testing the general viability of ideas are of course great things to do, but it’s not what people mean when they say “business plan.” A quick search on Google or a peek at MBA coursework will show you what I mean.

      A “business plan” is a formal document with various components. Generally the idea is to “execute against the plan.” Both of these aspects I think aren’t useful to startups.

      • Venkatesh Sellappa

        “Both of these aspects I think aren’t useful to startups.”

        I would in fact take it one-step further – These aspects aren’t useful at all. Not just for startups but at all. A general idea of what a company wants is useful and required, a formal Business Plan Document – not so much.

  • http://www.wakeupcloud.com/ Henri

    I personally don’t care for writing big plans with specific details. I have no problems writing a big picture goal. I’ve found that I get the best results when I start taking action and experimenting. That’s how you learn, after all.
    .-= Henri’s latest blog post: Why You Shouldn’t Quit Your Job, Yet =-.

  • http://www.pentalogic.net Clare

    Carry on this way and you are going to put so many “consultants” out of business!!
    .-= Clare’s latest blog post: SharePoint Alerts not working? =-.

    • http://blog.asmartbear.com Jason

      Really? I would think consultants would have more to do if companies didn’t (incorrectly) believe they could write a plan and then blindly follow it. Because the alternative is constant evaluation, effort, and decisions, which consultants can help with.

  • http://ericbrown.com Eric BRown

    Great stuff Jason. I’ve never been a fan of the business plans. Every single business plan I’ve run across has been glanced at and set aside and the investor then asks “give me at a summary”.

    I do believe planning is important but a business plan, in the form that most people think of one, can be a waste of time and effort.
    .-= Eric BRown’s latest blog post: Total CIO – PMO becomes cornerstone of IT executive leadership =-.

  • http://startupcfo.ca Mark MacLeod

    Totally agree. I’ve been raising VC$ for 10 years now and was only asked for a biz plan once. The fund in question is no longer in existence. Enough said…
    .-= Mark MacLeod’s latest blog post: Trust =-.

  • http://bit.ly/19kduZ Greg

    VC’s don’t ask for business plans, but the 10 slides they do want bear a suspicious resemblance to the content of a business plan. Team, competition, market size, financials, capital needs, etc. My guess is they’re more averse to reading a bunch of text than they are to having you go through the thought process.

    Also, you could probably have made your point without resorting to quoting sites like business-opportunities.biz. Seems a little strawman-esque to me, although I do have to admit there are probably tons of people out there who need to be told that sites like that are not fonts of wisdom.

    Having said all that, I mostly agree with you. Rather than a business plan as such, people need to have a good handle on target markets, what those customers need, how you’re going to provide it, and what you expect your cash flow to be. I would guess the majority of failed small businesses simply underestimate how much cash they’re going to need.

  • http://improvingsoftware.com John Fuex

    Nice article, Jason.

    While reading it I felt this nagging sense of familiarity regarding your points about the futility of a business plan. Then I realized where I had seen these arguments before. They are eerily similar to the business case for Agile. Just replace “Business Plan” with “Specification” in this post and you pretty much have an Agile catechism .

    That got me thinking. Perhaps Agile planning could translate to the realm of strategic business planning wherein a set of “Business stories” substitute for a formal business plan.

    For example:
    a) Create a user community with at least x participants.
    b) Sell something to Y new customers per month.
    c) Release 2 upgrades to the product per year.
    d) Maintain a Z% net profit margin.

    You could re-prioritize them quarterly and check up on them with daily stand up meetings.

    I don’t know how the loan officer or investors would think about this, but it is an interesting concept.
    .-= John Fuex’s latest blog post: Someone at HughesNet must be reading my blog =-.

    • http://blog.asmartbear.com Jason

      You’re exactly right, and some would say the Lean movement embodies this and more. Ideas like reacting instead of planning and connecting development with business processes since they really aren’t separate concerns.

  • http://www.checkbox.com Carolyn Craven

    Jason – All I can say is, where were you 5-7 years ago when I needed all this advice??? Oh yeah, you were building a successful software company. Damn. Thanks again for another great bit of advice. This pairs very nicely with “You’re a small company, now act like it.” Nice to see more small businesses turning over a new leaf and letting their personalities and the benefits of their small size shine through.

  • http://www.homespothq.com Derek

    In my opinion, the value of the business plan is not the document itself so much as the process of creating it. As the post and many comments have said, things will change, and if you treat a business plan as an infallible guide, you’ll probably be disappointed. But the exercise of thinking through your business model, putting it into a form that you can share with others, and having the opportunity to get feedback and validation may mean the difference between hitting your target or suffering from “ready, fire, aim”.

    Secondly, the plan gives you something to which you can be accountable. Many companies suffer from the inability to allow a decision to bear fruit (call it impatience) before changing their course. Any form of documentation of those decisions allows you as the business owner to have point of reference for whether a decision is a good one or a poor one, as well as having a set of broad boundaries for your execution plan. Without these things, you will be tempted to chase every potential opportunity and inevitably lose the laser-focus needed to get a business up and running.

    In our business, the approach has not been “Don’t bother planning” but “plan enough to make the next right decision”. The critical business model and opportunity can be contained in a 3-5 page executive summary, and we provide more detail in person or with supplemental materials such as a sales forecast or market analysis summary.

    • http://ricardodsanchez.com Ricardo Sanchez

      Hi Derek,

      I disagree with you regarding the fact that the process of writing a business plan will give you a chance to get feedback and validation… from whom? from your friends, family or business partners… you do need to get feedback and validation from real customers, and a business plan does not give you that.

      Most successful businesses do need to suffer from “ready, fire, aim”, it is just part of the process – IMHO.
      .-= Ricardo Sanchez’s latest blog post: Using LinkedIn to improve your business =-.

  • http://lotusmedia.org Ruby Sinreich

    Admittedly, I don’t know nothing ’bout no business plans, but some people said the same thing to me about writing a Birthing Plan. As if I was in control of how childbirth might work out!

    The plan was an opportunity for me to think ahead about what my goals were, and how I would handle certain situations. Some parts of the plan were exactly how things went (for example I had the people, music, and drinks that I wanted with me), others not so much (turns out I was not able to effectively meditate during active labor ;-} ). But I still think writing the plan was a useful exercise both for me, and it was also helpful for communicating my goals and preferences to others.

    It’s probably not that people shouldn’t PLAN per se, but that they shouldn’t assume that writing a Business Plan assures success or even a modicum of control of the outcome.
    .-= Ruby Sinreich’s latest blog post: Celebrating at 7 months =-.

    • http://manningsmith.wordpress.com/ Dave Manningsmith

      completely agree w/you
      .-= Dave Manningsmith’s latest blog post: business plan =-.

  • http://avchat.net Ncu

    No no no you go it wrong! You do have to write a business plan but not for the usual reasons.

    Actually sitting down and putting on paper the team size, office space needed, hardware cost , salaries, type of incorporation, researching the market size, potential customers and competition,etc… gives you a much much bigger and accurate picture of what you are getting in.

    So YES, DO A BUSINESS PLAN, but not for investors, not for bankers, but FOR YOURSELF. The actual process of doing it will give you confidence in your idea, you will be more confident in your pitches, it will make you more knowleadgable in front of family/VC’s/employees.

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  • http://ricardodsanchez.com Ricardo Sanchez

    I agree 100% with you regarding writing business plans… just don’t!

    I don’t believe in doing a business plan, not even for “ourselves” since so much things change all the time in a start-up company… if you do write the business plan, you might be missing out on some opportunities about changing how your business works (marketing, product, price…) just by trying to keep compliant to your business plan.

    The idea that writing a business plan will help you building your business and also that will give you confidence in your idea is non-sense. The only thing that will give you confidence, if ever, is to actually start your business and make your product or service available to people… then you’ll find out what works and what doesn’t and with any luck, you’ll be able to fine tune your business with information coming from your customers, from your sales and not from your hopeful mind ;-)
    .-= Ricardo Sanchez’s latest blog post: Using LinkedIn to improve your business =-.

  • http://www.corporatepreneur.com Dale

    I once had this conversation with our planner. She said:

    “Fail to plan, plan to fail.”

    I said, “Plan too early, plan twice.”

    Another quote for you: “No plan survives the battlefield.”

    If I ever taught an entrepreneurship class, I would do a Robin Williams-esque “Read this chapter on how to write a business plan. Now rip it out. Yup, you heard me. Rip it out and throw it away.”
    .-= Dale’s latest blog post: What we can learn from spaghetti sauce =-.

  • http://www.strategydynamix.com Sylvester Di Diego

    A viable, compelling and integrated business model is essential to gain customers, collaborators and capital. The business plan is a communication tool to express the total investment attractiveness to investors and to serve as a roadmap to management and other stakeholders for commercialization, competitiveness and winning in business. The model and plan enable you to define and measure success. The business model and communication in a plan should be a living, evolving and dynamic tool to guide you to set direction, guide and gauge your progress, and to serve as an early warning system about when to change course or people and about other resource needs. Everyone has a business model/plan – whether defacto or explicit, since the model/plan simply reflects your thinking, innovation, plans and actions.
    Best
    Sylvester Di Diego
    http//www.strategydynamix.com

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  • http://www.RegScheepers.com Reg

    Dude, I’m SO happy you called the bullshit on the business plan thing. I’ve written business plans under the advice of elders and have experience exactly what you’re saying. They don’t work, period.

    So pleased am I with this read, in fact, that I went back and edited an old article I wrote called Rebels Rule the World – Learning the Hard Way and added this page to further prove the point I make there.

    @Dale, like the “Plan too early plan twice” quip. When someone uses clever word-play to prove a point, there’s nothing nicer than to have clever word-play to mock it.
    .-= Reg’s latest blog post: How to Become a Make-It-Happen Person – Part 2 =-.

  • http://www.igeejo.com Jim Karsten

    The mistake with business plans is the tendency to focus on the wrong
    objective.

    I think creating a written plan for any goal of a startup is a must. It
    allows everyone involved to review the plan and point out any holes in
    your thinking. It also presents a complete communication of your ideas.
    Just winging it, for example, using a conscious stream of thought to
    explain all the details of a proposed plan is difficult for both the
    speaker and the listener.

    The problem with business plans is they tend to focus on demonstrating
    how the startup intends to make money. Revenue should never be the goal
    of a startup. Revenue is a by-product. It’s a measuring stick which
    co-founders can use an indicator of whether or not they are succeeding
    in solving the end-user’s problem. The overall goal of a startup should
    always be to solve a specific end-user problem.

    More at igeejo.com

  • http://www.successfulsoftware.net Andy Brice

    My business plan for PerfectTablePlan was:
    If the amount of money per month I need to live on = A
    And the amount of money someone will pay for a licence = B
    Can I sell more than A/B licences per month before I run out of savings? Er, probably.

    It has worked out fine, at least partly because I was spending my time of development and marketing, not on spreadsheet fantasies.

    You need to have vision. But you really have no idea how things are going to turn out, so it is more important to be able to iterate like crazy based on feedback than it is to do meticulous planning. I think this comes across very strongly when you read “Founders at work” by Jessica Livingstone.
    .-= Andy Brice’s latest blog post: New links page =-.

    • http://avchat.net Ncu

      Making costs and revenue projections… that’s a business plan right there!

      But what about if tomorrow you would start fresh? Blank page! New business! Would you still do it the same way or you would do more in depth research on the market size problems competition?

      • http://www.successfulsoftware.net Andy Brice

        Yes I would (and did) do some research. But not a huge amount. If I can’t find a competitor in a couple of hours Googling, then potential customers probably won’t either. The only real measure of whether something will sink or swim is to release it.
        .-= Andy Brice’s latest blog post: New links page =-.

  • http://timberry.bplans.com Tim Berry

    Too bad. You’re missing the point of business planning. It’s to manage better, to deal with uncertainty by breaking it down into specific points, and then tracking the differences and relationships as things change. It’s not about the document. The document, if there is one, is only the latest output of the plan. The plan is what you want to have happen and your latest estimated guesses, broken into meaningful pieces, of how you’re thinking you’ll make it happen. It should be reviewed monthly, and changed as the assumptions change. You’re not even knocking business planning here, you’re just knocking the misuse of business planning. Your piece is a lot like knocking good eating habits and regular exercise because some people do crazy diets and crazy exercise. Tim.
    Oh, and by the way, all those VCs you quote — the key to that is they don’t want to read your plan but they can tell perfectly well whether or not you have one. Because if you don’t, you don’t really know what you’re saying. I like to watch good movies, but I don’t want to read the screenplays. But the producers better have them.
    .-= Tim Berry’s latest blog post: Verizon and AT&T Lessons in Marketing =-.

    • http://blog.asmartbear.com Jason

      You’re right that I’m railing against mis-use of planning. But more than that, I’m railing against traditional business planning advice.

      I can’t count the number of articles I see that say you need a 4-year plan. I’ve seen both small and large companies make such plans, usually spending way too much time for the benefit.

      Do you think you should track your progress against a long-reaching plan? Or make basic calculations and assumptions?

      If you check against the plan once a month, I would contend that’s 1/30th of your time (including weekends). Near the beginning of your company, I don’t think you’ll have enough new information to even know if you’re tracking against your plan. I’m not sure it’s worth that kind of time.

      Of course you’re right I’m being extreme if you take this to mean “Don’t think about your business at all.” Next week I’ll post about things I do think are worth doing monthly.

      Still, I like your points and it’s a good counter-balance to my post, which was on the other end of the extreme. Thanks for the intelligent debate!

      • http://avchat.net Ncu

        4 years?

        How about 10 years? Adobe/Microsoft/Google surely think 10 years ahead. What will be big in 10 years? Mobile phones, 6 billion of them, all connected to the net! Let’s then invest now in mobile technology that will make us profit in 10 years (Android, Flash Player for mobiles, etc…).

        How about 10-50 years? (Energy sector)

        • http://blog.asmartbear.com Jason

          Really? You’re using companies which are decades old, have tens of thousands of employees world-wide, and have billions of dollars in revenue to defend as your examples of the processes that teeny companies should adopt?

      • Matt

        A real business plan, which it to say one that actually helps you grow your business, is simply the documented culmination of the thoughtful assumptions you’ve made about your product. Assumptions are what motivated you to start a business. You assumed you had an awesome way solve problems and have people pay you for it.

        What I believe Tim would say based on numerous articles like on the subject is that your plan should be in some sense a record of those assumptions. You write down the ones that will help you make informed decisions in the future and no more.

        You keep the ones that remain useful, revise or dump the ones that don’t.

        You certainly make another strong point for not fettering yourself to the burdensome formal business plan myth, Jason. Maybe we can frame the new business plan model in three words: Write Stuff Down.

  • http://peter.evans-greenwood.com/ Peter Evans-Greenwood

    Plans are nothing; planning is everything.
    Dwight D. Eisenhower

    .-= Peter Evans-Greenwood’s latest blog post: Innovation [2009-12-14] =-.

  • http://www.businessandmarketingplan.com Maria Marsala, Business Plan Expert

    I agree that creating a business plan is a waste of time for most business owners. But some sort of plan and accountablity process is important — a marketing plan maybe? a financial plan? Value proposition? SWOT? Benefits statement? Ideal client profile?

    A few years ago, I spoke to entrepreneurs about creating a One Page Business Plan(r) and one of the attendees came up to me to talk about “his product” It was geared towards my “former” industry and he complained to me that he’d spoken to Angels and VCs with no success. Well, after listening to him for just 5 minutes, I knew why… he couldn’t describe his product, clients, financials, etc. For him, any plan — the one page one I was offering or a 20+ page plan would have been a BIG help.

    I’ve seen how creating a one-page plan helped me; so much so, that I use the process with all my clients. And if it’s the only thing we create, their sales and free time is up substantially.

    • http://blog.asmartbear.com Jason

      I like the idea of the 1-page “plan.” It’s a good balance between thinking about your business and spending too much time on the “meta” questions.

  • Christine Bush

    “…why is Sean concluding that he should have wrote a business plan?”

    If you can’t form a proper past participle you probably should not write a business plan. The question is: why is Sean concluding that he should have WRITTEN a business plan.

    • http://blog.asmartbear.com Jason

      Write ewe R! Eye’ve applied the fixe, thanks! :-)

  • http://jvdveen.blogspot.com Jonathan van de Veen

    I agree with your statement that business plans are just not going to cut it. I’ve made an attempt or two, but it was always guess work anyway. The only thing you should work out before trying to get funding is, how much do you need?
    Make sure you can tell people what it is that your business does or aims to do (how it provides value) and come up with at least a couple of ways to make money from that (if you can’t don’t start the business).
    Good article.
    .-= Jonathan van de Veen’s latest blog post: Adventures while building a Silverlight Enterprise application part #30 =-.

  • Berislav Lopac

    I’ll just quote whoever said that: plans are worthless, but planning is priceless.

  • techpops

    My first thought as this headline passed through my RSS feed was what a lot of stuff and nonsense this is. I had to click through to set the world to rights in the comments.

    Then I read it and it all made a lot of sense. Curses.

    You might have won this round but I’ll be keeping an eye in RSS for any slip ups ;)

    • http://blog.asmartbear.com Jason

      Ha! But in fairness, check out some of the comments here — folks have made some good counter-arguments or at least taken a sensible middle-road. Always good to hear all sides.

  • http://www.headsoratale.com Eric Amzalag

    I have to agree with Berislav. The specific business plan may not be necessary to your business, but having a structured plan will both help keep you on track as well as let VC’s know where your ideas are shifting and if you are actually putting in the effort… Id think of a business plan as a way to track my progress and document the experience/journey

  • http://darrylclarke.com/ Darryl

    My business plan, written on a napkin:

    1. do something awesome.
    2. tell someone about it.
    3. profit.

    I’ll let you know when I do #1.
    .-= Darryl’s latest blog post: ZF Tip: Don’t use ‘index’ as a module name. =-.

  • Edu

    I think many of the people who replied above might misunderstand the process of writing a business plan. Like some above have tried to explain, writing a businessplan is not so much filling in chapters with your fantasies of how things should/could/would be. The biggest and most important factor in creating a businessplan is research, research & research. You research if your projected income is feasible, you research if you are able to make the investments you have to make not only to start your business but to grow, you research if you have any idea at all of how to reach your potential customers and if these ideas are realistic. It seems that, by reading a lot of the replies above, many of you have a feeling of “thank god! I don’t have to write that horrible plan!”. It’s not a bother, it’s not a torture, it’s a chance you have to give yourself.

    As Ricardo Sanchez writes above:
    “The only thing that will give you confidence, if ever, is to actually start your business and make your product or service available to people… then you’ll find out what works and what doesn’t and with any luck, you’ll be able to fine tune your business with information coming from your customers, from your sales and not from your hopeful mind”

    I would like to correct you and say if you actually just start your business and make your product or service available to people… then you’ll find out what works and what doesn’t and with luck, you’ll be bankrupt before you even manage to sell your first product or service, because 1, you don’t know who your target audience is, and 2, you don’t even know how or where to reach them. But that’s the marketing plan side of a good business plan.

    I do understand however, that writing a businessplan is not always necessary at all. In fact, I can imagine many of the readers on this blog are freelancers or looking to start freelancing. These people already have their product (their skills) developed, they probably already have a fair target audience (contacts built during their employment), and they work from their homes. In these cases, a businessplan might be considered wasted time, and you can get away with that. But still, I would advise writing down what it is that you are, do, and what your goals are for the next 1, 3 and/or 10 years.

    • http://blog.asmartbear.com Jason

      You’re assuming it’s possible to research without jumping in and participating in the market.

      If that were so, businesses who researched would have a larger chance of success, but that’s not so. Not just from my own observation, also from formal studies.

      There are few companies where their initial target market, competitive analysis, and product fit is the same when they began as 3 years down the road. What use was the research?

      Some use, I do grant you! Turning a complete blind eye to the market conditions, customer definition, and ensuring the basic economics of your business make sense is of course silly. But that’s not what most people mean when they say “write a business plan.”

      In the end, my point isn’t that you should never think about your business — in fact most of my other posts here are about exactly that. The point is to spend less time worrying about a certain document and more time learning in the field. Less time projecting in the future and more time understanding what’s happening with your customers now.

      Finally, it’s simply not true that “you’ll be bankrupt” without a plan. Learning in the field rather than researching is a valid approach. Would you say, for example, that the reason for most businesses going bankrupt or folding is lack of sufficient research or planning? Or are other factors usually more important?

      That’s a real question! In fact I’m not sure of the answer myself.

      Thanks for an excellent debate!

  • http://www.straysoft.com Stray__Cat

    I rather agree with you, Jason, if we limit the target to small startups. Larger startups or even small established businesses need a budget (the strategic budget too) or they’ll likely run their business into ground the following year.
    So, I mean, you are not against budgets but against over-elaborating your business modell at the beginning, right?
    .-= Stray__Cat’s latest blog post: Feature Spotlight: assisted input and auto coding =-.

    • http://blog.asmartbear.com Jason

      Right, budgets are always good.

      Budgets also directly impact your profitability. Anything that directly impacts profitability is probably worth your time! 4-year plans don’t; tracking expenses is always important.

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  • http://kodamaconstruction.com Howard Bell

    Good article. I have often been burgeoned by the idea I “had” to write a business plan, but never knew “how” to do it. How do you know your 5-year financial projections?

    I think it is good to have a business direction, a “business vision” for what you want to accomplish. Then you need to act on that. Keep doing something toward the creation of your business and you will end up closer to where you want to be than if you had never gotten started at all.

  • http://bootstrapblogger.com Karilee

    Hey, Jason;

    Thanks for many good reads on this site!

    While I certainly agree with you about the five-year types of plans, sometimes you have to write them as a sort of entrance exam. I remember sitting in a bathroom in an empty apartment @1985, perched on a box, pounding a plan out on a “luggable” suspended over the sink (only “desk-height” surface available).

    My business partner got the “throne”, and we pounded the full plan out over a long weekend, to get a coveted remaining spot in a business incubator. It was ready by the Monday morning deadline, and we got in, which gave us just enough resources and support to bootstrap that business. We framed a picture of us writing that plan. I agree with you that pretty much every 5-year plan is crap, so there was a certain irony in the “office” in which ours was created.

    We didn’t follow the plan, nor did we ever intend to, really, but creating that work of fiction was what was necessary to get us what we needed, and sometimes that’s just what you have to do. Since then, I’ve helped others write them, and when we get to the spreadsheet with the 5-year projections, I typically ask “what do you want it to say?” Excel is a very flexible tool, and playing with the assumptions makes a big difference in the results.

    However, no matter how formally I help someone structure the written plan, I always take the time to make sure they understand whether they have the cash flow to get through the first six months at a minimum. THAT planning is one piece that I’d suggest is indispensable, and I hope it will be prominent in the tips you’re writing on what to do instead of writing a plan. I’ll look forward to the followup article.
    .-= Karilee’s latest blog post: Tools For Finding Domain Names – Part 2 =-.

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  • http://www.cathlawson.com Cath Lawson

    Hi Jason – I’ll kind of disagree. I think planning is important – especially for someone unorganized like me – I need something to keep me on track.

    But it has to be for you, in your own words. Some folk just do a business plan for the bank and never look at it again.

    And your plan shouldn’t be rigid – you need to revise it all the time. As you say marketing changes all the time.

    As you say though – you can’t expect your plan to go the exact way you expect it because shit happens. It’s kind of like a life plan, it’s just a rough guideline.

    To be honest – I spend way more time on the financial part of a business plan, as it’s really important to know what you need to bring in to break even at certain points.

  • http://manningsmith.wordpress.com/ Dave Manningsmith

    Hi Jason,
    I agree that most success is learned through trial and error and that most plans are guesses. Fine.
    Having said that, most small businesses need periodic rigorous scrutiny that they never take the time to give.
    Small business owners are going with their gut. It was good enough for all of their past success, so it’s good enough now, right?
    Wrong. People develop blind spots. They develop fear of asking questions that might draw attention to weaknesses.
    I suppose that a serial business starter will never need to face his weaknesses if he always turns sustaining the business over to someone else after an initial success. However, almost everybody else should be reinvesting in and reinventing their business every few years.
    I haven’t met a small business owner who couldn’t benefit from doing a deep dive on what they know and don’t know about their business. Once you’ve done that work, it only makes sense to apply what you learned and build a plan. Yes, a plan, if only a working list of priorities.
    If you know the most important thing to do and you build an action plan for doing it, you’ll usually find that you don’t have time to do lower priority things. Over time, iterating on what actions matter most to your business will make your business much more successful than operating without a plan.
    You make the valid point that most plans are built on internally sourced data. That doesn’t make them bad. Most people know everything they need to know to dramatically improve their business and build a great plan. But knowing something in a disorganized way and knowing something in a very organized way produces widely different results.
    Lastly, I actually want to defend the inane formal business plan that nobody will ever read. The utility of going through all the ridiculous work involved in building an MBA’s business plan is in thinking through a problem from a wide variety of angles, in an attempt to avoid dangerous blind spots and big faulty assumptions.
    Sure, if you’re a business genius, you don’t need a plan. MBA’s and business plans are guiderails for the rest of us.
    Don’t you think the world would be a better place if people were a little more thoughtful about what they were doing?
    .-= Dave Manningsmith’s latest blog post: wacky or wonderful? =-.

    • http://blog.asmartbear.com Jason

      Thanks for the thoughtful response.

      I agree people need to ask questions; in fact if you look at the bottom of the post you’ll find a link to my list of 10 questions you should ask yourself every month in lieu of a business plan, just as you suggest here.

      It’s a little strong to say that people need to be more thoughtful. Maybe more accurate is that it’s easy (and understandable) to get so caught up in putting out fires and the daily grind that it’s easy to lose sight of big, important questions.

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  • http://twitter.com/inscitekjeff InSciTek Jeff

    In lots of ways, I see business plan development a lot like astronaut training for space missions. The vast amounts of training don’t duplicate any real failure, but that work does provide the framework and mindset to deal with the actual challenges that do arise as soon as the mission plan needs to get tossed overboard.

    Also, as a follow-u thought, I agree that 5-year projections are pretty useless other than to perhaps outline what might be possible in the “successful” outcome cases. The likelihood that they actual predict what happens in year five to any level of precision is near zero.
    .-= InSciTek Jeff’s latest blog post: inscitekjeff: In terms of usability, even after "retraining" time, am I the only one that thinks Word 2007 sucks compared to Word 2003? =-.

  • http://upstarta.biz Arjen Lentz

    I’ll suggest that for most startups, VCs are a bad idea.

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  • Teresa

    Thank you for writing this blog post and confirming what I inherently felt yet at the same time could not understand why this business plan thing did not work for me. I did 2 plans. The first before I started my business and the 2nd a few months later. Both plans were quickly outdated and I never bothered to do any more. Although I sold the same product, the niche market I ended up targeting changed the entire way I did business. Also, new opportunities would come up that I never would have predicted and things would change so fast. Thanks for validating this!

  • David McMahon

    Awesome you really hit the nail on the head, i hate business plans i feel they trap creativity and are bland,

    People i believed are sold on ideas not numbers,,a few years ago a good friend introduced me to solid Log houses, this was in England where we do not have a lot of them, soon as i walked in one of these newly built houses smelt the wood felt the warmth of the open log fire i knew that was all it would take for my clients to buy one.

    So i cut a deal with an owner of one of these new houses to allow me to uses his as a show home, 3 months later i sold 4 off plan and went on to sell 11 more to date with 2 show homes of my own..business plan was in my head with planning on an A4 sheet of paper.

    Thanks Jason!!

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  • http://www.voyagemontreal.info Voyage Montreal

    Nice title, it makes people want to read the post!

  • http://www.winterhillgames.co.uk Winter Hill Games

    We have a plan, but it’s on a Wiki. It’s on a Wiki because we change it every day. Every day we have a new idea, new perspective, new opportunity, we refine what we thought we knew or understood or could do, we redefine who we are and what we’re going to be every DAY. The plan is current and alive.

    • http://blog.asmartbear.com Jason

      I really like this idea, thanks for sharing

      It’s more like a declaration of what we think is true right now and therefore where we’re currently aiming the boat, rather than a plan you must follow.

  • http://www.cleverandeasy.com Luc J

    Great article! I worked on several business plans for my employer and I’ve never seen one that was executed as planned. Now I limit myself to a high level business idea and a risk assessment, that covers most of it.
    Working on a personal project myself, I still find some use in a business plan. Not to make a detailed planning of every single step, but just to organize my mind and to make sure that I’ve looked at all the angles. But I wouldn’t spend weeks writing it.
    .-= Luc J’s latest blog post: Low-cost Stairlift Alternative – StairSteady =-.

  • http://www.venturearchetypes.com Nathan Beckord

    Hi Jason,

    Solid, thought-provoking post, and great commentary (I’ve read every single follow-up post thoroughly– good stuff all around, and pretty balanced set of opinions).

    Almost everything that needs to be said has been said, but I’ll say some more anyway. As others have alluded to, it’s the *process* of planning that is so valuable, not the written document. Yes, you can jump right into the market and A/B test your way forward, or you can first spend some timing planning…researching markets, understanding customer needs, getting a handle on the competitive landscape, etc.

    It’s somewhat analogous to being an introvert (someone who thinks then speaks) vs. an extrovert (someone who verbalizes every thought in real time). Both can be effective; both styles have plusses and minuses.

    In short, the business plan is simply a framework for the planning process. Interestingly, even though I’ve been selling business plan consulting f/t for close to 8 years now, I hardly ever write an actual plan anymore– nowadays, we usually do a pitch deck, model, and exec sum instead.

    One last note– I definitely agree that a business plan is less relevant for web businesses than for most other types of tech businesses (e.g. product-based companies, cleantech, medical devices, etc.– you can’t build a semiconductor business on the back of a napkin). I wrote a blog post to this effect called “The Business Plan is Dead; Long Live the Business Plan” at seedstagecapital.com.

    Thanks again for the though provoking post, keep up the good work!

    Nathan Beckord, VentureArchetypes LLC

    • http://blog.asmartbear.com Jason

      Thanks for the detailed and useful commentary. Totally agree that the process is what’s important, and that the usefulness of the plan depends on the business.

  • http://www.everizal.com pakwo

    I agree that 5-year projections are pretty useless other than to perhaps outline what might be possible in the “successful” outcome cases. The likelihood that they actual predict what happens in year five to any level of precision is near zero.

  • http://www.salespeople.co.za Lizzie | Sales People

    All I can say about business plans is that I personally would like the stats relating to how many businesses performed accurately to the initial business plan, especially over a period of a couple of years. Things are just so fluid that any rigid assumptions and guestimates are bound to be unaccurate.

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