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Personal Finance

Why business plan may be valueless to your start-up

 

Over the last few years, our business schools and technical and vocational education and training institutes have rolled out entrepreneurship courses in all the disciplines taught in the universities with a business plan being one of the most important course in the syllabus.

This is borne by the notion that business plans are the fundamental path to actualising students’ ideas to successful start-ups and therefore a misconception that creation of job opportunities is guaranteed if students are able to write very romantic business plans, pitch them to investors for funding, launch the business using the funds given and then customers will come running for the product.

A story is told of two young novice entrepreneurs who after graduating from a business school spent months researching and writing a unique business plan for an idea they had thought about while in college. Like they were taught in their business school, their concept was to write a unique business plan, look for investors to fund the plan, launch the business while engaging potential customers.

They were wrong because after getting into the market they realised that their target customers were not interested in their products as they had predicted in their business plan and therefore they ended up discarding the plan altogether.

NOVICE ENTREPRENEUR

This story is familiar with many start-ups who after spending months or years writing outstanding business plans only to learn when it’s too late that implementing it is not as easy as our business schools put it.

Although a plan may be an important document in the latter stages of business development, especially if investors want it for funding purposes, it may be less important to a start-up or a novice entrepreneur who has no interest in looking for funds. Here are reasons why a business plan may be unnecessary:

First, it is wrong to believe that the growth trajectory of a large firm is similar to that of a start-up since for large companies the market being targeted already exists and therefore customers are known and the firm has a tested brand.

On the other hand, a start-up operates in a different trajectory where customers are not known and there is no brand advantage and hence the need for a model that will guarantee them an opportunity to test their product in the market in order to understand the customer’s notion about the product.

This means that while a large firm may need a business plan for future strategic plan and map their financial, market, operation and overall growth; start-ups need a lean model that will help them test the viability of the product before launching it in order to reduce expenses and an unnecessary cost of funds that in most cases they don’t have.

Secondly, successful entrepreneurs will agree that the growth of a business is not predictable and therefore having a static document as a road map in early stages will lead to failure, especially when things do not turnout as predicted in the business plan.

FLEXIBLE MODELS

Statistics show that successful businesses change their original plans 66 times and therefore it is important for start-ups to have models that are flexible enough to give them an opportunity to navigate difficult times.

Lastly, there is a misconception that an investor will fund your business idea because of how well the plan is written.

No investor will put their money in a plan whose products are not viable. Start-ups should put more emphases on executing a business idea but not planning for the idea because in most cases the ideas are untested in the market and therefore the entrepreneur’s main goal should be to test the viability of the idea with actual customers.

This can only happen if start-ups stop wasting time on writing business plans at the early stages.

They should adopt lean models which will give them ample time to test and validate their business ideas before fully launching the products.

In conclusion, while this article seems to dwell on the drawbacks of a plan in the early stages of business conceptualisation, it is important to note that the document is vital at latter stages of business development.

In addition it is important for schools and other institutions of higher learning to introduce business models development in their courses in order to train students on how to test and validate their products using actual customers before the launch.

This may be an important stage that will work to increase idea conversion to viable businesses and also reduce the high rate of business failure, especially at the introduction stage.

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