Every Business Needs a Plan

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Many entrepreneurs take business planning lightly and tend to start up and operate their businesses based upon gut-feel or intuition.  Others put off planning until later in their venture—when it may be far too late.

Many successful business owners (as well as quite a few unsuccessful ones) will attest to the fact that the failure to plan a business venture upfront can come with grave consequences. According to Dun & Bradstreet reports, “Businesses with fewer than 20 employees have only a 37% chance of surviving four years (of business) and only a 9% chance of surviving 10 years.” Restaurants only have a 20% chance of surviving 2 years. Of these failed businesses, only 10% of them close involuntarily due to bankruptcy and the remaining 90% close because the business was not successful, did not provide the level of income desired, or was too much work for their efforts. The failure rate for new businesses is around 70% to 80% in the first year and only about half of those that survive the first year will remain in business the next five years.

In addition to the preponderance of evidence in existence to support the relationship between business planning and business success and aside from the age-old adage that equates the failure to plan with a plan to fail, there are numerous other benefits that accrue to the savvy entrepreneurs who appreciate the activity’s significance.  While not an all-inclusive list, a few of the significant benefits are listed below:

  • Helping the entrepreneur to clarify his or her vision and decide whether or not to forge ahead with the idea.
  • Determining if the entrepreneur’s product and/or service has sufficient market support and whether or not the venture will be profitable.
  • Providing an estimate of the entrepreneur’s start-up costs and how much the entrepreneur will need to invest, finance, or raise from other investors (as well as the required timing of those revenues).
  • Convincing investors and lenders to fund the entrepreneur’s business.
  • Recruiting staff for the start-up.
  • Defining the entrepreneur’s target market (who his or her customers are or will be) and how to best reach them through strategic marketing actions or expanding market coverage or reach.
  • Establishing or reevaluating the entrepreneur’s competitive position within the marketplace, by conducting a thorough analysis of the competition (finding out where the competitor’s weaknesses are and how the entrepreneur can take advantage of them).
  • Defining corporate objectives and programs to achieve those objectives.
  • Helping the entrepreneur’s business make money from the start by developing effective operational strategies.
  • Assisting the entrepreneur to understand the risks involved and anticipate potential problems so that the entrepreneur can solve them before those potential problems become disasters.
  • Setting a value on the business for sale, legal, or other purposes.

Though volumes of data exist supporting the limited chances of entrepreneurial success without a business plan, many entrepreneurs still take the activity lightly and many move forward with no formal plan at all.  While one of the milestones within the process of business planning is the creation of a formal written document (the business plan itself), the formal written business plan encapsulates but a small fraction of the value of the planning process and should not be viewed as the end of the planning process.  As anyone who has operated a business before will most likely attest, the planning process should transcend the creation of the formal written plan and be an ongoing activity that continues concurrently with the operation of the business even after the business matures.  Furthermore, the extreme value associated with the planning process is derived from it being a structured process by which the entrepreneur can objectively think through and record the mechanics of the proposed (or existing) venture and develop contingencies for potential pitfalls or barriers to success.  After all, that’s why many investors, lenders, potential partners, and even some astute potential employees ask to see the written plan—to see evidence that this thought process has taken place prior to making a commitment to the business.

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2 responses to “Every Business Needs a Plan”

  1. Deba

    I agree with most of the thoughts articulated above, however, as a change management specialist who has led many business transitions I would distinguish between business planning being “necessary” but not always “sufficient”. In my experience, business plans are too often driven by, and thus later undermined, by personal agendas, check the box mentalities and lack of accountability. If people are not asked to develop plausible and achievable goals, and then follow through and track performance via objective yet measurable success, the business plan often becomes a disembodied creation which does not have enough bearing on how people act day to day individually or collectively.

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