When it comes to business plans, the savvy entrepreneur is, first and foremost, writing one for their own personal use – not for the rest of the world. Sure, once it’s written it is then easy to share the plan with potential investors, lenders, or others to help achieve the goals of the business.
What are the textbook reasons for having a business plan? To guide your growth, manage priorities, assign responsibilities, track progress and plan for cash.
The bottom line, though, is that every startup founder needs a business plan. Here are some reasons for the same:
1. To reduce stress. Why? Startup founders often find themselves juggling many functions, distracted, and without a clear idea regarding their progress. The business plan itself provides a strategy and direction. It outlines the mission and plans for future action. This can help you stay focused, on track, and help you to set realistic goals as well as to increase your productivity.
2. To avoid making mistakes. You don’t want to start a company that is a dud destined for failure. Writing a plan, including honestly listing your strengths and weaknesses can give you an idea of your chances for success. Once these have been identified, you can focus on the strengths and fixing the problem areas. With the business plan in hand, founders can determine the right amount of capital needed to reach goals, include partners with needed resources, and make sure their business will have a path to profit. You’ll be able to avoid problems that could become disasters.
3. To not be controlled by emotions. Most entrepreneurs have the ability to generate a lot of passion and energy about their own ideas and reality can be thrown out the window in their exuberance. When facing tough situations and working long hours with too little sleep, founders can become immobilized by doubt and fear. Exhaustion takes a toll. When your emotions seem to be controlling the day, the business plan brings objectivity back into the picture. The basic questions of: What am I doing? Why am I doing it? Am I making progress? – bring you back to ground and take the emotion out of the decisions you make.
4. It makes you really look at the market and evaluate competitors. Writing the plan forces you to research and consider the real market for your goods or services and to analyze enough of the competition to understand how to price your product or service, how to target profitable customers and how to establish your own position in the market. This process will allow you to answer the questions: Is the market real? Can I win a meaningful share of it? Is it worth it?
5. To establish the real “go to market” game plan. This is to make sure that founders, partners, and advisers are all working towards the same goals. Very few entrepreneurs go at it truly alone. There are always others involved in the success of the venture. Having a written business plan helps bring everyone together and points them in the same direction. Execution is key to your business success. This means setting priorities and goals as well as meaningful metrics for measuring the performance of your business.
6. It helps you pinpoint how much money you’ll actually need. Startup founders typically really underestimate the money needed to launch their venture. Running out of money is a top reason businesses struggle or close shop within their first year of operation. Writing the plan—including all those spreadsheets—forces the founders to know how much money is needed for starting up, where they’ll get the early money from, and when revenues will be able to support the business and sustain future growth.
7. To get the money you’ve figured out you need. To raise capital is the reason many people are ultimately “forced” to write that business plan. Lenders, professional investors, and strategic partners will expect to see a business plan before giving you money. Few founders are capable of bootstrapping their entire venture. Even if a line of credit is needed at the local bank, a business plan will be expected. Writing a business plan helps you to communicate your business idea — your mission and vision — in a clear and compelling way.