Top 5 Reasons To Have a Business Plan
There’s a very good reason why most business coaches will advise that entrepreneurs (and especially first-time entrepreneurs) develop a business plan before launch: having a business plan in place is the single best thing that you can do to maximum the likelihood of your business being successful. A traditional business plan will touch on every aspect of running your business – everything from the types of products or services that you will be offering, to the type of marketing strategy you will use to get those products or services into the hands of the “right” consumers. And, of course, you will provide plenty of numbers, facts, or data points to help to support all of your various assumptions or hypotheses about the future. With that being said, here are the Top 5 reasons to have a business plan…
Reason #1: Put actual numbers to your vision of the future
Many entrepreneurs are true visionaries, capable of re-imagining not just products or services, but also entire industries. Just because a certain industry has been operating a certain way for decades or longer doesn’t mean that a new startup business can’t come along and entirely disrupt that industry in a matter of months. In the post-Internet world, “disruption” is the name of the game. But there’s just one small problem – it’s one thing to say something like “we’re going to completely disrupt the hospitality business” and another thing entirely to come up with the facts, figures, statistics or data that will show how you will do it. (And it is possible – just ask Airbnb!)
That’s why the business plan is so important – it tells the story of not just “what” you plan to offer to the world, but also the “how” and “why” of that story. For example, take the case of the hospitality industry. You might start with an overall story of the total size of the industry, and then break that down into “business travelers” vs. “tourists.” From there, you might break down the “business traveler” category into various sub-categories, such as the type of person who only travels for conferences and expos, or the type of salesperson who is the prototypical “road warrior” spending half of his or her year in hotels. By becoming more and more granular with your data, you can start to get a sense of the total market opportunity, and what parts of the market are currently under-served (or not served at all).
Reason #2: Find the “gaps” in your business model
Business plans are also very useful in helping to find gaps in your business model. Once you have started to put numbers to your vision, you will likely start to see that there are some aspects of your business that you have completely overlooked. Many new business owners assume, for example, that, “If you build it, they will come.” But is that really true? Most businesses need some sort of marketing campaign to help them get off the ground and build awareness in the marketplace.
To understand why finding these gaps in your business model is so important, just think of all the new restaurants that open in your local area – ever notice how many of them seem to close within 12 months or less? That’s usually because they launch without any clear idea of how to attract new customers and gain traction in the marketplace. Or they fail to calculate just how much their “inputs” (i.e. food and other ingredients) are going to cost, or how many tables they are going to need to turn each night in order to become profitable.
Reason #3: Prepare for future contingencies
A hallmark of any business plan is the presentation of different scenarios of what will happen in the future. How will your business respond, for example, if the cost of your inputs needed to make your products suddenly spikes overnight? Or what will happen to your business if your forecast for future economic growth is not quite as rosy as you might like to think?
The best entrepreneurs are ready for any type of contingency. If they suddenly lose a key supplier, for example, they are ready to switch to a new supplier. If they lose a key executive, they have a deep bench of talent ready to fill in for that departed employee. Or, if economic growth in the broader economy slows to a halt, they have plans in place to launch new products, new services, or new options for the more cost-conscious consumer.
Reason #4: Develop a strategy to get from Point A to Point B
In many ways, business plans are more than just forecasts and projections – they are also valuable stories about how your business plans to get from Point A (zero capital, zero customers, zero revenues) to Point B (profitability). The key to this is developing a strategy for your business. A strategy is more than just a bland, formulaic statement like, “We plan to become the #1 player in our industry.” Instead, a strategy lays out the specific, step-by-step actions that will result in achieving the final goal. A strategy usually also includes a number of milestones or accomplishments along the way that will help to ensure that your business is on the right path.
Reason #5: Attract investors and new stakeholders
Finally, a business plan can also become a very powerful tool in helping to attract new investors and new stakeholders. Do you think that an angel investor or VC firm is ever going to invest in your business without first seeing the forecasts, projections and assumptions that you have made about your business? Having a business plan in place gives them the confidence to invest in your business. Of course, you don’t want to show them the whole document – but when it comes time to preparing your pitch deck, you can easily carve out the most relevant aspects of your business plan. For example, when the VC sitting next to you asks, “What’s the total size of the market opportunity we’re talking about here?” You can confidently give an answer based on the numbers and data you used to put together your business plan.
Putting together a business plan for your new startup can be a tremendously rewarding process. You will fine-tune your thinking about how to make your business successful, and you will also create a living, breathing document that you can use throughout the life-cycle of your business to help keep you on the right strategic path. Hiring a business coach to help out on the business plan is one way to streamline the process and make all the numbers in your plan tell a very convincing story.