Why Business Plans Can Actually Hurt Business Progress

The first rule of thumb for any entrepreneur is to sit down and write a business plan, right? After all, that’s what all the “experts” and many business start-up books say. Heck, it actually seems like a right of passage for anyone that even thinks of starting a business. Well, I am here to tell you to think again!

Years ago I was involved in an experience that helped to drive home the idea that business plans are not all they are cracked up to be. I was attending a meeting at MIT, along with 100 other entrepreneurs, including those from Burt’s Bees, 1-800-GOT-JUNK, and TicketCity, just to give you an idea of the company at this event.

A venture capitalist addressed the group and asked us all to stand. He then asked that we please sit back down if we had used outside financing to start our company. Nobody sat down (and keep in mind the 99 other entrepreneurs that were in the room with me). Then, he asked the question that inspired this article – he wanted us to take a seat if we had used a business plan to guide our business. Would you believe that not one person sat down? It’s true!

While there were some people that had written business plans, others hadn’t. Either way, the point is, that nobody used them! Not one person had used a business plan to, ahem, plan for their business to start!

At this point, you may be wondering if it was just all a big coincidence and perhaps you should keep to working on that business plan. But the discussion in the room went on about the distraction that the traditional business plan actually is, and that there is, in fact, only one real benefit to it. I’ll share what that is later.

First, here are three reasons why business plans are hurting your business progress:

1. The Dream Team. In a traditional plan, you need to define the people who will be influential in helping your company. The bigger the name, the more influence, the better it is. But it ends up that this is all pretty much useless. The only member of the dream team that actually matters is you! Everyone else on this list is working to cover their own needs. This can distract you, by creating a false sense of hope that someone like Donald Trump is really going to be sitting on your board. You waste time trying to build and maintain a group a people, when you should spend all that time trying to build your business.

2. The Financials. Having to project your financials has to be the craziest part of the business plan. Trying to determine things like what your income will be and how much profit you will make is useless. Here is the real dealio – if you could accurately predict years of financials for a company that does not even exist yet, you could probably predict how the stock market will perform tomorrow. And if that were true, forget starting a company – trade stock! You will be a billionaire in only a few short months. The downside of any business financials is dangerous because even the most “pessimistic plan” is overly optimistic and can become disheartening when your business doesn’t grow as planned.

3. The Niche. Every business plan defines who you are going to target, what you are going to market to them, and what they will love about your offer. Problem is, niches change, needs are different than you expect, and while a few people told you they “love your idea,” when it comes to actually opening their wallet, they don’t seem to want to show the love. The niche can only be clear when you start going through the real world process of selling.

So, just what are traditional business plans good for anyway? Not much! But if you need to borrow money, almost every bank will require one. They want to see a plan, even though a business plan rarely ever plays out the way it was scripted. But if it is well written and all the other ducks are in a row, it may help you get the funding you need. So if you want to get a loan, you must play by the rules of the lender, for which a business plan is usually necessary.

Also, there is one element of a business plan that is critical – the vision. In fact, after the little demonstration at MIT, the speaker asked everyone that had a documented vision of what the company would look like in the future to sit down. Everyone sat down! So here is what I learned that day – successful companies don’t have old school, irrelevant business plans. They simply have crystal clear visions of where they intend their companies to end up.


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