Technically you do not need a written business plan to start a business, unless you need to present one. That can be for investors, your bank or at a staff gathering, where a plan comes handy. However, writing a plan has many benefits:
- Reality check: A business plan forces you to analyze, understand and estimate then monetization of your target market.
- Target setting: Back tracking your vision with milestone targets help you plan what to do.
- Priorities: You need to articulate focus in a your plan. Writing a plan help you prioritize what your actions shall be.
- Accountability: Involving key staff members makes them engaged and accounted with the plan.
The real value is the process making the business plan. For that, you shall update your business plan once a year to plan your resources and stay focused on what’s important.
The real value of a business plan is the analysis and the priorities you make when you write the plan. You’re forced to sharpen your arguments, question your business idea and prioritize your actions. Back tracking stretch targets with milestone targets will become super helpful when its time to do your financial forecast and budget.
You do not need a business plan to prioritize or make a useful market analysis, but it’s a great framework.
First-time entrepreneurs often skip the business plan. Some spend weeks making an awesome looking investor pitch styled presentation. The real value is prioritizing.
So, let me give you some hands-on advice to help you understand why you actually need to make a business plan asap.
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Your vision needs a reality check, that’s why you need a business plan
Most entrepreneurs have grandiose ideas about their business or the monetary value of their business. You need a business plan to make a reality check.
Here is what you need to include in your plan, which also becomes your reality check:
- Market potential: You need to define your target market, collect market intelligence data and describe your potential share of wallet.
- Competitor analysis. No plan is made without describing your competition. That can be specific competitors, alternative solutions and the simple decision not to do anything.
- Monetize your business is important and you will be in trouble if you cannot articulate your unique selling proposition. The business plan is a way to articulate and the customer value you propose. Writing the plan is your chance to challenge your proposition, before your potential customers will do that.
Don’t misunderstand me. The plan is not supposed to be a negative test of your capabilities. But the process of writing the business plan is an excellent opportunity to be specific about your planning and your activities.
Back tracking your vision with milestone targets help you plan what to do
Always’s wanting to do more is the curse of being an entrepreneur. Milestone targets help you and your team to stay focus on what’s important. Jumping on new ideas is what makes an entrepreneur lose focus on the vision.
Having said that, a business plan cannot be carved in stone. You need to be agile and for that you need to revisit and update your plan on a regular basis. A deep dive strategy session with business planning every third-year followed by annual updates and adjustments is a common model.
Start with your long-term vision and backtrack with milestone targets up to today. You will find that great things need to be done to reach your vision. That is what your business planning is about. That is how the business plan will help you stay focus on what’s important.
You need to prioritize when you do your plan
It goes without saying that you need to prioritize in your business plan, which is great. That is actually the main benefit of writing a business plan.
We all know that building a business mean that we have to prioritize and make decisions all the time. Staying firm with the big decisions, the direction, is why you make a plan.
Every day is full of decisions to be made and they all have to align with the direction you need to go to deliver on your vision.
Early-stage startup’s has limited resources and priorities may seem obvious. Still, it’s common to spend time on smallish things, too lengthily product development efforts or the wrong prospects, unless you have your vision and priorities made very clear.
You need to make a business plan if you struggle with priorities and make many small and large pivotal decisions.
You need to involve your staff in the business plan process to make them accountable
One of the great leadership challenges is to hold coworkers accountable while also making them engaged in your vision. The trick is to involve your key staff members in your business plan process. That makes them understand, feel engaged and become accountable.
I once joined a large European bank and was graced with a key to the business plan locker. At first, I did not understand. Then it hit me! All strategies and business plans where stamped confidential, numbered and locked in a secure cabin to be read only by a few trusted senior executives.
I was stunned. To me business planning is a process where you engage many key employees and later holds them accountable to the plan. It’s one of the greatest leadership tools, and coworkers love to be engaged.
Strategies and business plans are semi-official documents. Most part of it you can literally publish on your website. Knowing your direction and priorities is important, for everyone including your customers. It’s not for the chosen few. The secret is execution and culture. That’s what makes a difference.
Another horrible example is a large energy company that produced thick binders of comprehensive, still confidential, business plans not to be read by anyone. To make it worse, McKinsey and an inhouse strategy department where the sole writer of the plan.
Remember what I said: You need to involve your staff in the business plan process to if you like to make them accountable. It’s actually a great opportunity not only to engage people in your vision, but also to align them with your priorities.
You need a plan to make a quality financial forecast and budget
Sales forecasts, budgets and liquidity planning gets a reality check when aligned with your business plan. You need a to understand how to forecast your financials for the next 2 -4 years.
Ideally, salespeople and operation work in tandem with your finance people on your business plan.
Too often finance people makes a one-year budget with indirect cost focus, whereas salespeople make a 3-year sales plan. Operations and cost of products sold are massively important for your earnings but fall between these two responsibilities.
You need a business plan as the common factor between your salesplan, your 3-year financial forecast and your one-year budget. That’s how you align everyone towards your milestone targets, hence your vision.
You need a business plan to know that everyone focuses on the same thing
Is it worth the time spent to make a business plan? Definitely so! Everyone will focus on the right thing but you need to engage your key staff in the planning process.
- Sharpen the core and the edges of your business and agree on exclusions.
- Align the vision with a road map of actionable milestone targets.
- Prioritize so that everyone involved delivers on what’s most important.
- Engagement and commitment through participation in writing the plan.
- Communication with stakeholders such as the board or investors.
What I have learned is making the plan together is one of the best uses of the business plan process. It’s not always about the document itself, it’s about Involvement that creates engagement which leads to ownership.
Another learning that has grown with me is that business planning is a great opportunity to discuss and exclude things, to avoid spending time on wrong paths.
I hope you enjoined above text on why you need a business plan. Not so much for the plan itself, more so to set milestone targets, prioritize and engage you key employees.
Don’t over plan though. Enough is enough, but highly valuable.
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