According to a recent article by Harvard Business Review, Business Planning is a vital activity for entrepreneurs, especially startups. According to the article, entrepreneurs who write business plans and include business planning as part of their startup process, are more likely to succeed.
It is crucially important to synchronise business planning with other key startup activities. Business planning is a good idea at the very start because it answers basic questions like “Where are we now?”, “Where do we want to get to?”, and “How are we going to get there?”. By detailing how to orchestrate complex interdependencies such as customers, competitors, operations, logistics, marketing, and sales, writing a plan first appears to schedule actions and strengthen the link between actions and performance for the new venture.
Business Planning does have value! In a survey conducted by HBR, looking at more than 1,000 startups, separated into planners and non-planners, it was found that entrepreneurs who plan are more likely to create a viable new venture. With this said, the real key to succeeding in business is being flexible and responsive to opportunities. Entrepreneurs often have to pivot their business once it becomes clear that their original customer is not the right customer, or when it turns out that their product or service fits better in an alternate market. Here are our 16 Reasons why Business Planning is vital to Startups.
- To prove that you’re serious about your business. A formal startup business plan is necessary to show all interested parties — employees, investors, partners and yourself — that you are committed to building the business.
- To establish business milestones. The business plan should clearly lay out the long-term milestones that are most important to the success of your business. A milestone is something significant enough to come home and tell your spouse about (without boring him or her to death).
- To better understand your competition. Creating a startup business plan forces you to analyse the competition. All companies have competition in the form of either direct or indirect competitors, and it is critical to understand your company’s competitive advantages.
- To better understand your customer. Why do they buy when they buy? Why don’t they when they don’t? An in-depth customer analysis is essential to an effective startup business plan and to a successful business.
- To enunciate previously unstated assumptions. The process of actually writing a startup business plan helps to bring previously “hidden” assumptions to the foreground. By writing them down and assessing them, you can test them and analyse their validity.
- To document your revenue model. How exactly will your business make money? This is a critical question to answer in writing, for yourself and your investors. Documenting the revenue model helps to address challenges and assumptions associated with the model.
- To determine your financial needs. Does your business need to raise capital? How much? One of the purposes of a business plan is to help you to determine exactly how much capital you need and what you will use it for. This process is essential for Raising Capital for your business and for effectively employing the capital.
- To attract investors. A formal business plan is a foundation for financing proposals. The business plan answers investors’ questions such as: Is there a need for this product/service? What are the financial projections? What is the company’s Exit Strategy?
- To reduce the risk of pursuing the wrong opportunity. The process of creating a startup business plan helps to minimise opportunity costs. Writing the business plan helps you assess the attractiveness of this particular opportunity versus other opportunities.
- To force you to research and really know your market. What are the most important trends in your industry? What are the greatest threats to your industry? Is the market growing or shrinking? What is the size of the target market for your product/service? Creating a business plan will help you to gain a wider, deeper, and more nuanced understanding of your marketplace.
- To attract employees and a management team. Attracting and retaining top-quality talent requires a business plan. The business plan inspires employees and management that the idea is sound and that the business is poised to achieve its strategic goals.
- To plot your course and focus your efforts. The business plan provides a roadmap from which to operate. It compels you to look for direction in times of doubt. Without a business plan, you may shift your short-term strategies constantly without a view to your long-term milestones.
- To attract partners. Partners also want to see a business plan to determine whether it is worth partnering with your business. Establishing partnerships often requires time and capital, and companies will be more likely to partner with your venture if they can read a detailed explanation of your company.
- To judge the success of your business. A formal startup business plan allows you to compare actual operational results versus the business plan itself. In this way, it allows you to clearly see whether you have achieved your strategic, financing, and operational goals (and why you have or have not).
- To reposition your business to deal with changing conditions. For example, during difficult economic conditions, if your current sales and operational models aren’t working, you can rewrite your business plan to define, try, and validate new ideas and strategies.
- To uncover new opportunities. Through the process of brainstorming, white-boarding and creative interviewing, you will likely see your business in a different light. As a result, you will often come up with new ideas for marketing your product/service and running your business.
The process of business planning is often perceived as something we do once and then put on the shelf. In reality, it’s a continuous process, which requires us to take stock from time to time, revisit our original plan and make sure that everything remains on track.
Working towards your goals doesn’t just happen by itself. It takes effort, dedication and discipline. Regardless of the nature of your business or the scope of your objectives, you will always need a business plan. A good plan is like a compass for navigating the future – it helps you stay on track and keep moving forward in the right direction.
The Importance of Continuous Business Planning
Business plans are time-tested, proven tools that enable entrepreneurs to successfully launch new ventures and achieve significant growth. They also provide a useful framework to enable all stakeholders to collaborate more effectively and efficiently. However, in spite of the proven benefits and essential nature of business planning, many organisations don’t engage in continuous planning.
They conduct one-off planning exercises at the beginning of their existence and then simply refer to their original plan for the rest of their lifespan. This is a big mistake. In order to achieve their objectives, organisations must be able to adapt to changing circumstances and new developments. Successful organisations continuously reassess their business plans throughout the life of the organization, revise them as necessary and align their activities with their strategic goals.
The Process of Business Planning
The process of business planning is a cyclical process, consisting of five main stages: Vision, Mission, Goals, Competitive Advantage and Strategic Fit.
- Start with a vision: The first step in business planning is to start with a vision. This is the big picture – the destination you’re trying to achieve. Your vision should be compelling and inspiring, and it should clearly illustrate the future state and results you’re trying to achieve with your business. The vision embodies your organisation’s core purpose, and it serves as a reference point for all strategic decisions and activities. It’s also a great motivational tool that can help you and your employees stay focused on the future and stay committed to the cause.
- Define your mission and goals: After you’ve defined your vision, you’ll need to define your mission and goals. Your mission is your reason for being – it defines your organization’s core purpose, unique value proposition and the benefits you provide for your customers and stakeholders. Your goals represent quantifiable milestones that you need to achieve in order to move toward your vision. Goals are the short-term results that you need to achieve in order to fulfil your mission. Successful business planning requires you to set SMART goals: Specific, Measurable, Achievable, Realistic and Time-bound.
- Build a competitive advantage: Having a clear vision and understanding of where you are today is essential if you want to know where you’ll be tomorrow. In order to build a competitive advantage and identify areas that need to be improved, you’ll need to conduct a SWOT analysis. You can also use this as an opportunity to reassess your original business plan. It’s important to remember that your original business plan was created under different circumstances than those of today. As such, it’s likely that your plan is not as relevant as it once was.
- Identify your strengths and weaknesses: Having identified your business’s strengths and weaknesses, you can now use this information to identify areas for improvement. It’s important to use this information wisely, however, and not let it blind you from the bigger picture. There is no such thing as a perfect business, and the pursuit of perfection can sometimes lead to paralysis and inaction. That being said, you must use your strengths and weaknesses as a guide for prioritizing your activities and making strategic decisions. Make sure to focus your resources on areas that will have the biggest positive impact on your organisation.
- Estimate the costs and the benefits: After you’ve identified your strengths and weaknesses, you can use this information to estimate the costs and benefits of pursuing a specific direction. You can use this information to make more informed strategic decisions and build a more comprehensive and useful business plan. Your business plan doesn’t have to be a static, unchanging document. It can actually be quite flexible and dynamic. You can use it to create various scenarios that allow you to test different strategic options and select the best one.
- Know where you’re going: Knowing where you’re going is essential for getting there. If you don’t know where you’re going and if you don’t have a clear destination in mind, you’ll likely end up somewhere else. Before you start moving towards your goals and objectives, make sure that you know where they are. That being said, remember that business planning is a continuous process, and you’ll need to revisit your original plan from time to time and make sure that everything remains on track.
Check in every so often. Organisations that engage in continuous business planning don’t do it once and then put the results on the shelf. They make sure to check in every so often and make any necessary adjustments, revisions and updates. This is essential for maintaining a consistent course, adjusting for changed circumstances, preventing deviation from the path, and making sure that all efforts are aligned towards the same objectives.
For more advice, here are 6 Unavoidable Questions you can Ask a Business Plan Writer before partnering with them.