According to a recent article by Harvard Business Review, Business Planning is a vital activity for entrepreneurs, especially startups. In answering the question, “Why Business Planning is Important”, the article cites that 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 key to success in business is being flexible and responsive to opportunities. For example, 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 Important
Why Business Planning is Important #1:
To prove that you’re serious about your business. A formal startup business plan must show all interested parties — employees, investors, partners and yourself — that you are committed to building the business.
Why Business Planning is Important #2:
To establish business milestones. The business plan should clearly outline the long-term milestones most important to your business’s success. A milestone is significant enough to come home and tell your spouse about (without boring them to death).
Why Business Planning is Important #3:
To understand your competition better. 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.
Why Business Planning is Important #4:
To understand your customer better. 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 a successful business.
Why Business Planning is Important #5:
To enunciate previously unstated assumptions. Writing a startup business plan helps bring previously “hidden” assumptions to the foreground. By writing them down and assessing them, you can test them and analyse their validity.
Why Business Planning is Important #6:
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. In addition, documenting the revenue model helps to address challenges and assumptions associated with the model.
Why Business Planning is Important #7:
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 effectively employing the capital.
Why Business Planning is Important #8:
To attract investors. A formal business plan is a foundation for financing proposals. The business plan answers investors’ questions: Is there a need for this product/service? What are the financial projections? What is the company’s Exit Strategy?
Business Planning Importance #9:
To reduce the risk of pursuing the wrong opportunity. The process of creating a startup business plan helps to minimise opportunity costs. In addition, writing the business plan helps you assess the attractiveness of this particular opportunity versus other opportunities.
Business Planning Importance #10:
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.
Business Planning Importance #11:
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.
Business Planning Importance #12:
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.
Business Planning Importance #13:
To attract partners. Partners also want to see a business plan to determine whether partnering with your business is worth it. 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.
Business Planning Importance #14:
To judge the success of your business. A formal startup business plan allows you to compare actual operational results versus the business plan itself. This allows you to see whether you have achieved your strategic, financing, and operational goals (and why you have or have not).
Business Planning Importance #15:
To reposition your business to deal with changing conditions. For example, if your current sales and operational models aren’t working during difficult economic conditions, you can rewrite your business plan to define, try, and validate new ideas and strategies.
Business Planning Importance #16:
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.
As part of your preparation, please check out our advice in this article entitled 10 Alarming Reasons Why Your Business Plan Was Rejected.
The business planning process is often perceived as something we do once and then put on the shelf. But, in reality, it’s a continuous process requiring us to take stock from time to time, revisit our original plan and ensure 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.
Why Business Planning is Important: Continuous Business Planning
Business plans are time-tested, proven tools enabling entrepreneurs to launch new ventures and achieve significant growth. They also provide a useful framework for all stakeholders to collaborate more effectively and efficiently. However, many organisations don’t engage in continuous planning despite the proven benefits and essential nature of business planning.
They conduct one-off planning exercises at the beginning of their existence and then refer to their original plan for the rest of their lifespan. This is a big mistake. To achieve their objectives, organisations must be able to adapt to changing circumstances and new developments. Therefore, successful organisations continuously reassess their business plans throughout life, revise them as necessary and align their activities with their strategic goals.
Why Business Planning is Important: The Process
The business planning process is cyclical, 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 clearly illustrate the future state and results you’re trying to achieve with your business. The vision embodies your organisation’s core purpose and is a reference point for all strategic decisions and activities. It’s also a great motivational tool to help you and your employees stay focused on the future and 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 organisation’s core purpose, unique value proposition and the benefits you provide for your customers and stakeholders. Your goals represent quantifiable milestones you must achieve to move toward your vision. Finally, goals are the short-term results you must achieve 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. You’ll need to conduct a SWOT analysis to build a competitive advantage and identify areas that need improvement. You can also use this 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 a result, your plan is likely 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 and not let it blind you from the bigger picture. There is no such thing as a perfect business, and pursuing perfection can sometimes lead to paralysis and inaction. That being said, you must use your strengths and weaknesses as a guide for prioritising 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 be quite flexible and dynamic. You can use it to create 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. 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 moving towards your goals and objectives, ensure you know where they are. Remember that business planning is a continuous process; you’ll need to revisit your original plan repeatedly to ensure everything remains on track.
A basis for why business planning is important is to 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. Instead, they check in occasionally 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 ensuring 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.
A Little Extra ― Customer Analysis: 10 Negative Reasons Why Customers Don’t Buy From You
Startups need to rethink and redesign their business to effectively understand the Digital Consumer’s Behaviour and combat the Digital Competitor’s Behaviour. Here are the 10 Possible Reasons why Customers don’t Buy from You.
#1: You are targeting the wrong customers
Does your target customer have the ability to buy? Do they use the Internet? Do they look on the internet for the product or service you offer? If you answer ‘no’ to any of these questions, you are targeting the wrong customer.
#2: You offer suspiciously low prices
If your price is so low, it is hardly unbelievable, making customers wary of buying from you. Customers understand that quality often costs more. They believe that prices that seem “too good to be true” are often just that. Avoid setting prices too low for your products or services.
#3: You make it too difficult to order
The more steps you put between the customer and the completed order, the less likely the customer will complete the request. If the order form goes beyond three ‘clicks’, many customers will bail out and not bother ordering. If you require the customer to print out an order form, scan it, and email it, you won’t see many orders. Make the order process easy. Alternatively, be prepared to lose customers.
#4: You make the customer wait too long
Customers want the product as quickly as possible when they decide to buy. They do not want to wait days or weeks to receive the product and will be discouraged from ordering if you can’t ensure fast delivery. You can increase orders by including the phrases ‘immediate’ or ‘overnight’ delivery. We’ve got some insights into the Cost of Bad Service in the article Customer Service ― The True Cost of Bad Service in South Africa.
#5: Potential customers can’t find you
If customers can’t easily find your website using common search phrases entered on Google, there is little chance they will buy from you. To resolve this problem, optimise your web pages for high search engine visibility, and purchase Google Ads for keywords that potential customers are likely to search for.
#6: Potential customers don’t believe you
If customers find your web page but are immediately turned off by a design or sales approach that lacks credibility, they won’t buy from you. To build credibility, have a well-designed web page, have no misspelt words, no unbelievable claims, and include elements that increase credibility.
#7: Potential customers don’t understand what you are offering
If you confuse potential customers, you lose potential customers. Craft your web message so customers know what you are offering – and don’t require them to follow a maze or read 10,000 words to discover your product or service. Want to Save Time? Need the Services of a Time-Saving Business Consultant?
#8: Potential customers see no compelling reason to buy
Is there a compelling reason customers should purchase from you? Without a compelling reason, the customer will likely postpone the decision until they find a compelling reason elsewhere. Offer one or more bonuses, free overnight shipping, or anything that gives the customer an immediate reason to purchase now.
#9: You have a technical breakdown on your website
Does your order processing system (shopping cart) work properly? (Have you tried placing an order to see what happens?) Does your ‘contact us’ system work? (Have you tried it?) Does your email list work? (Have you tried it?) Failures in any of your website’s technical systems can cost you orders. Be sure to test these systems yourself to see what your customers experience. When did you last test all these?
#10: Customers aren’t looking for your product or service
Hard as it may be to believe, there is always a chance that customers aren’t interested in your product. Products go out of style, and services go out of demand.