On Internet Business

How to write a business plan – and then tear it up

Posted by Michael under Business Growth, Entrepreneur Resources

Every business needs a plan for several reasons:

a) To obtain funding
b) As a way of ensuring the different parts of the business (marketing, finance, production, sales) operate in harmony with each other from start-up
c) To allow for future planning and development
d) For successful recruitment of staff.

But equally, a business plan can be a way of destroying business development if you stick to it too slavishly.

Research is not reality

While you may spend months collecting information, it doesn’t necessarily add up to a business. Talking to potential suppliers and customers, investigating competitors, stating the problem you’re going to solve and the why and the where and the when and the how of solving it are all good ideas – but they are theoretical exercises. Creating a sales forecast, a skills audit and so on are brilliant ways to predict what might happen, but they are only predictions not a guarantee of reality.

A plan is not a model

A business plan is a paper exercise that pleases your bank and your investors. A business model is a dynamic structure that is constantly tested, in the preliminary stages, against reality. Say a potential customer tells you that he’ll place orders if you can deliver within 48 hours. You use your business model to test whether that’s possible. Can you get your goods to him in time? Do you expect to hold enough stock to guarantee his orders? Does holding that stock strain your cashflow to breaking point? What happens if there’s a rail/postal strike that stops your business meeting his needs – do you have a fallback option? Can you afford it? How many times can you afford to use it before your start-up struggles financially? What other alternatives are there: buying in stock to resell to him/ working with another supplier to meet his needs/offering an alternate product at an advantageous price?

By testing facts against a model you build a constantly updated picture of how the business will have to operate to succeed. This is a very different thing to a business plan which is an idealised model of how the business can BEST succeed. While both are essential, it’s the latter that helps you hit the ground running and continue to run while other start-ups are bogged down in adjusting their theoretical assumptions to cope with reality.

Photograph courtesy of Global X

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