No more business plans please!

[Vincent]

No more business plans please! Keep your plans short and simple

“The 20th Century business model - constructed around hierarchy and five-year business plans - won't work for the new millennium,” Kingsland, chairman of the Association of Business Psychologists (ABP) in the United Kingdom.

A few days ago, I was talking to a friend and we were discussing business plans, specifically the one he used to submit to buy his business. I asked him to show it to me and it took him about twenty minutes just to find the plan.

He dusted the cover off and proclaimed, “Proud words on a dusty shelf,” referring to Ken Hensley's album of the same name.

Handing it over to me he said, “You know Vince, I've never looked at that plan since I got my business up and running. In fact, the only time I glanced at it was when it was returned to me. The strangest part was when I re-examined the plan, I found that some of the financials were out and my competitors’ analysis was off base. One day I will sort it out.”

I asked him, “If you don't consult your plan periodically. What do you do?”

“I may not have a 'business plan' but I certainly plan. The one thing that I've have learnt is implement one or two marketing ideas (or whatever it is you need to do), and stick with it for a time and then change. It's easier to look after two game plans that say five or six. For example, my shop on the forecourt suffers in winter, sales drop off slightly, but I know that people need gas for their heaters. Before the winter period, I negotiate with the suppliers for a better rate. I then guarantee the supplier that I will take one hundred gas bottles per week for the winter. The saving I get from the supplier I pass onto the customer. This has a knock on effect. It makes my gas the cheapest in the area, which brings in the customer who spends more in the store. You can say that I use the gas as a loss leader.”

“You can't do it every winter,” I said, “your competitors will start doing the same, so you're going to have to be one step ahead.”

“But I do. The one thing I do is look to other industries for ideas, but that's another discussion we can have.”

Walking back to my car I thought. Plans don't have to be formally written. Writing down your ideas on an A4 sheet of paper or creating a mind map will suffice; something that will take an hour or two to complete. What is more important is acting upon them, making them become a reality. Output is more important than the input, ie writing the business plan. Plans should be simple and uncomplicated, not heavy-handed that weighs you down. There should be no need to produce a 50-page document for a five-year horizon, which in most cases won't be read. Short actions plans, that is key.

Daily we read and hear on the importance of business plans. We are told a business plan can be compared to a road map. It shows you where you are, where you want to go, and what resources you will need to get there. The purpose of a business plan is twofold. Firstly, it can help you obtain finance and, secondly, it explains to you and to the financiers what, why, when, where and how you intend to run your business. It will also help clarify why you believe the business venture is viable, and is a guide to achieving your goals. If this all so true why do so many businesses fail?

The world of entrepreneurship is flooded with information on business plans. A Google search for "Business Plans,” and “Business plan" recently revealed over 2.8 million and over 23.6 million pages respectively, from free business plans templates to sophisticated software packages that will help one design the ultimate business plan. Today writing a business plan is undoubtedly the most extensively used teaching tool in entrepreneurship learning and preparation. With so many plans available surely the success rate of the business should be higher than the 15% that succeed. Unfortunately, a good template will neither make for good content, nor automatically make a workable or successful business. (The technology crash in Silicon Valley can attest to this, great business plans, but little else except greed.)

Business Planning is critical for success! Business plans may not be.


So is there an answer to an alternative business plan? I believe there is...
Let’s hear from you

[Dave A]

A great post! And I have to agree - simple is best.

I think this is my basic cycle, without using words like differentiation, optimisation and the like.

This is the need.
This is my solution.
This is my competitive edge.
This is my cap-ex.
This is my cost.
This is my price.
Take it to the market.
Some people buy.
Refine.

Hmm. Is there a short word for "competitive"?

[duncan drennan]

I think one of the problems with business plans is that there is a whole formal industry structured around creating a business plan that will get you money.

Let's face it, most people write business plans to get money, not to plan their business.

The business plan industry has kind of played a trick on people to make them believe that a great formal business plan will ensure that they are going to get money. For those of you who don't know it yet, banks don't care too much about how viable your business is, just your personal ability to pay back the loan, i.e. assets and potential for future earnings (if you business goes south).

On the other hand venture capitalists and so on are looking for the safest way to create a return for their investors. Angel investors are a bit less predictable, but I guess they probably have a specific interest in certain areas, and they will approach you rather than the other way around.

[Vincent]

About two years when I started researching this topic for my book, it was interesting to note that there weren't that many topics on the net discussing 'why business plans don't work.' A Google search at the time resulted in about 100 hits. Today there's 10 times more, although most (60 - 80%) of the articles are a copy and past of the widely quoted paper by Michael Clark, 'why business plans don't work - and what to do about them.'

Since the release of the research paper by Babson College alums that graduated between 1985 and 2003 found that “…there is no compelling reason to write a detailed business plan before opening a new business.” The analysis also uncovered that there was no disparity or distinction between “the performance of new businesses launched with or without written business plans.” The stats from this paper are also being introduced onto the net. (somewhere on this forum I read a post about Guy Kawasaki)

Here is some info not readily found on the net. Research conducted in America by Dr. Stephen Perry who surveyed 152 failed and 152 non-failed small businesses in 1997 found that 64 percent of the non-failed businesses had no written business plan. Although the research found that non-failed businesses had more extensive written plans than failed businesses, 23 percent compared to 9 percent, respectively.

A 1993 AT&T Small Business Study found that 59 percent of small businesses that grew over the previous two years used a formal business plan. A 1994 survey of the country’s fastest growing companies found 23 percent lacked a business plan. Interviews of 100 founders of companies on 1989s “INC 500” list of fastest growing private companies in the U.S. found only 28 percent had comprehensive business plans.


The results of the above studies and surveys are all across the board and don’t demonstrate or establish anything of significant importance. What it does seem to suggest is that a large percentage of successful businesses do not have written business plans. Unfortunately none of these studies disclose the nature of the action that created the plan.

Some food for thought

[Vincent]

Dave, Duncan thanks for the input. I may just quote you guys in my book, if you don't mind.

[Dave A]

You know what the real problem is? At the end of the day your exact result might be an accumulation of a whole horde of factors, but when you get down to the nitty gritty in a successful company, it's normally only one or two things that account for the bulk of that success.

When I was a one man show, it was when I added one line on my business card that things started to really hop. The direct contact marketing strategy and dependable service was always there. One line took me over the top.

I think it was in "Good to great" that you could see this in a big way too. In Jim Collins' interveiws of the CEOs, I really couldn't help notice how often they were saying something along the lines of "At the end of the day, we did this (one) thing right."

Yes, you've got to do the basics. At the end of the day you do need to understand your market and how you satisfy their need and all the other basics.
But normally it's one differentiator that'll produce the big swing in your results.

[ProValue]

Stephen Covey's quote is very relevant:

"The main thing is to keep the main thing the main thing."

Which means focus, focus, focus ...

[Vincent]

Today business plans are more in tune to what we would like the outcome of our business to be, a vision and mission of how to accomplish what we plan to do. A business plan like a vision statement defines what it wants to be, where the organisation wants to be in the future, reflecting the optimistic view of the organisation's future making it is a source of inspiration to all stakeholders. In essences it concentrates on the future of the business.

A mission statement defines where the organisation is going now, primarily describing the purpose and why your particular organisation exists. It concentrates on the present; it defines the customer(s), critical processes and it informs you about the desired level of performance. (thanks to Wikipedia for some info)

Any suggestions or comments!!

[Vincent]

Adding to what Duncan said. I believe the biggest offenders are business plan software programs that churn out cookie cutting documents. People have became a copy, cut and paste nation, all believing that they have the ultimate business plan.

[Ann Williams]

I think one of the problems with business plans is that there is a whole formal industry structured around creating a business plan that will get you money.

Let's face it, most people write business plans to get money, not to plan their business.

The business plan industry has kind of played a trick on people to make them believe that a great formal business plan will ensure that they are going to get money. For those of you who don't know it yet, banks don't care too much about how viable your business is, just your personal ability to pay back the loan, i.e. assets and potential for future earnings (if you business goes south).

Duncan, this is so true! I looked at the business plan guidelines given on the various bank websites and was quite surprised by just how little attention is paid to the actual feasibility of the business.

Anyone who thinks that the bank is out to truly assist you in your business is wearing rose tinted spectacles. That joyful plunge into the entrepreneurial fray could just cost you your home, your savings, and everything else that can be sold off. (Because the bank will come after you if you default; they aren't your kindly uncle.)

So, although one may need to write a 'business plan' (ie. pretty much a list of your assests that are up for grabs if you hit a rough patch) for the bank/s, it's probably a good idea to do some scenario planning (vs a formal business plan) as to what could happen under different circumstances.

What I am thinking here is Clem Sunter style 'High Road, Low Road' scenarios where you ask some very brutal questions about the real feasibilty of the business - and then repeat this process on a regular basis as well as for new projects.

[Vincent]

An update:
This post was originally intented to help me on a book that I wanted to write about "Why business plans don't work, What is the alternative?" (working title).
I have suspended this project for the time being, because I have provisionally been accepted to write my doctoral (DBL) thesis. I first have to complete two subjects, "Business Research and Managing and Resolving Employment Relations," with 65% pass and I will be accepted. When I submitted my application, I had to motive my application and part of my motivation was on my intended thesis, "Why business plans don't work..." So. to write a book on the same subject might jeopardise my thesis.

This won't stop me from working on my other book,which I would like to have complete by the end of March. Contributions are still welcome.

Will keep you posted.

[Dave A]

We have a doctor in the making! Good on you, Vincent.

[Chatmaster]

We have a doctor in the making! Good on you, Vincent.

Congratulation Vincent, I wish you all the best in this venture.

I would like to add something to the topic though.

I have never done a personal business plan for any financial institutions in my entire life. I simply do not believe in banks as the solution to any problems and simply cannot see how anyone can see them as a solution if they simply cause you to go deeper into financial trouble by extending the obvious. Given they have probably helped allot of businesses but I am definitely not keen on asking them for help in any of my businesses when the time comes. But I am a strong supporter of a business plan and feasibility study before starting your business.

The first time I started a business it was because I had to. Finding a new job would take time and I needed to generate revenue to keep the pot cooking. I had no reserves and no job, so no financial institution would be willing to help me. I had to sit and plan what my options was because giving up simply wasn't one of them. Basically my list contained certain steps that took me from my current limitations, current income needs, personal limitations and personal benefits to what my knowledge and experience limited me to. Never once was the question, what I wanted to do and what I liked to do one in my initial planning. Simply because the urgency outweighed any of my personal needs. Startup capital wasn't part of this project either but I had to set certain financial targets and multiply them by 2 to ensure that I reached my targets. A further requirement was to stick to the only investment I could make at that stage, which was time.

I set up a list of possibilities and started investigating competitors in these industries. I set up appointments and went to interview them as a future client and made solid notes about their services and products to ensure I understood what they offered. I then planned around these results and Highlighted what I could utilize from these different competitors and improve on and or merge to ensure the uniqueness of my own product.

The end of the day I had a complete business plan which resulted in me knowing exactly where I was going and what i needed to do to accomplish it. My biggest mistake happened when I deviated from the original plan and involved a partner with hidden motives. That is besides the point but lets just say, I avoid partnerships as far as possible for the future...

My current business ventures are all thoroughly planned and without a proper business plan I am convinced that they will not succeed.

I want to mention another very important point that imho is worth mentioning. There are many factors to result in a successful business. A solid business plan is not a requirement for a business to succeed because there are examples of businesses that excelled and became successful despite not having a business plan. These factors have to include psychology as well. If an individual is motivated and has a strong self esteem they can accomplish the unthinkable and even exceed their own expectations without a solid business plan. They have a natural quality and presence that cause people to want to deal with them. However, very few entrepreneurs poses the qualities and it can be hard work for some people to actually make a business work. Motivation and self esteem should truly be part of the foundation of any entrepreneur and it is definitely not a natural element for most people.

I highly recommend you to read "Will it fly" by Thomas K Mcknight and The World is flat by Thomas L Friedman. These books should be required reading for any new entrepreneur or business owner.

[Vincent]

The end of the day I had a complete business plan which resulted in me knowing exactly where I was going and what i needed to do to accomplish it... My current business ventures are all thoroughly planned and without a proper business plan I am convinced that they will not succeed.

I believe you epitomise what Dwight D. Eisenhower once said, “Plans are nothing; planning is everything.”
He was not suggesting that plans are worthless. Simply, he was implying the process of planning—where one considers the opportunities presented and the challenges confronted and ways to meet them—that is of more importance. And reading what you have written about your business, I believe this to be true.

Writing out a business plan won’t necessarily help a businessperson achieve their dream. Napoleon Hill, in his popular book, Think and Grow Rich, had it right. "The starting point of all achievement is desire. Keep this constantly in mind. Weak desires bring weak results, just as a small amount of fire makes a small amount of heat."

Many well known SA businesses that started never had a business plan. They had a thought, an idea, a belief that their product or service would succeed in the marketplace. They had desire, passion and dedication to achieving their goals.

Flight hand Cleaner was developed by Mervyn Niland and his wife Beryl in their backyard in Benoni, with a broomstick and a 5-gallon drum. Today millions of people around the world are cleaning the grease and grime off their hands with Flight Hand Cleaner. This product now has a multimillion-dollar value.

Other South African companies and products that originally never had a business plan include Kreepy Krauly, Pratley’s Putty, the Cat Scan, are just a few of many inventions born and developed in South Africa that never had a 'business plan.'

There are 5 key reasons why business plans don't work

1. They are not always a pragmatic view of what can really be achieved
2. They are not followed up with consistent action
3. They are not updated and reviewed
4. Applying one-dimensional thinking to a non-linear situation.
5. Practising long-term strategies during rampant change

As previously stated there will always be advocators and detractors of business plans.

[Chatmaster]

Nice post Vincent, but I feel the urge for a counter view once again

I do not know the exact statistics, but why do 9 out of 10 new businesses not succeed?

My list include the following. (Please feel free to add to the list )

• Shortage of funds
• Lack of solid goals
• Poor product or service
• Incorrect marketing or no marketing techniques
• Not paying attention to cash flow
• Poor management
• Not understanding the industry you are in
• Lack of unique offerings
• Under estimating competition

I often find that people list as one of the reasons their business failed at #1 No business plan. I think it is because the origin of a business plan is either many years old, or simply done by people that has never owned a business in their entire life. I say that if you had a proper business plan, none of the above points would apply to why the business did not succeed. You increase your chances 10 fold if you have a solid business plan.

Who starts their own business? What takes a person so far that they start their own business? Most new business owners worked as an employee somewhere and never had the opportunity to run a business. Perhaps they were a low level manager and decided that they can do this, or maybe they have retired after 35 years of service. But they have never run an entire business for themselves. What is the natural process if you are used to earn a comfortable salary every month?

Why do people start their own business?

• You hear about this great opportunity to start your own business.
• I want to work for my self
• I want to have free time to do what I always wanted
• I want to be rich
• I want control over my own destiny
• I've reached the sealing in my current job
• I need a new challenge
• I am unhappy in my current job
• My current employer is doing things all wrong

What do people say when you ask them how they feel about their new business?
They are scared
They are afraid they will fail

Even if this is not the answer they give you most of them will feel this but they might not admit it.

If you feel the above applies to you, DO NOT START YOUR BUSINESS, because you will lack the real qualities that will make it work.

• Absolute passion for your product or service
• A passion for your customers
• The strong self esteem that people will describe as presence
• The ability to sell, not market, but sell. There is a difference!
• The ability to care about the financial well being of your business.
• The ability to built laterally on your business and expand it
• The ability to employ the right staff to make your business work

I always love listening to successful business owners when they explain how they started their business. But the obvious is not what made the business a success, it is the underlying factors, that nobody notices that made it a success.

My point is this. How people define a business plan, is as dsd pointed out, a stupid dream and thumb sucking document to make the bank give them money, that is not a business plan. If you created a real business plan, none of the points I mentioned at reasons why it fails would have applied, simply because you would have known all there is to know and be able to prepare for it. Would you be afraid or scared? No, because you have clarified it to yourself, so you could start your new business with a passion, strong self esteem and prepared.