How important is a business plan, and what should it include? If you are setting up a business or would like to know more about how to do so, the Harvard Business Review, this week published valuable insight from the real world of entrepreneurship.
Whilst there is an abundance of books, ‘experts’, software packages and entire courses dedicated to creating a business plan, most seem to miss the point. And consider this; business plans rank no higher than 2 out of 10 as a predictor of success for a new business. And investors know this.
So what’s wrong with most business plans?
Too little focus on reality, the context and the risk and far too much emphasis on highly detailed financial plans, usually with understated costs and time frames. Painting a false picture is not good for you, and is easily recognised by potential investors.
Financial predictions, in particular relating to when a profit is likely to be turned or what the break-even point is for a sale, are worthy of inclusion, but not as the main focus of the plan. Put them at the back.
Focus on the real questions you need to be asking of yourself:
1. Who are the people? What skills do you have, how can you leverage your network and who are the other parties you’ll be engaging (e.g. lawyers, accountants)?
2. The opportunity. Who will you sell to? What are you selling? What are the prospects and how quickly can you grow? What barriers are there (eg competition)?
3. The context. What are the factors outside of your control (eg economic performance, employment rates, technology innovation)?
4. Risk and reward. Explain clearly what could go wrong and what that means for you, and what happens if everything goes to plan?
So, put away the colour charts and hideous spreadsheets. Start focussing on simple questions.
That is the message coming from successful entrepreneurs.