!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Strict//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-strict.dtd"> Streamline Training & Documentation: Permission to Get Started without a Formal Business Plan

Monday, January 15, 2007

Permission to Get Started without a Formal Business Plan

The Wall Street Journal struck another blow against bureaucratic excess when they published an article on January 9 asking, "Do Start-Ups Really Need Formal Business Plans?"

Naturally, opinions differ. Kelly K. Spors reports that enough experienced hands say the answer is No for entrepreneurs to feel comfortable doing informal planning and then implementing an idea quickly, while the opportunity for it to win in the marketplace is brightest. The exception is when an entrepreneur needs external financing, in which case a formal business plan is likely to be a considerable help.

The issue is whether preparing a formal business plan improves a venture's odds. So far, Spors reports, researchers have found "little concrete evidence that extensive planning is highly correlated to success." Instead of laboring over a detailed plan, an entrepreneur is better advised to
write a "back-of-the-envelope" plan with basic financial projections, such as cash flow, and fine-tune the business model after launching the business.
In other words, an important advantage of going ahead with just an informal plan is that the entrepreneur can find out if his idea is sound without investing untold hours in spinning out detailed financial projections. With some market experience under his belt, the entrepreneur can adjust, as necessary, to take actual customer response into account.

Among the academics Spors talked with, Benson Honig at Wilfrid Laurier University in Ontario offers the most compelling counterpoint to the "plan meticulously" school of thought:
Mr. Honig says he teaches "contingency planning" to his students — or thinking about a business as constantly progressing, changing and making decisions based on the market climate — instead of traditional business planning.
Spors makes clear that there are informed observers who believe formal business plans are desirable even when an entrepreneur does not need external financing. These people argue that formal planning makes it more likely that significant issues and risks will be investigated and addressed.

After weighing both sides of the argument, I conclude that a rule of reason should prevail: Think your concept through, assure yourself that there are strong prospects for what you are proposing to sell, and, if you proceed, be prepared to learn and adjust as you get feedback from the market.

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