Decision making Entrepreneurship Start Ups

Business plan or business wish list?


Contrary to conventional wisdom, it is not possible to develop a business plan for every business idea. If you are in the disruptive-innovation arena playing the new product–unknown market game, for example, developing a business plan may be just time wasted. People like Richard Branson, Steve Blank, Pierre Omidyar o Saras Sarasvathy, among others, have expressed their not so encouraging opinion about writing a business plan.

Nevertheless, there are  situations when you certainly need a business plan. And – let’s face it – regardless of how realistic it is to properly plan something, there are many situations where a business plan is required for those who will potentially fund your venture.

So, if you have to do a business plan, you need to be sure that it is a plan, not just a detailed list of wishes. Take the following five points as basic double-checking criteria to ensure you are on the right planning track.

1. Problem instead of product. Focus your efforts, particularly your initial efforts, on identifying a problem or a need. Most business plans are product-driven and too much ink is spent on describing how wonderful, innovative, faster…whatever the product is. By making the problem/need the centre of your approach, you make your business plan market-driven. It’s not only a different starting point; it’s a whole different perspective. Analysing a problem/need leaves clearer room for introducing a solution: your product. A product is successful when there is a market willing to pay for it, and people pay for solved problems, not necessarily for wonderful products.

Use a Lean Startup approach here. Once you have identified a problem, validate its existence and key features.

2. Quantify the consequences of this problem. This is a valuable step ahead of merely identifying a problem. And very few entrepreneurs do it. This will give you early insight on how much your customer may be willing to pay for the solution you offer.

Quantify not only the economic consequences, but also the non-economic consequences of the problem. And do it both at the individual and at the aggregate level. Then you will be able to distinguish between personal and social consequences. Very likely, this will lead you into a path of discovering new opportunities.

How many resources your product can prevent to lose is also a powerful argument in front of investors.

3. Suspect if everything is going well. Think it over (and over again) if you are proving everything you wanted to prove or your calculations are going the way you expected. Entrepreneurs are masters of the confirmation bias. That is: searching and interpreting information in a way that confirms their assumptions. This bias is extensively used when collecting market information. For example, designing an experiment, survey, interview, MVP test (or whatever is used to collect information) to hear what they want to hear. It typically happens when doing lean iterations or when trying to test Business Model Canvas’ hypotheses.

Entrepreneurs’ cognitive biases are well studied. There is consistent evidence pointing that over-optimism and over-confidence influence early decisions frequently with not positive results. Two other well-known cognitive shortcuts when planning are: the planning fallacy (underestimating how much time will be needed to complete a task while overestimating its relevance), and the self-serving bias (attributing success to personal factors, but failures to external ones).

Cognitive biases are used to acquire external information. And they occur to everyone, really. Not everyone, however, has to make business decisions to compose a business plan. How realistic your business plan is, depends on the extent to which cognitive biases are overcome.

4. Use evidence-based information. This third point alone would require an entire post. Let’s summing it up this way: support your key decisions with data. It sounds familiar, doesn’t it? However, as intuitive as it is, research and data are mostly used in a spur-of-the-moment way in business plans.

Be aware of these three red flags…and avoid them (there are more, but these are the top three research flaws I have mostly seen).

  • Planning the research with no clear objectives. Ideally, all the research you conduct should be used to support your decisions.
  • Using anecdotal evidence. Basing your decisions on what has happened to you or to people you know (very likely, people similar to you), is not necessarily useful. Therefore avoid surveying your friends, for example.
  • Collecting primary data when more reliable (and cheaper) secondary data are available

5. Work with milestones. It’s not only because milestones make your goals concrete. It’s because milestones give you quick wins. And when you are launching a business you need them. Football’s match-to-match mindset works very well when venturing. It does not mean that you don’t care about your vision; it means that in order to walk towards it, you know that the most important step is today’s action. And action is what milestones condense.

Equip your milestones with the following: needed resources, a time window, and metrics. These are three key features to give you comparable information over time, track your progress, manage responsibilities, review your decisions and improve your plan. Without milestones, there may be strategic thinking, but there is no strategic action as part of the daily business.

In addition to these steps, keep in mind that customising your plan is an indispensable early task for any entrepreneur. Business plans have different audiences, for instance: potential employees, suppliers, partners, board members or investors. Even within investors, there is significant variety. Different kinds of funders use different criteria to make an investment decision. Depending on whether you are targeting banks, venture capitalists, business angels, or crowd funding as source of funds, you need to emphasise different aspects of your business plan.

A convincing business plan is not easy to create, largely because entrepreneurs tend to mix up the planning with the wishing. Take these five points to temper your entrepreneurial passion with the necessary market reality and I guarantee the planning will be easier, sounder and far more rewarding!

Photo by Dayne Topkin in Unsplash

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