How can an organisation dedicated to helping entrepreneurs say that you don’t need a business plan to get started? With common sense! 😉 Together, we shall see why you don’t need this document to put your ideas into practice. And most importantly, why a business plan isn’t the first step to get your project moving. The challenge is great considering how deeply ingrained this document is in entrepreneurial life.
The Origins of Business Plans
Let’s start at the beginning. Do you know where business plans originated? Big companies used them to plan their yearly strategy. Bankers then adopted them, followed by investors (even though very few still use them nowadays). Indeed, in the past, creating a company required hefty funding. A business plan allowed entrepreneurs to establish their financial plan to get the required funds. Their main goal was to present a reassuring business plan in order to convince banks, to show them that they could handle their money responsibly.
Using Business Plans Nowadays
But that is a thing of the past. Entrepreneurship has gone digital. Nowadays, you can launch many activities from almost anywhere as long as you have a computer and access to the Internet. Overall, launch costs have lowered making entrepreneurship more accessible. However, the current environment is also rapidly evolving and is full of uncertainties. Markets are often overwhelmed, consumers are more demanding and it’s becoming difficult to establish what we have to offer solely by relying on mass communication. For all these reasons, business plans are just one more outdated tool when imagining your company. They belong in a time when creating a business relied essentially on having access to equity.
The Right Reasons for Creating a Business Plan
However, not all of the reasons for writing a business plan are useless. Project holders often write them to reassure themselves. It’s completely normal to want to lower the fear of failure. One of the most common questions that is worth asking is: is my project sustainable? Indeed, business plans are often perceived as the ultimate tool by which to measure the financial viability of a project (thus, the validation and success of a project even if the concept is rather subjective and encompasses numerous personal aspects).
However, there is more than just sustainability to take into account when starting a company:
- Desirability: is there demand for your solution on the market?
- Feasibility: do you have the right resources (time, money, network, skills, etc.) to bring your solution to life?
- And, of course, sustainability: can you reach enough clients to make a profit?
Sustainability is definitely an important element to factor in, but it’s not the only one.
A business plan is not enough!
In an ideal world, a business plan should answer these three questions:
- Is there demand on the market?
- Am I capable of building my offer?
- Will I have sufficient income?
In the real world, it’s not the most suitable document to answer these questions and here’s why:
- No prior data to exploit to make forecasts: as we said earlier, big companies used to use business plans to plan for the year ahead. What’s the difference between a project holder in the planning process and a big company? Data. A decade-old company can use data to predict their future activities with more precision. Entrepreneurs start from nothing.
- Little risk reduction and uncertainties: Due to their format, business plans are often a very “literary” practice that require (too) many pages to be written to try to present a project in minute detail. However, this information rarely ends up being validated with clients themselves. Business plans are often an accumulation of fictitious projections when they should rather focus on the things learned when confronting your idea with the market.
- Doesn’t encourage you to “leave your office”: business plans tend to keep you stuck in your beliefs. They don’t entice you into approaching your market and its different actors (clients, suppliers, experts, competitors, etc.). You face the risk of leaving out crucial information that could decrease the risk of failure. Always remember that your clients are the first people to have the answers to your questions.
- Writing a business plan won’t enable you to raise money: when you are starting out, your main goal is to find customers, not to seduce investors. At this stage, a business plan will be of no help to find money. Of course, banks will demand a business plan if you need a loan. But even in this case, don’t throw everything you have into writing a business plan. First, you need to gather information from your market to create your financial estimates.
- Losing precious time: this document will be read by fewer people than you think. People know that entrepreneurs always tend to embellish their business plans. It’s understandable. Who wants to take responsibility for the uncertainties of a strategy even if it’s been described down to the smallest detail? That the three-year financial estimates are pretty hazardous? The people who read your business plan are aware of this. They understand that the content is probably not completely realistic. You might as well spend time on more relevant documents at this point in time!
The Two Correct Ways to Get Started
A business plan isn’t the right way to start your entrepreneurial venture. So, what should you be working with? Here are two steps that we recommend to the future entrepreneurs we work with.
- The Business Model Canvas: start by planning your ideas with the help of a Business Model Canvas or a Lean Canvas and quickly get in touch with your clients! If you absolutely have to create a short presentation of your project, opt for something visual and concise like the famous 10-slide pitch deck by Guy Kawasaki.
- The creation equation (link in French): the sustainability of a project can only be verified once you have created your business. However, you can avoid creating a recipe for disaster by doing this one fairly simple thing: the creation equation. It consists of:
- Estimating your total costs.
- Listing the price of all of your products and services.
- Imagining the quantities you will sell during the first year in order to determine your projected turnover.
To do so, don’t look for precision or exact numbers. Optimistic estimates will be compensated for by other underestimated numbers. Play around with your variables: try a higher price, a lower price, increase the quantity of sold items and then reduce it, set expenses at a higher or lower rate, etc.
Be careful: the creation equation won’t tell you if your project if financially viable. It will let you know whether there is a high risk of unviability (it’s an important subtlety!) Remember that it will be an order of magnitude: you will know whether you need to sell about 20 products a month or about 80 to make a profit.
The next step is doing a market study which will let you know whether there is a gap in the market that you can make the most of!
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