Are Business Plans Really Necessary?

Are Business Plans Really Necessary?

I read close to 100 books every year. But I’m not sure that I’ve ever read a book on business plans. I probably won’t either.

I did, however, enjoy the 1997 classic from HBR, How to Write a Great Business Plan (you’ll need to buy the reprint).

Business Plans Are Not Just for Startups

When I read this HBR article, my first thought was, “This content is for well-established business.”

First, every business should be in continual planning mode as execution is imperfectly played out. Secondly, businesses with a flattening or declining sales or profit curve over the past 5-10 years desperately need to go through this exercise. This is where you can add value.

People, Opportunity, Context, and Risk/Reward

The author downplays projections in business plans. That’s no surprise since he grades business plans a 2 on a 1 to 10 scale as a predictor of the firm’s success. Instead, he believes the business plan should emphasize:

  • People – the team
  • Opportunity – the size, growth, and attractiveness of the market
  • Context – the external environment
  • Risk/Reward – risk anticipation and how it will be tackled

Regarding the discussion on people and opportunity, the author gives the reader some great questions to consider–that’s worth the price of admission.

The People Questions

The HBR article includes 14 people questions. There were 3 that piqued my interest.

What have they accomplished?
Remember, this article is a tool to augment your creative juices for your existing clients who have become laggards or boring stalwarts as evidenced by their historical financials. For starters, I love this question because the biggest drag to growth and getting out of the doldrums is adding new blood. Do they need a new COO? Is the problem marketing or sales management?

Perhaps the other question is, what can the existing team accomplish in the future?

Are they prepared to recruit high-quality people?
This question naturally follows from the one above. I’ve been doing this CFO thing for other clients since 2001. I’m still convinced that CEOs, good and bad, stink at hiring great people. I know why. It’s because they get in a hurry and are willing to take shortcuts. Get really, really good at learning the art and science of hiring A players. You have to. If not, your clients will keep hiring B players or even C players thinking that they are A players.

How will they respond to adversity?
We need to change the verb tense on this question. Instead, how has the team responded to adversity? Or, how are they dealing with adversity now? More importantly, what is your success rate in helping your clients deal with adversity?

The Opportunity Questions

The author included 9 excellent questions regarding the opportunity at hand.

In true Druckerian fashion, the author asks, “Who is the new venture’s customer?” That question needs to be addressed at least yearly. The natural follow-up questions are:

  • What does the customer value?
  • What do they consider a successful outcome from buying from the new or existing venture?
  • What other choices does the customer have?

The questions also include topics on pricing, cost, production, logistics, customer support, and customer retention. He unwittingly includes questions that should be incorporated into every single financial model.

What I Hate About Business Plans

We’re not all the same. Some of us need a template (like startup founders). Some of us need a blank sheet of paper, my preference in creating a business plan.

I dislike fill-in-the-blank business plan templates because they force the brain to go into automatic pilot. It’s like the business owner is going through the motions to get funding of some kind.

The business plan is not a predictor of the uncertain future. Instead, it’s a theory. That’s it. It’s a theory until it’s been tested. Accordingly, William Sahlman redirects our minds by causing us to focus on the questions and concepts that will help our clients to identify and address the risks that will attempt to block the rewards they are seeking.

The article is just one of the thousands that have been written on this topic. Yet, it’s simple, direct, and to the point.

Title Photo Attribution: Daria Nepriakhina

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