November 24, 2020 6 min read
Opinions expressed by Entrepreneur contributors are their own.
These days, you just don’t hear that much about business plans. The feeling from some corners of this industry — entrepreneurs and investors—seems that business plans have lost their snap, but I simply don’t agree.
There are plenty of good and necessary reasons for savvy entrepreneurs to invest time and energy to write a memorable business plan. Here are my top five.
1. A well-thought-out business plan is a roadmap that becomes a living, breathing document for turning your vision into a real company with paying customers
Your business plan is the opportunity to demonstrate crisply that you understand your market, that you can solve a big problem for your customers and that your solution presents a value proposition that decision-makers will buy.
Writing a business plan is like catching a fish or painting a room. Most of the work is in the preparation. Ask questions. Drill down on the competition. Become a relentless scenario planner to identify likely outcomes and points of failure. From day one, be disciplined about collecting, protecting and organizing what you learn.
The genesis of your plan might well be scribbling on scratchpad or a Sharpie sketch on the back of a baseball program from a slow game. Your plan’s foundation will be hard evidence of market validation from surveys and interviews with actual customers. The proof of the solution will be technical validation from impartial technical reviews and pilot prototypes. How you’ll achieve it will be demonstrated through the experience and credentials of you, the founding team and your advisory board.
2. Writing the business plan gets everyone on the team on the same page
The rigor of “writing it down” creates a unique opportunity for you, your co-founders and the rest of your founding team to work together to express the business’s intentions and hammer out the details to make that happen. There is no better process for proving to yourselves (and eventually to others) that your big idea can become a profitable company.
You can make plan-writing less cumbersome — there are plenty of useful tools and templates that manage the mechanics of producing a document, but don’t believe it when someone tells you they can write your business plan. This is not work you can delegate. Put down your business plan in your own words and voice. Don’t tackle it all at once. Divide the project into sections; write and rewrite something on it every day — trade drafts with other members of your team and advisors. Marketing reads products and technology. Finance reads market development and strategy. Technologists and product developers read the executive summary.
Accurately express your assumptions, expectations and rationale for the business for the next five years. This is the plan that you and your team are signing up to deliver. By putting it down, you are committing to it. It becomes the measure of your business performance.
Related: Business Plans: A Step-by-Step Guide
3. Writing a business plan shines a bright light on potential opportunities and vulnerabilities you might have missed
As you analyze the industry- and customer-specific data and knowledge you have assembled over the months, you have been working on your startup and expect to have a new perspective. You might discover things you had forgotten if that didn’t register. Reviewing interview notes and survey results, you might see market patterns that you haven’t identified before. Something might have changed in the economy, the industry or competition that marks certain prior responses as new opportunities or red flags.
4. Memorable business plans tell a good story — that story is the basis of your brand
Stories get people’s attention and help them remember the facts. There’s a classic archetype in fiction known as the hero’s journey. It could just as well be called the entrepreneur’s journey, and it’s a perfect structure for telling your company’s story. Like every hero’s journey, every entrepreneur’s business plan starts with a problem that must be solved. The startup team hears the call. Aided by mentors and allies and thwarted by enemies, the team tackles and masters ordeals to gain a reward.
Think of the many and varied occasions when you need and want to tell your company’s story. There’s your three-line elevator pitch — for everyone from your Uncle Chad to each potential investor you ever meet. There’s the slightly longer version, for when a reporter or industry expert interviews you for a feature or a blog. There is a more detailed narrative to attract a business partner. Then, there’s the coveted investor pitch, a laser-focused and well-crafted blend of data and story that delivers the facts and builds connections and trust with your audience. Every version of this story originates from the executive summary of your formal business plan.
5. Investors base their decisions for present and future funding on the business plan
Write a business plan that clearly and succinctly answers the questions investors want to ask. The top line is, why should someone invest in you? Investors invest in people first, then technology. Tee up the market problem and your solution from the customer’s view. What are your achievements so far? How much money do you need, and how do you plan to use it? The most effective business plans tie milestones to capital.
Aim for a two-page, detachable executive summary and a 10-page plan, plus financials. Investors make fast decisions. If you don’t capture their attention in the first three paragraphs of the executive summary, they will move on. Keep in mind that the best way to have your business plan read by a potential investor is to be referred by someone they know and trust.
Napkins are for catching spills, not for writing business plans. A viable business plan is never one and done. Once complete, it will time to update it again. A thoughtful and well-crafted business plan creates a strong first impression, demonstrates your credibility and evolves into a working document that guides your business from starting up through scale.