The value of writing a business plan is often debated in the entrepreneurial community.
For every successful business that was launched with a well-thought-out business plan, it seems you can find an equally successful one that was launched with nothing more than some scribbles on the back of a napkin. In fact, the contrarian approach may be the one you hear most about — i.e., entrepreneurs dismissing a business plan as something they wrote and then stuffed in the bottom of a drawer.
Palo Alto Software founder Tim Berry (a contributor here at Small Business Trends) recently reported on some new data showing the value of business plans. Palo Alto did a survey that asked thousands of its Business Plan Pro software users questions about their businesses, goals and business planning. The responses showed that those who completed business plans were nearly twice as likely to successfully grow their businesses or obtain capital as those who didn’t write a plan.
Tim gave this breakdown of the numbers:
2,877 people completed the survey. Of those, 995 had completed a plan.
- 297 of them (36%) secured a loan
- 280 of them (36%) secured investment capital
- 499 of them (64%) had grown their business
1,556 of the 2,877 had not yet completed their plan.
- 222 of them (18%) secured a loan
- 219 of them (18%) secured investment capital
- 501 of them (43%) had grown their business
Of course, as author of the original Business Plan Pro software program and founder of Palo Alto Software, Tim admits he’s a little biased in favor of business plans. And people who respond to a survey by the company that made their software may be biased in favor of saying good things. So Tim had the University of Oregon Department of Economics assess the validity of the data. Eason Ding and Tim Hursey wrote a report on the data with the supervision of Professor Joe Stone. “Results suggest that planning with software is highly correlated with subsequent successes for a variety of firms,” they wrote.
Regardless of the type of company, the growth stage of the company and the intent for the business plan, Ding and Hursey’s analysis found that writing a business plan correlated with increased success in every one of the business goals included in the study. These were: obtaining a loan, getting investment capital, making a major purchase, recruiting a new team member, thinking more strategically and growing the company.
The authors concluded:
“Except in a small number of cases, business planning appeared to be positively correlated with business success as measured by our variables. While our analysis cannot say that completing a business plan will lead to success, it does indicate that the type of entrepreneur who completes a business plan is also more likely to run a successful business.”
And if I correctly interpret the last sentence in the quote above, the act of going through the business planning process may make you a better entrepreneur.
So there you have it: you’re better off WITH a business plan than without one. In fact, based on the survey, you are twice as likely to grow your business or achieve funding if you have taken the time to write a business plan.