Do you need a strategic business plan to begin a new venture? The answer depends on how you define a business plan. Every business must have a plan to begin with; but this does not mean that it has to be in a written format. Even a mental construction of a plan can serve as the foundation for your new business.
A study titled the “Pre-Startup Formal Business Plans and Post-Startup Performance: A Study of 116 New Ventures” by the researchers at Babson College displays the fact that there is no significant result in the success of a business started with a strategic business plan and that of a business started without one.
The question is: Why would you need a business plan if there is no significant difference in the end result? Below are a few things you need to think about before you make a decision about whether to create a business plan before you start a new business.
3 Reasons a Strategic Business Plan is Essential
A Business Plan Inspires and Motivates
When you have worked hard to prepare a strategic business plan, the chances that you will implement it increase. How does this work? You have to take one step at a time when you create a business plan. Taking steps helps you create a concrete plan from the abstract idea you have in your head.
But, a strategic business plan can’t be created out of thin air. You need to locate the target market, research and develop the idea, decide your product or service, identify the best ways to market the product/service, appoint a suitable team and make financial projections. All these steps lead to the formation of the plan.
The transformation of the idea into a plan gives a new entrepreneur the inspiration to begin his or her venture. It acts as the chief force that drives them to take on the challenge to create a real business out of the plan. This, therefore, is the first step toward the realization of your dream to become a business owner.
A Business Plan Helps Secure Funds
If you have family or friends to fund your new business, you may not need a plan to convince them to become investors. But this won’t work if you have to go to others for the money. To convince them, you’ll need to prepare a strategic business plan that shows your active interest in transforming your idea into a venture.
Commercial banks, venture capitalists, government supported lenders – the places from which you can get the funds are numerous. But it’s not easy to convince them about a new business idea. And, it’s especially difficult if your business idea veers into a comparatively new and unexplored domain. Only a strategic business plan can make things work.
Does this mean you do not need a business plan if you have the funds? Well, it’s essential to have this document before you talk to potential investors. However, this does not limit the use of a plan to this situation alone. Even if you have arranged the funds, you can still benefit from a sketch of what, when and how you need to proceed.
A Business Plan Creates the Groundwork
The research and development you invest in preparing the plan makes it a good starting point. The plan helps you work out the steps you need for future business growth, considering any possible changes in circumstances. If you don’t have a vision about your new business, you may fail to achieve the success you desire.
If you think that the plan needs to be a 100 page document of white pages, you need to brush up on the basics. Such documents were in use decades back. Today’s business plans are slick, crisp and precise. You can expect an investor to go through the entire document only if it’s short and to-the-point.
Apart from the length, the content and presentation of the business plan also matters. Investors are only impressed if they find that you have put effort into creating the document. Analysis of the potential market, identification of customers, creation of a business model and other elements must be incorporated in the plan.
A lengthy, drab and monochromatic document can never attract investors. The best way to prepare the plan is to use slides to highlight the main points, an executive summary, a management team, a marketing plan and financial projections about your new venture.
A strategic business plan identifies the path you need to take to get your business from its present state to its future. The first task is to decide where you stand now, and the second is to decide where you want to be within a specific period of time. The next task is to create the path that takes your business from its conception to prosperity.
This path is your business plan.
Business Plan Photo via Shutterstock
Good food for thought.
You wrote, “If you have family or friends to fund your new business, you may not need a plan to convince them to become investors.”
But, what a great exercise (writing up a business plan) it would be for would-be small business owners-even if friends and family will be funding the venture.
The Franchise King®
I agree with you; writing a business plan is indeed the necessary groundwork you need to do even if your venture is funded by family and friends. It gives a new entrepreneur a clear idea about the steps that he/she needs to take.
When it comes to business plan or strategic plan it is the process of writing the plan that is important rather than the end result. It forces you to think about things you may not otherwise and asks you to make difficult decisions that are absolutely necessary when running a business.
Thanks Harry! Nice way to summarize the importance of the business plan for a new entrepreneur. It is the best way to identify the flaws in your idea and find ways to overcome the challenges that your business face.