Debunking a myth: Business Plan = Venture Funding? 3

Time and time again I am surprised when people espouse the common myth that you only need to write a business plan if you are seeking funding for your business.  And then I start lecturing them. Yes, every entrepreneur needs to start with a business plan, and I mean EVERY entrepreneur, not just those seeking venture capital.  And why are business plans considered a tool only for seeking that funding? I don’t understand how ANYONE can actually run a company if they don’t have a plan. One of my favorite entrepreneurial blogs, Campus Entrepreneur, writes a post about how policy makers are focusing way too much on venture capitalists :

Well, there is a growing chorus of entrepreneurship bloggers sounding the alarm that policy makers are focusing too much on the VC model when talking about economic recovery.

Less than 5% of new companies ever take on any venture funding, yet there seems to be such an incredible focus on VCs in the start-up world. There is a whole group of people who don’t think a business is even interesting — if it can not get venture funding. Really? This is also why the VC myth is so heavy-handedly taught at business schools and ingrained into MBA students. They are basically taught that anything worth starting must be able to get venture funding. Again from the same post at Campus Entrepreneur:

I find the growth of business plan competitions so odd. Why prepare students for pitching to Venture Capitalists when most of them will never do it?

Now, I don’t find the growth of business plan competitions to be odd, I love it. What I find odd is that the students who enter them, the advisers who help students, and the professors who teach students in these programs think the business plan has only one purpose: to COMMUNICATE with the VC. What a missed opportunity for all these MBAs. This is why I am often frustrated when dealing with a recent MBA grad — they have such a surreal grasp of the real entrepreneur, and the real start-up. It is not just about the dog and pony show, and wowing important people in suits. Entrepreneurship is actually about creativity, innovation, and HARD WORK. It is also about KNOWING what your plan is. Not because that plan will actually be exactly right, or because that plan can actually lead you, step by step, to success, but because the process of creating the plan, understanding your market, knowing your strategic focus, and setting up goals to accomplish your overall objectives, is what will make your company successful.

Often times I hear people say that they “don’t have time to plan.” Or that the “plan will just be outdated too quickly and not be right – so why bother?”. Yes, especially for a start-up, things will constantly change. But you should still have some long-term (12 month, 3 year) goals for your new company. How can you possibly reach and aim for those long-term goals if you don’t do any planning? And if what you plan turns out to be way wrong, you adjust your plan, and more importantly you LEARN what went wrong, and what went well. What do you have to compare your actual numbers to — if you don’t have a plan? How can you analyze what is working and what is not — with perspective– if you don’t have a plan? The biggest myth out there is that the a plan is useless because conditions change. Of course conditions change. But planning makes you THINK, RESEARCH, and REACH for specific goals. It’s like setting out on a long trip without taking the time to plan it out. Of course stuff will change. There may be roads that are closed, or towns that you decide at the last minute that you really don’t want to visit. But having an overall plan, gives you a place to start, and a place to end.

So why can’t they teach this in business school? Why can’t anyone teach the idea that doing your homework, and being well prepared, with a plan, is more important then ONLY learning how to write a plan for a venture capitalist? And why can’t the general entrepreneurial, small business community get behind the idea that business planning is good for ALL businesses, not just a certain few? Especially when there are statistics that show that a new business is 60% more likely to still be around in two years if it has a plan. Those are odds I would like on my side if I was starting a business — regardless of what funding I did or did not need.

-Sabrina Parsons aka MommyCEO

  • http://www.smarthomeworker.com Sahail Ashraf

    This is an intense debate these days.

    Here is my tuppence worth:

    http://smarthomeworker.com/2009/05/31/why-having-a-business-plan-can-kill-your-business/

    However, while we may differ on our opinions here, I feel you are at least addressing the fact that businesses need to plan.

    I just genuinely feel that planning hinders action.

  • http://www.freemoneylessons.com/ Startup Business Plan

    The typical Startup Business Plan will help a new business look ahead and prepare for success, and it will help an existing business assess their past and plan their future.

  • http://www.smarthomeworker.com Sahail Ashraf

    Of course. My point is that it need be nothing more than an outline with a few key points.

    Maybe there is some confusion here between a plan, and planning?

    Your posts are excellent by the way.

About the Author Sabrina has served as CEO of Palo Alto Software since 2007. Read more »

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