A recent survey carried out by business software provider Exact suggests that more than a third of the UK’s 4.9m SMEs don't have a business plan and “they could be missing out on an extra 20% of profit as a result”.
Of the 34% of respondents who didn’t have a business plan, 68% said they didn't see the need for one, while 23% were "too busy" to prepare one, 8% “didn't have anyone to help them” and 5% “weren't comfortable with numbers”. Should we be surprised by these findings and are business plans as key as some start-up experts would have you believe?
Waste of time
In fact, some experts would tell you that start-up business plans aren’t worth the paper they’re written on. Last year, author Paul B Brown wrote a piece for Forbes.com called Why Business Plans Are A Waste Of Time. He’d come up with the idea for a new book that sought to offer insight from the original business plans of highly successful US entrepreneurs.
But there was a problem. As Brown explains: “Most of the business plans had nothing to do with what the businesses eventually became. People who said they were going to specialize in developing new computer hardware ended up in software, for example. In a surprisingly high number of cases, what was in the business plan ended up having very little to do with what the company ultimately became.”
After writing about entrepreneurs for more than 30 years, Brown believes that creating a “painfully detailed business plan really doesn’t make much sense. The first time you encounter something you didn’t expect, the plan goes out the window. Things never go exactly the way you anticipate.”
Business plan myth
A few years ago, (“former banker, small-business investor and veteran entrepreneur”) Kate Lister wrote a piece for Entrepreneur.com called Myth of the Business Plan. She highlighted research from Babson College (“regarded as having one of the top entrepreneurship programs in the country”), which found “no statistical correlation between a startup's ultimate revenue or net income and the supposedly requisite written business plan”.
The study found that: “"Some of the heroes of today's would-be entrepreneurs, such as Steve Jobs, Bill Gates and Michael Dell, did not have business plans when they embarked on ventures that changed the world”.
Lister said she was “all for having a business plan in the verb sense. I'm just not a big believer in the noun form”. She continued: “Writing a formal business plan invites the paralysis of analysis. It distracts the entrepreneur from slaying dragons and thinking big thoughts. And it's largely a waste of time. The result usually is a long-winded missive that's out of date almost the moment the ink dries. Great business plans may earn you an A in business school, but in real life you only get A’s for achievement. So stop dotting your i’s and crossing your t's and go out there and slay something.”
Andy Fox is the founder of “award-winning independent car service and repair specialist” iAutoUK. Recently, he wrote an article for the Huffington Post called “Why You Don't Need a 40-Page Business Plan to Launch a Successful Company” (sic).
“I've never had a business plan,” he admits. “Despite this, in three years my company has reached a turnover of over £1m, with £100,000 annual profits. For your business to thrive you instead need a 'Success Plan'. This is an evolving strategy consisting of three elements. No 40-page business plan needed. In fact, you can write a Success Plan on one sheet of A4.
“Firstly, you must understand your market place and how your business is distinct from competitors. Secondly, the Success Plan must have 'Leader’s Objectives' and you must communicate them to your staff. The final element is to make sure you make money! You must have a system that provides you with daily earnings information, and which can monitor cash in the bank and in the pipeline.
“Such a Success Plan is a short, relevant, real-world document. I believe a Success Plan is more appropriate than a traditional business plan.” Dryly he adds: “Look at companies such as Comet, Blockbusters and Jessops. I'm sure their business plans didn't include going into administration! Had they had a Success Plan, perhaps their futures may have been different.”