Do you need a business plan? Are you currently writing, or about to write, one? STOP RIGHT NOW! You're wasting your time.

Rigorous research indicates that writing business plans does not necessarily improve new venture performance. (I can go on and on with the academic stuff, but I'll keep it short. Thank me later). Burke, Fraser, and Greene's (2010) article, for example, cites multiple academic studies which struggled to find any relationship between business plans and performance. Similarly, Kraus, Harms and Schwarz's (2008) paper reviewed 25 years of entrepreneurship and strategy research articles, only to conclude that there is no definitive evidence indicating that business plans increase startup success. Simply stated, you may not need a business plan.

Even given these findings, I admit my phrase "big, fat waste of time" is an overstatement. But I'm not going to lose too much sleep over it, given the many "experts" who provide only feeble justifications for writing traditional plans, yet push hard for them nonetheless. This YouTube video, titled "The Business Plan -- It's Important" is one of hundreds of examples.

The video indicates business plans cause entrepreneurs to be on target, to make money, and apparently to end up flying on or building a space shuttle (I was unclear which).

1. Writing one takes time and money. This would be okay if it provided value, but…
2. Traditional business plans don't provide a path for achieving your objectives because they often ignore your personal goals. If they don't include the goals, how can they show you how to achieve them? Many entrepreneurs, for example, start new ventures in order to maximize their freedom and enjoyment. I have yet to read a traditional business plan that explains how to obtain these results.
3. Traditional plans don't provide a path for achieving your goals, because the path is initially unknowable. Many justify the business plan using a travel analogy, arguing that you need a roadmap to get you to your destination. But for a startup, many major streets, such as customer desires, are often difficult to find on the map until you start driving. And other streets, such as technology, competition, and costs, are all constantly shifting.

Not to contradict the YouTube video again, but The Captain of The Titanic had a detailed route planned, and still, an iceberg moved into his path! He did not need a plan, he needed to see the iceberg sooner.

Fortunately, startups often radically change their strategy to avoid the proverbial iceberg. Initially, E-Harmony wanted to build tools for couples’ counseling, PayPal intended to provide security software for handheld devices, and Starbucks planned to sell high-quality coffee beans and equipment, not actual beverages. I'm thankful for these shifts. My life, as I know it, would be over if not for Starbucks coffee. And where would my company be if you could not conveniently purchase products, like the book The Balanced Entrepreneur, through PayPal? (Subtle, huh?)

Admittedly, some proponents of planning provide reasons why you need a business plan which is more sophisticated than the ones I've mentioned here. They suggest, for example:

1. You need a business plan to obtain financing, and
2. A business plan can increase flexibility by helping you identify assumptions, notice deviations, and make appropriate changes.

But as I explain in a future blog in this series, writing a business plan often leads to the biggest financing mistake an entrepreneur can make. And another entry will establish that arguing that the traditional business plan can increase flexibility is great, except for one tiny detail. The argument contradicts absolutely everything we know about how people behave!

Don't worry though, the final blog in this series lays out exactly what to do instead of writing a traditional business plan. (Pretty good cliffhangers, don’t you think?)

My apologies for picking on one unfortunate YouTube video -- I only do so because it succinctly captures the general point of view that people need a business plan. I also know that I'm overstating points, but I want to get you thinking. So, what are your thoughts about whether you need a business plan?

References

Burke, A., Fraser, S., & Greene, F.. (2010). The Multiple Effects of Business Planning on New Venture Performance. The Journal of Management Studies, 47(3), 391

Kraus, S., Harms, R., & Schwarz, E.. (2008). Strategic business planning and success in small firms. International Journal of Entrepreneurship and Innovation Management, 8(4), 381