Does writing a formal business plan increase your chances of success?
I’m not an academic, so I thought I would Google the question. This article discussing the results of a recent study of 1,000 entrepreneurs offers interesting conclusions.
The first conclusion is that entrepreneurs facing the greatest challenges are marginally more inclined to plan formally, specifically high-growth oriented startup businesses and disruptors.
The second conclusion is that entrepreneurs who seek external finance are much more likely to plan formally. Perhaps this is unsurprising as prospective funders will expect to see formal business plans as part of their due diligence/ investment appraisal process. To what extent those businesses are planning primarily for their own benefit, rather than merely to tick the boxes of prospective funders, is unclear.
The study finds that startups who plan are 16% more likely to succeed than those who do not. It is often said that the hardest thing about a business plan is starting it, but the evidence (from this study, at least) seems to suggest that the effort is probably worthwhile.
Personally, I do believe that business planning is an important discipline for all but the very smallest businesses. I would not suggest that every business needs to create a 20 page detailed plan - for many that would be overkill. What really matters is the process of articulating, clarifying and communicating the entrepreneur’s vision, objectives and strategy.
Articulate, clarify, and communicate what you want to accomplish and how you’re going to get there. Ultimately, that’s all a business plan needs to do. If you can do that adequately with twenty bullet points on one sheet of A4 paper (along with a robust set of financial projections!) that may be enough.
On the other hand, if the only business plan you have is the one in your head, how will your staff, customers, suppliers, funders and other stakeholders understand what you’re trying to accomplish, or know how to help you get there?
For more tips on business planning, check out our Guide to Growth for Business Owners and Entrepreneurs.
If you would like help or advice with any aspect of your business planning - or even help with starting a business plan from scratch - just contact us today!