Want to Build a Company? Put Down the Business Plan

The conventional wisdom is that you absolutely have to have a business plan to start a business.

In fact, recently I came across something in my inbox that attempts to prove the point:

"In an era in which the Small Business Administration estimates more than a half-million businesses fail annually, a new study finds that companies completing business plans were twice as likely to successfully grow their business, get investment capital or land a loan."

It may seem significant that the above sentence came from a press release issued by a company that sells business planning software. The more cynical may already have guessed that the university where the students performed the research is located in the same town as the headquarters of the software company. Dyed-in-the-wool skeptics possibly have assumed that the head of the software company was, until 2009, a long-time instructor at the same university.

None of this means the research or its conclusions are useless. It's just another salvo in the lopsided war over the importance of business plans for startup companies. To date, virtually all the combatants come down strongly on the side of the position that a business plan is as important to a budding entrepreneur as a web site, a business card or a corner desk. Only a few have dared to question this well-entrenched wisdom. Yet some of them have come to different and even opposing conclusions.

One of the problems with creating conventional business plans, which may run even hundreds of pages including numerous spreadsheets with detailed financial projections stretching several years into the future, is that the time and energy would be better spent trying to actually start the business. No less a leading light than William Bygrave, a pioneering entrepreneurship educator and researcher at Babson College, suggested in a 2007 article in The Wall Street Journal -- unfortunately, one that's not available online -- that it makes more sense to try to make a sale than to try to project five-year cash flow.

Another position is that writing a very long, detailed business plan is not always a good idea because markets change rapidly. Critics have also noted that business plans created for the purpose of obtaining financing almost universally inflate revenues and deflate costs, producing projections that are notoriously unreliable.

There's also little doubt that many successful enterprises have been started on the basis of little more than a few jottings on the back of a cocktail napkin. One of these, according to legend, is Southwest Airlines. I've interviewed Southwest's co-founder on a number of occasions and the story about drawing a triangle between Dallas, Houston and San Antonio to serve as the route map for the proposed airline is at least entertaining, if not factual.

A good examination of the underpinnings of the recent business plan announcement can be found here. Take a moment from preparing your own voluminous business plan and consider some of its points. The best move for you to make today may be away from your spreadsheets and business plan software and into the market, to find somebody who'll actually buy what you have to sell.

Image courtesy of Flickr user RambergMediaImages, CC2.0