Why Writing A Business Plan Is An Overrated Practice

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All of the books I’ve read on how to start a business always focus on writing a thorough business plan prior to taking any other action. Having read quite a few of these books and having written a fair share of business plans, I’ve found that writing these documents have largely been a waste of time, especially for small businesses.

While the principle of writing down a business plan is fundamentally sound, I’ve found that things rarely go as planned and that your business plan practically goes obsolete the minute you are done writing it.

Sure, you are supposed to be diligent and update your business plan as changes are required, but realistically there are much more productive things that you could be doing other than amending a document. Business plans are really only useful when looking for funding or when pitching your business to a third party.

Don’t get me wrong. I’m not telling you to avoid planning your business altogether, but for small businesses and lifestyle entrepreneurs, I’d say avoid the fluff, do some back of the envelope checks on whether your business is viable and then run with it.

Formal business plans are pointless because…

Business Plans Are Written By Humans

Let’s be realistic. You can’t predict everything that can go wrong and you can’t possibly know the intricate details of running the business or project until you’ve actually gotten down and dirty with the nitty gritty.

At the beginning of the business cycle, all you can provide are vague guesses which are usually optimistic and incorrect. Until you’ve actually gone through and tried some sort of implementation, your plans are not going to be accurate.

The unfortunate truth is that all business plans are based on human assumption, and humans make mistakes.

Business Plans Are Excuses For Inaction

I once had a buddy of mine spend a year on his business plan. I couldn’t believe that he had wasted an entire year writing down what he thought was an extremely detailed strategy for starting his own company.

His business plan was literally a book. It was full of assumptions and contingency plans for a variety of situations. It included many versions of pro forma revenue numbers that varied depending on the economic climate.

After reading his business plan, I advised him that he should go into academia instead. While his plan was reasonably detailed, it was largely based on a few key assumptions that if proven false, would have thrown his entire plan into a lurch.

I think that secretly, he worked on his business plan as an excuse for not taking any real action. It’s easy to rationalize that you are making progress by putting things down on paper, but at the end of the day, you’ve accomplished nothing tangible.

Business Plans Provide You With A False Sense Of Accomplishment

Whenever I’m excited about an idea or business prospect, I tend to view things through a pair of rosy colored glasses. I used to put together these intricate graphs(which always go up and to the right) to describe how much revenue that I thought I could pull in along with an optimistic prediction on the growth rate.

I used to write down a detailed plan on how my business was going to proceed based on very little practical knowledge that I read about in books or online.

I would then obsess over the plan and my imaginary numbers and feel like I’d be already 80% of the way there. Putting something down on paper always carries the appearance that you’ve done something, even when you really haven’t even begun.

There are too many unknowns and writing them down isn’t going to make them go away. Are you worried that you might be overlooking something by not writing it down? Don’t be. You will be missing a hell of a lot more than you think you are no matter what you do.

Your Business Plan Isn’t Going To Impress Anyone

Even if you looking for funding or pitching a fellow investor, no one is going to care about your imaginary plans and predictions. Investors invest in people not ideas. Why do they do that? Its because the entrepreneur will be the one who will have to fill in the little details.

The entrepreneur will be the one who will need to find innovative ways of solving problems when things don’t go according to plan. I’m sure that if Steve Jobs wanted to sell an iToilet to the public that he’d have absolutely no problems finding funding. If you want to build up your resume, begin by doing something on your own and build experience through failure and success.

What You Should Be Focusing On

After you’ve determined that your business is viable, you should jump straight into the trenches.

With our store, we broke our attack down into three main categories. We first secured our vendors to make sure we could obtain the products for sale. Then we researched websites and web technology that would enable us to sell goods online.

Finally, we looked for strategies and ways to draw customers onto our site. While our online business is a very basic example, the same principles should hold for other businesses as well.

I can tell you firsthand that any business plan or strategy I could have written up before taking any sort of action would have been completely bogus. There’s only so much that you can learn from reading literature alone.

Using the implementation of our website as an example, I never would have been able to predict how much effort was involved until I actually sat down and played with the source code. Similarly, I had no idea how much profit I could have made until I actually spoke with vendors and negotiated a fair price.

Idealistically, a business plan is useful only if it is constantly updated and amended. In practice though, I question whether anyone possesses the necessary discipline to do so. A good balance between planning and action needs to be struck. If I had to choose, I’d err on the side of taking more action any day.

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7 thoughts on “Why Writing A Business Plan Is An Overrated Practice”

  1. While I can understand your personal reasoning not wanting to waste time on a business plan, I still feel they’re an invaluable resource for many reasons.

    Key to this is getting funding for your venture – while it may be okay for Steve Jobs to sell ice to the eskimos, it took him a while to achieve this. Unfortunately the rest of us mere mortals aren’t so lucky… 😉

    Banks and financial institutions still lay a lot of credence onto a well executed business plan, and that’s where they differ from investors. Yet even the greatest salesman in the world won’t receive investment if he or she can’t back up their excellent idea with the logic that a business plan can show.

  2. Hi Danny,

    Point well taken. There are two types of business plans, external and internal. In the case that you’ve pointed out in regards to getting loans from banks and other financial institutions, you are correct. An external business plan is absolutely necessary. The type of business plan that I’m referring to in this article in more of an internal one. I’ve just found that most people write a business plan just once and never look back at it ever again.

  3. I agree with Danny that investors and banks want to see a business plan – but that’s the ONLY reason, in my book, to spend more than a half hour on a business plan. I myself have never written one, and somehow my business is doing just fine! :-) I agree that lots of people spend too much time on planning. It gives them a sense of control, almost as if the plan acts as a guarantee that their business will be a success.

    I say, jump in and DO business. Only action creates results. We have to get to know our business not on paper, but through experience.

    Great article!

    Blessings,
    Andrea

  4. Hi,
    A business plan is essential for all startups. I am sure you have one too – in your head. The reasons why you say a business plan is not needed are the exact reasons why it is so important. The problem is that many believe you need the business plan for the bank or venture capitalists. This is wrong. I got my bank loan based on collateral and not based on an idea. Business plan-based funding only works when you have proven yourself before. Venture capitalists will judge you first on your demonstration (prototype?) and then look at numbers. You don’t need a business plan, but nice PowerPoint.
    I agree that a business plan is useless when it’s written for the sake of having one. But it is an invaluable tool for mapping out the business strategy, setting the financial framework and keeping you on track. The business plan structures your idea and shows you what are the conditions for success. It is a model with variables that can be modified and evaluated for their impact. I would never run a business without a plan – even if it took only 5 min to get the initial model into an Excel table. It is my diary and guideline for many decisions. How do you know your activities are productive and profitable? I am sure you know your overhead, gross profit, cost of sales, etc. by heart and base your decisions on this knowledge. It is the business plan in your head…

    Cheers,
    Christian

  5. Rosa Tejeda says:

    Steve, you are right. We must focus on defining which goods to sell, the logistic to sell those goods online and generate traffic to our online store. Then we have to take action, action and more action each day.

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