Small Business Wisdom

You Don’t Need a Business Plan!

First of all, of course, if you are starting or running your own business you need to think before you act. That is mere common sense. Second, you do not need a 100 page document that describes the entire universe of your business category complete with a positioning analysis of every competitor in your marketplace. Nor do you need an in-depth listing of all the products or services you will offer during the course of your business, and how each one differs from the offerings of other enterprises. Last, you do not need to indicate the starting and ending cash balance in month 27 before you’ve even opened the doors to your new venture. Unless you are vying for millions of dollars in venture funding you don’t need a business plan. Even then, you probably don’t need a business plan except to satisfy venture funding sources. In a study published in 2006, by five researchers from Babson College, arguably the premier institution on entrepreneurship in the United States, it was noted that “…there was no difference between the performance of new businesses launched with or without written business plans.” The researchers studied 116 Babson graduates who launched new ventures between 1985 and 2003. The study concluded that “…unless a would-be entrepreneur needs to raise substantial startup capital from institutional investors or business angels, there is no compelling reason to write a detailed business plan before opening a new business.”

What? If you are starting a business or seeking business improvement the most likely counsel you will receive is, you need a business plan! If you have the courage to ask why you will likely be told something like, “the failure rate among small business startups is (fill in an astronomical number such as 70, 80, or even 90%) the first year, and then it gets ugly.” You do not need a business plan and small businesses survive at 83% or better (2004 U.S. Census Bureau). That’s correct! Small businesses have a very high survival rate and the vast majority of those business owners have not written a business plan and never will. How can this be? And why are all these well-meaning, well-educated business experts wrong? Some background.

Most graduate educated business consultants, educators, and advisors received their education at colleges and universities that utilized the Harvard School of Business teaching model, that is, the Harvard case study method. It is an elegant, effective, and exciting way to teach modern business concepts. A case study is a story. Usually the method teaches famous stories of brilliant success or spectacular failures of well-known, and very large, businesses. The stories are reduced to concepts and tools that can be tested and utilized in new settings to maximize success or minimize failure. The business plan is an important tool for larger enterprises. If a firm is investing from tens of millions to billions of dollars in equipment, tools, training, and marketing to capture or create market share, the enterprise needs to know the dimensions of that industry and the relative positions of players in the marketplace.

Too, the business plan was the foundational teaching tool for the early educators in entrepreneurial training. The thinking went that if it was good for big business it must be good for the smaller enterprise. That is why if you present yourself for advice on starting or growing your business you will be counseled to write a business plan. You may even be given a helpful guide to assist you, advised to buy a software package, or told to go to the bookstore to purchase one of the many books on the topic. If you Google “business plans” you may select from among 43,000,000 choices. Most importantly, you will be told that if you attempt to start or grow your business without a business plan, you are liable to find yourself among the millions of failed enterprises littering the business landscape.

Relax! If you are in business and haven’t written a business plan you are in good company. If you plan to start a business but don’t want to write a business plan, then don’t. You can still survive, succeed, and thrive in an enjoyable small business ownership experience.

I’d like to tell you I arrived in the business counseling setting and announced:

Small business has a high success rate; and, You don’t need a business plan.

I did not. As a new instructor fresh out of graduate school I told my students and clients that they needed a business plan or they would likely fail. They opened businesses, survived the birth, did not write business plans, and reported varying degrees of success. Over the past two plus decades I have assisted 600 startups, served more than 2,000 existing companies and reviewed one business plan. It was a great plan. The business failed in 18 months. Not because of the business plan, but rather because the business owner excelled at the technical skill of the business but was a poor business manager.

My students taught me that business plans were unneeded. Instead of laboring over a formal business plan, focus on a general sense of where you want to go, where you are, and a few thoughts on how to get where you’re going. Then act. The actions will yield insights and inform you in more meaningful ways than planning. It’s not a business plan that yields a successful business. Rather, it is a thoughtful business person acting in an informed manner that produces results. Simply, create a sense of direction, focus your energies, then move towards your goal. Be open to surprise and success. Most importantly, stay focused and believe in the power of informed action.

Let now be beautiful.

Blessings,

Thomas

Excerpted from Dr. Jones' book, Ten Things You Should Know Before Starting Your Own Business...Even If You Already Have.

Don’t believe everything you read in the newspaper.

Is the United States in a recession? A recession is formally defined “as two consecutive quarters of decline in real GDP (gross domestic product).” Thus, from a formal perspective, the answer is NO. However, without a doubt, we are in a recession. We have been for about a year. And, as I have consistently shared with my students and clients, by the time you read the “R word” in the newspapers, we are well into the downturn. If I am correct in my assertion, what is going on? Simply, the world is changing faster than our ability to communicate the change through language. Without language, we cannot explain reality. For example, when the automobile was first introduced it was described in terms of known language, that is, the horseless carriage. However, today no one explains that their ride is a 2008 Ford Horseless carriage (Okay, they might say mustang, but you get the point).

We are well into the effects of a concept called the bi-modal distribution trend. I first started teaching about this concept in my futurism work in 1991, just five years into the information age. We are now at the mid-point of the era and the bi-modal distribution trend is re-shaping the world. So what is the bi-modal distribution trend? The phrase refers to the shift away from the traditional bell-shaped curve and to a reality characterized by extremes. Extreme wealth and extreme poverty. International conglomerates and neighborhood boutiques, Starbucks and coffee carts. The evidence of the trend is everywhere except in our language.

 Thus, we can be reporting record mortgage delinquencies and foreclosures but no recession. We note low unemployment but gloss over under-employment. We read that 50 U.S. billionaires don’t qualify for Forbes wealthiest list and that 750,000 U.S.citizens are homeless. While the Dow flirts with 13,000, 42 million Americans greet each day without basic health care coverage. And on it goes.

            

As such, while a significant number of businesses in numerous industries ranging from entertainment to transportation and retail may report flat or declining revenues, the economy, as a whole, may not be recessionary.

  

I believe that small business, as a category, is a leading economic indicator. Small businesses live closer to the customer, and closer to the edge. In the past year I have witnessed the highest number reporting flat or slightly declining revenues since the late 1980s. Nothing catastrophic, but decidedly down. A number of factors have combined to put the brakes on growth.

 

The informed small business owner knows that a recession is just one of the four business phases and the best time to achieve market share gains. But before you can successfully navigate a recession, you need to know when one is present. If no one has told you before, let me be the first. We are in a recession, have been for a year, and will be for about 15 more months. So, if you are not already doing so, it is time to operate your venture in recession mode. This means: 

 1) hold on to cash;

 2) don’t borrow unless unavoidable;

 3) wait on capital investments;

 4) postpone hiring;

 5) lower your prices; and,

 6) increase your marketing.

 

During a recession customers trade loyalty for price. A recession, therefore, represents the best opportunity for growth. Later, when the economy improves, you will realize greater profits from the larger customer base. You business will prosper, even if you don’t read it in the newspaper.

 Be joyous! Let now be beautiful. Blessings, Thomas