Business Plan vs Business Model – Which Way To Go?
My view is that the business plan is alive and well for established businesses but startup entrepreneurs would do far better with a business model and a great presentation.
Well the likes of Bill Gates (Microsoft), Sam Walton (Wal-Mart), Michael Dell (Dell Computers), Larry Page and Sergey Brinand (Google), Steve Jobs and Steven Wozniak (Apple) and Jann Wenner (Rolling Stone magazine) never felt the need to develop one at the start.
The business plan is not dead. It remains an effective planning tool for corporations and established businesses but I think that it adds very little to the startup entrepreneurial endeavor.
Business plans best suit the hierarchical causal reasoning built into the Goal, Objective, Strategy, Tactic, Action paradigm but entrepreneurs don’t think in this way. According to Saras D. Sarasvathy, associate professor of the University of Virginia, entrepreneurs use effectual reasoning which is often found in explorers setting out on voyages into uncharted waters.
- Effectual reasoning reverses the norm in that it promotes ‘ready – fire – aim’.
- Effectual reasoning develops the meaningful picture and the compelling story and then through execution allows the surprise discoveries to shape the clearly achievable and desirable goals.
- Effectual reasoning focuses more on affordable loss not on expected return, on strategic partnerships not competitive analysis and on turning the chance happenings to advantage over exploiting pre-existing knowledge.
Business plans proves nothing. There are better proof of concept. A web site collecting email addresses of interested buyers for you product, a prototype already in the market under limited release, customer lists and testimonials, embedded release with a key strategic partner, customer and supplier support
Where causal reasoning as part of a business plan goes to great lengths to avoid surprises, effectual reasoning embraces it. Causal reasoning attempts to predict the future in order to control it whereas effectual reasoning attempts to control the future thereby negating the need to predict it.
For me, startup entrepreneurs should best spend their energies developing their ideas to the ‘proof of concept’ stage rather than waste it developing plans that may work well in theory but have no practical traction or reality check. What negates traditional business planing for startup entrepreneurs is:
- You can’t research new – Henry Ford famously said that if he has conducted a market research people would have said they needed faster horses. Anyway, what was the size of the PC market when Bill Gates decided to put one on every desk?
- Change is inevitable – Experienced entrepreneurs know and accept that entrepreneurial business enterprises change and morph substantially in the foundation stages until they eventually settle on their sustainable growth path.
- Windows of opportunity close quickly – Entrepreneurs know better than most that timing is everything. All opportunities have a trigger point where action and commitment is required for that opportunity to be exploited. They know that ‘windows of opportunity’ are fleeting and require timely action or they can be lost forever.
- The plan is already in play – Over 70% of successful entrepreneurial enterprises are started by current domain experts who have directly experienced the pain of a particular problem for which they have come up with a solution. This experience usually occurred while working for someone else or with a previous employer. These entrepreneurs question the need or value of writing a traditional business plan and are more likely to use their insider knowledge and experience and strategic alliances to firstly evaluate the opportunity and then to take it to market via their highly accessible distribution channels.
- Planning tools should not be so rigid – The traditional business plan has a bias towards an existing business going forward and is not well structured for an ‘idea whose time has come’, as it is for most entrepreneurs.
- Getting it wrong is no great loss – The advent of the internet as a means of business entry has made the cost of being wrong almost negligible. Through the medium of eBay, on-line marketing and the like, products and services can be tried and tested in the ‘real world’ prior to any significant commitment of resources.
- Its a bad sell strategy – Imagine the photocopier sales person trying to make a sale by placing the 100 page manual on the desk of the prospective buyer and standing back waiting for the cheque.
- It proves nothing – As a proof of concept tool, there are far more convincing methods that you could adopt.(A web site collecting email addresses of interested buyers for you product, a prototype already in the market under limited release, customer lists and testimonials, embedded release with a key strategic partner, customer and supplier support).
By Peter Baskerville (Quora reviewer & Vocational teacher) in response to a question on Quora: Is Business Plan Dead?