If you take preparing a Business Plan seriously and do all the things typically expected, it catalyzes at least six important discoveries and activities.
1. It exposes gaps in knowledge of the business. It could be how products are distributed and marketed, who the competition really is, what other disruptive products are in development or what controls and regulations will you have to understand and comply with to market products. If there are business plan sections you don’t know how to address, better find out how to now rather than assume you will figure it out later.
2. It forces discussions about team, titles, roles, goals, strategy and finances that might otherwise be put off and sabotage the company later. A plan is just a plan but it does define the starting point and the intended path forward. It is better to settle issues of roles and ownership at the beginning rather than later when circumstances change. Kicking these cans down the road never leads to better outcomes, but often leads to bitter endings.
3. It defines the end game – whether exit or sustainable business – and how to get there. Creating a business is easy; getting something for it is hard. Creating value for which someone else might eventually pay handsomely, whether it be customers or an acquirer, is very hard. Not having a clue about how to get to that goal is very common. Don’t start a business until you have a credible path to your goal.
4. It identifies relationships between the parts of the organization of the potential business that will have to coordinate and work together, and how they will do that. Understanding that organizations have internal as well as external customers and working out how those internal customers will be engaged can facilitate a much better operating experience once the business is launched.
5. It forces you to acknowledge and address your competition. It is obvious to you that your product is better than anyone else’s, but being able to articulate to others the points of differentiation and provide evidence that these points are meaningful to customers is essential to credibility. For example, being able to do something in half the time sounds good but if you cannot define and confirm a resulting commercial advantage, than it may have marginal value and require expensive marketing efforts to reach significant adoption, and the viability of the business may be in question.
6. It requires a credible and substantiated market estimate to validate the business potential. I have seen scores of startups presenting to Angel screening committees I have been part of, describe their market like this: The cancer market is $56B and if we only get 1%, investors will see a nice return. Well, the problem is if you get zero % you will be broke and that is far more likely than getting 1% of the incredibly diverse and fragmented oncology market which includes diagnostics, treatments of many kinds, palliative care, etc. Anyone who justifies their market by pointing to the largest relevant summary figure has not done their homework and usually doesn’t have any idea how they are actually going to make money, and savvy investors know it.
A business plan is therefore, first and foremost, a discipline and tool to help you organize and align the business effort and team. The requirement to articulate clearly the objective of the business, the customers, market estimates, products, go to market strategy, product development requirements, timelines, budgets, exit, and in medical products where I work, regulatory requirements and clinical strategy, forces the team to work out these issues, close gaps and align around a plan.
The business plan is not a Bible; the plan will change over time with changing circumstances, relationships and new information, but it creates and documents a logical starting point and rationale. From a well-thought-out business plan, pitch decks and other tools can be derived with a solid foundation and substance to address the inevitable questions arising when engaging investors, partners, advisors or senior level candidates. The team will be much better prepared to integrate new information or expertise into a solid framework and make the necessary adjustments to strengthen the business rather than have every new surprise be a setback. Several years down the road, you will also be able to look up why you did things the way you did – and you might be surprised how hard that is if you don’t document your starting point and rationale.
If, for you, a business plan is a checklist or chore done because someone else required it, rather than a discipline and tool you use to organize and insure your business prospects are good before putting your time and anyone’s money at risk, then it IS A WASTE OF TIME and you should bootstrap and NOT put someone else’s money at risk.