There’s no one way to start a business; some like to play it by ear, others like to work off a game plan. If you’re familiar with popular entrepreneurs, you likely know success stories in both directions. Business planning is a controversial topic in these circles, so you’ll undoubtedly get conflicting advice the more people you ask. That being said, is there a right answer?
Luckily, there’s no shortage of research on the topic. We’ll get into the nitty-gritty facts and see what insights they hold. After all, thorough business planning comes with a time tradeoff, while risking it all without a plan doesn’t seem that appetizing either. We’ll also touch on peripheral concerns like when and how you should plan to maximize your chances of success.
Do business plans work?
The short answer is, yes, but there’s more to it than that. For example, a study published in the Journal of Business Venturing found that planning did in fact improve overall business performance. The study examined over 10,000 small firms; however, it was revealed that this effect was more pronounced on established companies, not startups. That begs the question, who really benefits from business planning?
The kneejerk reaction is to point to startups. Still, another study published in Venture Capital indicates there’s no difference between startups that work from a business plan and those that don’t, in terms of performance. These studies show that the purpose of a business plan is generally misunderstood.
Established companies have a unique position as they can use their experience to influence their plan. A plan is only as good as the knowledge it’s based on, and established companies have more experience to work with. But make no mistake; they leverage their plans with great success. A study published in the Journal of Small Business Management found that 71% of the fastest-growing businesses utilized plans.
How does planning help your business succeed?
You may take from the previous points that there’s no need to create a business plan until you’re far into your venture. But it actually indicates just the opposite. Plans grow and adapt alongside your business; they need time to develop into the effective big hitters seen in established corporations.
Research shows that the most effective plans combine planning and learning. You need to be dynamic when it comes to business plans. One that allows room for enhancement as your company matures. This may be why there’s so much conflicting information out there. Data indicates that the quality of your plan will greatly influence its success.
A study published in the Strategic Entrepreneurship Journal showed that plans were most effective when startups were tackling innovative or disruptive ventures. This is likely due to the guidance plans provide when attempting to reach very particular and high-risk goals. Having specific and attainable goals to mark your progress is essential to any company, and it’s perhaps why they encourage growth in the long-term.
What type of planning should you develop?
There are a few key things you need to know about business planning before you get started. As mentioned previously, not all are created equally. The one you develop will need to be suited to your specific business. According to a study published in the Journal of Business Venturing, your business plan should be made concerning your business’s age and sector.
Established companies should utilise a more comprehensive plan with detailed objectives and a clear direction. This makes use of their unique experience and understanding of their particular sector. Established companies also face less dramatic changes and developments throughout their operations. Detailed plans can help them stick to their goals and maintain their direction.
Startups, particularly those entering temperamental or innovative fields, should make simpler and shorter plans. A general outline of their direction and goals would be optimum under these circumstances. Startups often go through several stages of development and evolution throughout their first year of operation. Short plans enable them to make adjustments and input their new experiences. This helps to shape a more flexible and comprehensive plan as they mature.
I have a great simple business plan template that you can use. It leaves out all the unnecessary parts that a start-up doesn’t need to concern themselves with.
When should you start planning?
So, you have a better idea of the advantages of a strong plan, how it can help your company succeed, and the type of business plan you will need to develop. But when should you actually start creating it? Surely the shorter ones found in startups would be easier to create, on top of requiring a smaller time investment.
Well contrarily, studies show the sooner, the better. Business plans are important for companies seeking funding, so they have an outline they can show to investors, but there are other perks as well.
According to another study published by the Journal of Business Venturing, businesses that developed their plans sooner gained something called “establishing legitimacy”. This essentially means that these businesses excelled at creating the foundation of their business. This includes networking, seeking funding, and expanding their knowledge base.
Business plans also seem to encourage entrepreneurs to follow through with their ideas. A study published in Small Business Economics found that if you develop a plan, you’ll be more successful. They are twice as likely to not only start their business but also move past the initial phase of development and start growing sooner as well.
The guiding force behind your business
As you can surmise from the research I went over; a good plan can offer your business many perks at little to no costs. It’s an essential step when developing your company from the initial phase, up to growth and expansion. While some businesses may be able to get by without one. Those companies are outliers and are dwarfed when compared to their planned counterparts.
When your plan is done correctly it can help enhance your business and serve as its guiding force. With these insights in mind, now may be the best time to start developing your business plan.
If you need some help then why not start my 12-week Entrepreneur Mentor program. Get help to build your business plan and develop your business idea.