When Do You Need to Write Your Business Plan?

Our original business plan

Unnecessary?

“If it really was a no-brainer to make it on your own in business there’d be millions of no-brained, harebrained, and otherwise dubiously brained individuals quitting their day jobs and hanging out their own shingles. Nobody would be left to round out the workforce and execute the business plan.”
– Bill Rancic

There are a ton of “business gurus” out there who will tell you that you need to write a business plan, or even that you must write a business plan before you even get started. It’s not just the “business gurus” who are guilty of offering this bad business advice. Go look at the Small Business Administration’s page for starting a business. What’s #3 after thinking about it and finding a mentor? You don’t even have to click the link to guess. It’s writing a business plan.

The order is ALL WRONG!

Let’s look at the “commonly accepted wisdom” of “business gurus” for how to start your business.

  1. Get an idea
  2. Write a business plan
  3. Go get a business loan
  4. PROFIT!!!!!

Here’s the reality of what happens if you follow that plan.


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  1. Get an idea
  2. Write a business plan
  3. Go get a business loan
  4. Open. Listen to crickets chirping
  5. Wonder what the heck went wrong
  6. Eat ramen cakes for months
  7. Finally close up shop and get a job
  8. Slave for years to pay off that debt you accumulated/declare bankruptcy
  9. Wonder what went wrong
  10. Repeat

Don’t believe me? Check out the SBA’s own stats. Half of new firms close within 5 years, and in 2009, nearly 10% of firms that closed had bankruptcies. It’s enough to scare you away from taking a risk in starting your own business!

The untold story is of the crushing debt that these business owners face if they fail. In fact, try to find good data about the average difference in debt load of a failed business owner. I don’t think any reliable information is out there. If you can find some, put it in the comments!

The SBA and “business guru” approach is flipped on its head. They focus on two things which will provide you with an anchor around your foot and an albatross around your neck. They want you to think a lot – and we know that intention is not the same as execution – and they want you to go borrow a bunch of money you might not need and encumber yourself with debt you might not need.

Here are the three most common myths about business plans perpetuated by “business gurus”:

  • “What if you need angel funding or VC funding? You can’t get anyone to invest in you without a business plan!” If I want to invest in a small business, I’m much more concerned about kinetic energy than I am about potential energy. If you can’t show that you already have a customer, and preferably customers who have committed money to you for your product or service, then you’re telling the same story that every other person who was in line before you and who will be in line after you are going to tell. You’re in a much stronger negotiating position when you don’t need the money, but it would be nice to have. Also, if you don’t believe me when I say that you don’t need a business plan like the “business gurus” would have you write, check out this pitch.
  • “You need to have a business plan to know where you are going!” You should have an idea, a concept on how to execute, and a list of potential customers, and then you should go out and get customers. From that point on, the customers, and then the market are going to tell you where you are going. Having some detailed document written out with detail down to the ¼ second of each day is only going to serve to create some heavy reinforcement for an anchoring bias (“but, it’s in the plan!”) and keep you from serving your customers and providing value for your market.
  • “You’ll never sell your company without a business plan!” Just because you don’t have a 50 page fully detailed fill-in-the-blank business plan written out (with the help of the “business gurus”) doesn’t mean that you don’t have a plan for your business. I never had a written business plan when pitching to potential buyers. I had a 12 page Power Point presentation. Plus, your buyer may come from within your own company. If that buyer doesn’t know your business without the help of a long formal document, then they have no business buying you out in the first place.

So, arguably, the answer to the question I pose in the title is simple. Never. Focus on getting your first customers, then exceeding their expectations while getting more customers, and repeating that process ad infinitum. Time you waste writing down an enormous business plan is time you could spend getting that process started.

Did you write out a full business plan? What are your thoughts about it? Join in the conversation in the comments below!

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About Jason Hull

Jason Hull is a Fort Worth financial advisor. Before becoming a Fort Worth financial planner, Jason co-founded, built, and sold a software development company. He is a CFP candidate, has a MBA from the University of Virginia, and a BS from the United States Military Academy at West Point. He is the owner of Fort Worth financial advisor Hull Financial Planning.

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Comments

  1. This reminds me very much of a book I read recently called The Toilet Paper Entrepreneur. He says the same thing.

    I think you’re very right in saying that business loans are pushed on people (here in Canada it’s through government funded agencies as well as through banks), but there’s little to no coaching or support for business owners to spend that money wisely and view it as a finite, precious resource.

    • The last thing in the world I want is for a banker (“Rawr! I’m a banker!”) to be telling me how to manage my money and finances. His goal is to make me as successful as possible while concurrently being in as much debt as possible. More debt = more profit = more raises for banker. The perverse incentive is there, which is surprising. I bet no relationship banker got a raise because of us, even though we churned six digits of money through our accounts monthly and spent well into the five digits on credit cards (although we definitely got the attention of Amazon, who was our main recipient of said spending), which made us quite profitable from the bank’s point of view. Sadly, many bankers forget that they win if businesses are successful, even if they have no debt.

      Funny enough, the last time I talked to a relationship banker, he said “I wish I could afford not to have a mortgage.” Um, that’s not exactly confidence inspiring. His next statement was something along the lines of telling me that I should get a mortgage. I’d rather take stock picks from a random guy on the street. At least I have a 46% chance of getting it right.

  2. Great post, Jason. I don’t understand how the business-plan industry stays in… business.

    Nothing says “clueless” about a startup pitch quite like a 50-page business plan with a five-year forecast broken down into monthly columns!

    • The exact same way that people who sell stock or real estate investing seminars do. Those who can’t, teach.

      My 60th month revenue projection would have been much more accurate if I would have, instead of inputting an actual number into the Excel spreadsheet, used the formula: =randbetween(0,500000). That, of course, assumes I would have done said projection. I did project 2.x years of revenues – current year and 2 forward looking years – when doing the pitch presentation. I always found that my most accurate yearly projections occurred on December 31.

  3. Bill @ RLD Investments says:

    The biggest reason new companies don’t make it is because of a lack of preparation. Whether it is because of a lack of funding, or not properly understanding the market they’re entering, the lack of due diligence ends up crushing them. No one is going to give you their iron-clad business plan because if they have one they are using it for themselves. However, finding some good key concepts to master and applying them to your situation will always work.

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