Are business plans a total waste of time?

A survey carried out by business software provider Exact suggests that more than a third of the UK’s 4.9m SMEs don’t have a business plan and “they could be missing out on an extra 20% of profit as a result”.

Of the 34% of respondents who didn’t have a business plan, 68% said they didn’t see the need for one, while 23% were “too busy” to prepare one, 8% “didn’t have anyone to help them” and 5% “weren’t comfortable with numbers”.

Should we be surprised by these findings and are business plans as essential as some start-up experts would have you believe?

Some experts would tell you that start-up business plans aren’t worth the paper they’re written on

Waste of time

Some experts believe start-up business plans aren’t worth the paper they’re written on. Author Paul B Brown, wrote a piece for Forbes.com called Why Business Plans Are A Waste Of Time., after he came up with the idea for a new book that sought to offer insight from the original business plans of highly successful US entrepreneurs.

But there was a problem. As Brown explained: “Most of the business plans had nothing to do with what the businesses eventually became. People who said they were going to specialise in developing new computer hardware ended up in software, for example. In a surprisingly high number of cases, what was in the business plan ended up having very little to do with what the company ultimately became.”

After writing about entrepreneurs for more than 30 years, Brown believes that creating a “painfully detailed business plan really doesn’t make much sense. The first time you encounter something you didn’t expect, the plan goes out the window. Things never go exactly the way you anticipate.”

Some of the heroes of today’s would-be entrepreneurs, such as Steve Jobs, Bill Gates and Michael Dell, did not have business plans when they embarked on ventures that changed the world

Business plan myth

A few years ago, (“former banker, small-business investor and veteran entrepreneur”) Kate Lister wrote a piece for Entrepreneur.com called Myth of the Business Plan. She highlighted research from Babson College (“regarded as having one of the top entrepreneurship programs in the country”), which found “no statistical correlation between a startup’s ultimate revenue or net income and the supposedly requisite written business plan”.

The study found that: “”Some of the heroes of today’s would-be entrepreneurs, such as Steve Jobs, Bill Gates and Michael Dell, did not have business plans when they embarked on ventures that changed the world”.

Great business plans may earn you an A in business school, but in real life you only get As for achievement

Lister said she was “all for having a business plan in the verb sense. I’m just not a big believer in the noun form”. She continued: “Writing a formal business plan invites the paralysis of analysis. It distracts the entrepreneur from slaying dragons and thinking big thoughts. And it’s largely a waste of time. The result usually is a long-winded missive that’s out of date almost the moment the ink dries. Great business plans may earn you an A in business school, but in real life you only get As for achievement. So stop dotting your i’s and crossing your t’s and go out there and slay something.”

Success Plan

Andy Fox is the founder of “award-winning independent car service and repair specialist” iAutoUK. He wrote an article for the Huffington Post called “Why You Don’t Need a 40-Page Business Plan to Launch a Successful Company” (sic).

“I’ve never had a business plan,” he admits. “Despite this, in three years my company has reached a turnover of over £1m, with £100,000 annual profits. For your business to thrive you instead need a ‘Success Plan’. This is an evolving strategy consisting of three elements. No 40-page business plan needed. In fact, you can write a Success Plan on one sheet of A4.

Look at companies such as Comet, Blockbusters and Jessops. I’m sure their business plans didn’t include going into administration!

“Firstly, you must understand your market place and how your business is distinct from competitors. Secondly, the Success Plan must have ‘Leader’s Objectives’ and you must communicate them to your staff. The final element is to make sure you make money! You must have a system that provides you with daily earnings information, and which can monitor cash in the bank and in the pipeline.

“Such a Success Plan is a short, relevant, real-world document. I believe a Success Plan is more appropriate than a traditional business plan.” Dryly he adds: “Look at companies such as Comet, Blockbusters and Jessops. I’m sure their business plans didn’t include going into administration! Had they had a Success Plan, perhaps their futures may have been different.”

• This blog was commissioned by Atom Content Marketing and appeared originally on the Start Up Donut website.

Why it’s OK to fail sometimes in business

Chances are, you’ve probably never heard of Traf-O-Data. It was a venture started in the early 1970s by a couple of teenagers from Seattle, Washington. Using the Intel 8008 processor, Traf-O-Data analysed traffic data punched into paper rolls, so traffic flow could be improved. The budding tech entrepreneurs tried to market Traf-O-Data to local government.

The venture was founded by William Henry Gates III (now better known as Bill, of course) and Paul Allen, the dynamic duo that would later take their place among the world’s richest business men after setting up Microsoft in 1975.

Corporate history provides many other well-known business people who failed but went on to achieve phenomenal success

Flawed business model

In a 2011 Newsweek interview  Allen conceded: “Traf-O-Data was a good idea with a flawed business model. It hadn’t occurred to us to do any market research, and we had no idea how hard it would be to get capital commitments from municipalities. Between 1974 and 1980, Traf-O-Data totaled net losses of $3,494. We closed shop shortly thereafter.”

He continued: “Since then, I’ve made my share of business mistakes, but Traf-O-Data remains my favorite, because it confirmed to me that every failure contains the seeds of your next success.”

Corporate history provides many other well-known business people who failed but went on to achieve phenomenal success. Rowland Hussey Macy had many failed retail ventures, before (aged 36) launching R.H. Macy & Co, which became Macy’s, one of the world’s most successful department stores.

Henry Ford started two automotive companies that failed before he enjoyed enormous success with the Ford Motor Company (reportedly worth US$188bn when Ford died in 1947). Ford is quoted as remarking: “Failure is the opportunity to begin again more intelligently.”

Although we’re encouraged to fear failure, hide our mistakes and be embarrassed when we slip up, failure in business and life offers valuable learning opportunities

Creative thinking

Closer to home, Sir James Dyson made thousands of failed prototypes which sucked up his personal savings for 15 years before he finally created his hugely successful vacuum cleaner.

Speaking to Fast Company he recalled: “I made 5,127 prototypes before I got it right. There were 5,126 failures. But I learned from each one. That’s how I came up with a solution. So, I don’t mind failure. Schoolchildren should be marked by the number of failures they’ve had. The child who tries strange things and experiences lots of failures to get there is probably more creative.” The renown British inventor and businessman now has his own foundation, which “is dedicated to encouraging young people to think differently, make mistakes, invent and realise their engineering potential”.

Although we’re encouraged to fear failure, hide our mistakes and be embarrassed when we slip up, failure in business and life offers valuable learning opportunities. In many ways, failure is part of the entrepreneurial journey – it can drive us forward to achieve great things. And if you’re not prepared to risk failure by trying new things, you might never achieve great success.

We shouldn’t fear failure. Failure reminds us we’re human and that we can’t get it right every time. Never learning from your mistakes is another matter altogether, of course

Definition of insanity

In the USA, in particular, there’s a different attitude to failure in business. Indeed, some believe you cannot truly claim to be a success unless you’ve overcome failure. Many highly successful entrepreneurs have endured epic failures. The key is to recognise your mistakes, learn important lessons when things go wrong, don’t let it happen again and seek to improve. We shouldn’t fear failure. Failure reminds us we’re human and that we can’t get it right every time.

Never learning from your mistakes is another matter altogether, of course. Failure can lead to more failure – and eventually business failure. In the words of Albert Einstein: “Insanity is doing the same thing over and over again and expecting different results”.

• This blog appeared originally on the HSBC Knowledge Centre website and was commissioned by Atom Content Marketing.