We have all heard that some of the best businesses start in a restaurant with some rough notes scribbled on the back of a serviette. If that is the case, then why are countless people studying entrepreneurship and going back to [business] school to learn how to write business plans?
Thinking around entrepreneurship has evolved. Historically there was a belief that it was not possible to teach entrepreneurship. That has changed. Not only is it possible to teach, it has a positive correlation with success!
Let us be clear though, a good business plan often does not protect against the number one reason why start-ups do not succeed. According to CB Insights this is because there is ‘No Market Need.’ You will only truly know this after making your first sale.
However, a well-researched business plan can help protect against the following, all which are on the list of the top 10 reasons for start-up failure:
- Running out of cash – A realistic financial model helps mitigate against this.
- Not having the right team – Critically assessing the skills and gaps within the team can help you realise this before it is too late.
- Getting outcompeted – A simple SWOT analysis or Porter’s Five Forces analysis will help you understand whether you are entering an uncontested market or should be getting ready for battle.
- Pricing / cost issues – A business plan forces you to review your cost base in detail and review your target selling price point in relation to the competition. Pricing is usually a powerful ‘lever’ that a business can pull to enhance profitability that is often overlooked.
- Product without a business model – In 1989, Kevin Costner famously said, “If you build it, they will come.” Many failed start-ups have unfortunately proven Kevin wrong. A proper business plan will help you flesh out your revenue model and how you will attract and retain customers.
- Poor marketing – “Fail to plan, plan to fail.” With the ubiquity of data and return on investment insights, marketing is no longer a dark art. Research will help you identify whether your marketing strategy is suitable for your target audience.
Still not convinced you need a business plan?
Here are some other pertinent reasons why we think business plans are a good idea:
- Communication – starting a business involves an incredible amount of communication to get your idea across - to your team, your Board and any potential investors. Putting pen to paper shows that you are serious and you have thoroughly considered this opportunity, so it might be worth others doing the same.
- Learning vicariously – Take the opportunity to learn from the mistakes of your competition. They probably did not just stumble on their business model. Its formation was likely through the school of hard knocks.
- Creative time – Innovation is a process and requires dedicated time. In today’s society, the information overload can often stifle our creativity. Take some time out to think. Who knows where your imagination will lead you on the path to business success.
We encourage you to pursue that very same idea you scribbled on the back of a serviette, but to first write a business plan so you know whether to frame said piece of tissue or perhaps go back to the same restaurant to see if inspiration strikes again.
If you live in Wales and are interested in writing a business plan but don’t know where to start, Business Wales offer free and confidential advice.
Alexander Leigh, Investment Executive at the Development Bank of Wales
Michael Rees, Investment Support Analyst at the Development Bank of Wales