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The science of business planning

“All successful people are big dreamers. They imagine what their future could be, ideal in every respect, and then they work every day toward their distant vision, that goal or purpose.” — Brian Tracy

Phillip Chichoni

“Business planning is a waste of time. You should rather just dive in and figure things out as you go.” This is a sentiment I heard expressed by a person who owns several businesses. He insisted that he never wrote any kind of plan when he started each of his successful enterprises.

Well, it is true that many people have started businesses and managed to grow them without a business plan. In addition, the recent movement towards lean start-up seems to discourage the idea of writing a business plan. With lean start-up, you just develop your product and start marketing it to customers. From customers’ feedback, you adjust your offering to appeal to more people. As a result, you do not commit a lot of time and resources to the business until you know that you are delivering something that many customers want. In other words, validation from customers tells you whether your business model is working.

However, scientific study tells us that writing a business plan will make you more successful. Studies from the University of Oregon, which were published in 2010, aggregated research on the business growth of 11 046 companies and found that planning improved business performance. Interestingly, this same study found that planning benefitted existing companies even more than it benefitted start-ups. This is most likely because existing businesses know a bit more about their customers and what their needs are than a new start-up does. For an existing business, planning involves fewer guesses or assumptions that need to be proven, so the strategies they develop are based on more information.

Another study found that companies that plan grow 30% faster than those that do not plan. This study found that plenty of businesses can find success without planning, but that businesses with a plan grew faster and were more successful than those that did not plan.
To reinforce the connection between planning and fast growth, yet another study found that fast growing companies — companies that had over 92% growth in sales from one year to the next — usually have business plans. In fact, 71% of fast-growing companies have plans. They create budgets, set sales goals, and document their marketing and sales strategies.

So what is the lesson for entrepreneurs?

The lesson is that if you want to build a successful and growing business, you need to take time out to work on a business plan. Once you have developed your business plan, you must return to it regularly, revising it and improving upon it as circumstances change and you get new knowledge.

Business plans differ according to the status of a business. A plan for a new business will be shorter and less detailed than that of an existing business. This is because when you are starting up you do not have a lot of information about your customers and the market you are entering. You are learning new things as you go. Your strategies change often. Therefore, a simple, one-page plan would be sufficient to start off with.

The one-page plan will include your business model, which means how you are going to make money. It must define your business goals and document the needs of your customers.

A study published in Small Business Economics found that entrepreneurs that take the time to create a plan for their business idea are 152% more likely to start their business. Not only that, those entrepreneurs with a plan are 129% more likely to push forward with their business beyond the initial startup phase and grow it. A value proposition, or unique selling proposition, is what sets your business apart from the competition. It defines your unique position within the marketplace and gives you an edge over other businesses. Your business plan must therefore clearly describe your value proposition, explaining the problem your product solves, the customers you are targeting and why these customers should choose you over your competitors.

As your business develops, you will acquire more information about your customers’ needs and how they use your product. You set regular goals and make changes to your business as your learn more about your customers. Under the lean start-up approach, this is called “pivoting”. All it really means is that you need to stay nimble, keep your eyes open, and be willing to make changes in your business as you gather customer feedback.

If you have not yet written your business plan, I suggest you get down to doing it as soon as possible. Not only will you set goals and direction for your business, you will also set yourself on the path to growth and success. There are scientific facts to prove it.

Phillip Chichoni is a business development consultant who works with SMEs and entrepreneurs. You may contact him by email, chichonip@smebusinesslink.com. You can also visit http://smebusinesslink.com

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