If no business plan works out as planned, why do investors insist on a business plan?

A business plan is nothing but a plan for your business. It is an articulation of your vision on how the future will play out.

A business plan also articulates how the startup proposes to go from point A to point B, and by when. It also outlines the milestones and other dynamics (costs, resources, revenues, etc.) on the way from point A to point B. I.e. It is a plan of how the concept of your startup will alter the market, and how you intend to implement that disruption.

business-plan

But at startup stage, there is no past data that can be used to make reasonably dependable predictions. Hence the vision of what might happen in the market with your concept is based on assumptions that you have made based on your conviction and your insights. Even in more established companies, there is only so much predictability you can bring into a business plan based on past data. How in-market dynamics may change is an unknown, and business plans even of larger, established companies can and often do get disrupted.

Some of the assumptions you have made will play out as assumed, others will not. Nothing surprising about that. Why then is it important to make a business plan knowing that what happens in the market is most likely to be very different from what you planned for?

A business plan helps you define your strategy

There is no ‘one right strategy’ for ANY business. Strategy is all about making a choice between the various options that are available to you, AND then aligning all your resources to execute the option that has been chosen.

A business plan therefore, becomes that document which helps every person involved with the implementation to visualize the strategy, and be aligned on the road map. It helps everyone ‘see the film in their mind’. And as you can imagine, the clearer the business plan, the greater the likelihood that everyone will be seeing the same film in their minds rather than different people making different interpretations of the road map.

And even if things do not go as planned, making a business plan allows the team to get early-warning signs so that they can adjust the plans to factor in the in-market inputs and data on how things are moving.

A Business Plan gives a sense of your aspirations, in the context of the potential

How you define the market opportunity is a key indicator of how large you think the opportunity is. (e.g. local or global). And how large you intend to be is a key indicator of your aspirations. Since angel investors and VCs typically invest in ventures that are scalable, a business plan becomes a document that helps them understand the scale of your aspirations.

A business plans helps investors understand if the road map is practical

A good idea is of no use if it is not executed well in the market. And for a concept to be executed well, a number of different aspects have to be aligned and well-coordinated. For a business to succeed many different things have to work well in tandem. Even one of these many aspects going wrong is enough for a venture to fail.

A business plan helps investors understand whether the team has a practical view of the complexities that will be involved in implementing the concept and scaling the venture. How you have thought about your go-to-market plans, cost structures, resources required marketing efforts, and other aspects is a good indicator on whether the team has the necessary competence and understanding of market dynamics to deal with the challenges in scaling up.

As I keep telling entrepreneurs, a business plan is a useless product but an invaluable process. It is not a document that you write and print out and refer to as the only direction to go by. It is a living document that you will refer to and continuously make adjustments based on what happens in the market.

Also, I tell founders to make a business plan even if they are not looking for investors. A business plan is YOUR pan for YOUR business. Only one of the uses of that business plan is to get investor interest.

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Author: Prajakt Raut

Prajakt Raut is the founder of Applyifi.com, and author of the book for startups - ‘Starting Up & Fund Raising’ Prajakt personal goal in life is to encourage and assist a 100,000 people to become entrepreneurs. _____________ Prajakt is the founder of Applyifi - an online platform that provides startups a 36-point scorecard and assessment report on the venture's investment readiness [www.applyifi.com], and helps them improve their odds of getting funded. Prajakt is also the founding partner of The Growth Labs, a platform where growth-stage companies get sharp, incisive advice from senior professionals and experienced entrepreneurs. [www.thegrowthlabs.in] Before starting Applyifi, Prajakt was the head of operations at IAN, founding member of a leading incubator, and the Asia-Director for TiE (2004 - 2007). Previously Prajakt had co-founded Orange Cross, a healthcare services company, and was part of the founding team member of Idealake Technologies. While in college Prajakt had founded a printing business and has spent over 10 years working in leading advertising agencies. Prajakt’s book, ‘Starting Up & Fund Raising’, helps startups understand an investor’s perspective, and helps them improve their odds of getting funded. The book also helps entrepreneurs understand the building blocks of a business.

1 thought on “If no business plan works out as planned, why do investors insist on a business plan?”

  1. As I keep telling entrepreneurs, a business plan is a useless product but an invaluable process. – The statement that sticks!!!
    It is a living document that you will refer to and continuously make adjustments based on what happens in the market. – I think this is now fancily termed “pivoting”, and I guess any biz will inherently has to do it to survive and keep afloat…..

    great insights, thanks!

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