Business development 1 October 2018

Why you don’t need a business plan

Peter Watson, managing director and co-founder of Distract and Featured

If you’ve ever watched Dragon’s Den, you’ll be familiar with the sweaty-palm moment when the entrepreneur whose livelihood is on the line is asked an awkward question that they can’t answer.

They mop a bead of sweat from their head. Their hand shakes and their knees quiver. A moment passes and then their voice trembles as they tell the dragons “I’m sorry, I don’t know.”

The dragons are up in arms. They scoff, sink back into their chairs and laugh at the foolish wannabe who can’t remember an insignificant detail from their business plan.

Their dreams in tatters, they retreat into the pretend-lift and sigh as an unseen stagehand closes the door on their future. A tear glistens in their eye as the door behind them opens and Evan Davis gives them an awkward hug.

“If only you’d remembered that insignificant detail from that document you’ll never ever need again”, he tells them.

Every entrepreneur who starts a new business has the awkward moment when they feel like they really should have a business plan. People on TV spout on about them and there are whole books dedicated to making an amazing business plan for your startup, but in reality, they’re pretty pointless and you certainly don’t need to memorise everything in it. Google, Microsoft, Uber and Facebook were all started without business plans, so why should you need one?

I started my company, Distract in 2015. We now have 13 members of staff and we’re growing rapidly. We’re working with some big companies and in the last year our turnover doubled. Earlier this year, I started another company, Featured which is our own take on Dragon’s Den where we invite new entrepreneurs to pitch their business ideas to us and, if they’ve got what it takes, we invest in them and help them scale up.

Never once have I actually needed a business plan of my own and I’m not fussed about whether any of the businesses I want to invest in have one either.

Mike Tyson once said “Everyone has a plan until they get punched in the mouth”, and he’s right. When all you can do is move numbers around a spreadsheet, you can’t predict the future of your business because the reality of trading is completely unpredictable. A business plan is a work of fiction and you’re wasting your time making one.

“A business plan is a work of fiction and you’re wasting your time making one.”

Worse, if you trust them too much, business plans can just as easily lead your company into hot water. If your profits don’t perfectly align with the forecasts you slaved over before you dipped a toe in the market, you’ll probably panic and do something stupid.

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Alternatively, you might end up sticking too rigidly to your plan and end up spending all of the imaginary money you thought you could rely on. If you’re doggedly sticking to a plan, you’ll also end up missing all the opportunities to make your business more successful because those opportunities weren’t part of the plan.

You’d be much better off to just keep an eye on your ingoings and outgoings, respond to any trends, and look out for changes and opportunities. Instead of sticking to a plan, you should be open to taking your business in new directions you wouldn’t have thought of before you started. It’s not rocket science, just use your judgement.

“A never ending circle of busy-work”

For all the books, university courses and waffle about business plans, and other entrepreneurs who swear by them there are also academic studies which show just how pointless they really are. There really is absolutely no conclusive proof that they have any value whatsoever.

Take this study for instance from Babson College; a private university in the US which is all about business and entrepreneurship. In their study of 457 new business ventures in 2009, they found that “there is no difference in the operating performance of businesses started with or without written business plans”.

Granted, there are other studies that suggest that business are more successful if they follow a business plan, but as the authors of the Babson College study explain, “writing a business plan before launching a new venture is only necessary for those entrepreneurs who are seeking external startup funding.” And why would that be? It’s because everyone in business has had it drilled into them that every business should have a business plan, including investors. In reality, there’s no point: It’s a never ending circle of busy-work.

Through our growth incubator, Featured, I’m investing in new startups and helping them grow. I’m interested in hearing about people’s business ideas, the way they will work and the people behind them. As long as you roughly have an idea of how you’d like the business to grow, you’re enthusiastic, passionate and sensible, and as long as there’s good reason to believe it’ll be profitable, you’re fine.

Honestly, if you can explain to me how and why your business is going to make money over a coffee and it makes sense to me, I’d be happy to invest in it. I don’t need to see a 20 page document full of forecasts and market research, I wouldn’t read if it you sent it to me and the projections always turn out to be wrong anyway.

So why do people insist on making and reading business plans? I’m pretty sure it has something to do with the thriving economy of universities, colleges, self-help gurus and how-to books which all make money from telling entrepreneurs how they should put together their business plans. There’s no money to be made from telling someone they don’t need your help, and that’s why this myth persists.

So if you’re an entrepreneur, if you’re planning to launch a startup, or if you’re a potential investor, do everyone a favour and stop talking about business plans. No-one needs them.

Peter Watson is managing director and co-founder of Distract and Featured

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