Many people who are starting entrepreneurship are advised to write a business plan in the beginning. Even schools of business and entrepreneurship teach that entrepreneurs must have a business plan when taking their first steps into entrepreneurship. But from experience, the need for a business plan at the early stage of entrepreneurship is quite overblown and misinterpreted.
A business plan is a document that would describe how a business is structured and operated. It is mostly required to show investors what your business looks like and what it is worth.
For most kind of businesses, it is difficult to predict revenue and expenses at the early stage. Also, for a new business, Brian Hamilton of the American financial tech startup Sageworks explains in a post on Inc.com that certain aspects ‘have to change daily until we figure out what works and what doesn’t.’
Because of the speed of change and adaption required at the startup stage, Hamilton says, ‘Business plans are almost always outdated from the very minute they’re committed to paper.’
Hamilton shamefully admits that at the early stage of his entrepreneurship career at Sageworks, he built a financial model that forecasted ‘huge five-year revenue figures’, despite the fact that they had no any revenue and ‘in reality’ it took about five years to get any ‘sustainable revenue’.
In my case, those early days of entrepreneurship left me dumbfounded. There was always a loud noise about business plans which I somehow saw did not match the reality that I was faced with and many people seemed to be ignoring that fact. I was surprised how so-called experts even failed to point out the mismatch. The financial aspect expected to be included in the business plan, especially, was hard to deal with, because there were either no figures or very low ones to work with. Financial projections at that stage just had to be more of a blind shot.
All these struggle with a business plan amounted to a waste of time and resources. I finally had to give it up and focus on setting up the business idea and running it as fast as possible.
‘A business plan could actually set an entrepreneur back significantly; it imposes unnecessary restrictions on the entrepreneur, replacing creativity and experimentation with rigidity.’
He advises that, ‘entrepreneurial training should focus on teaching future business owners how to think.’ The business idea should be the focus of entrepreneurs at the early stage.
Over time, things would actually become clear and precise enough for you to draw up a more realistic and stable business plan. You would want to have the patience for that to happen, rather than place yourself under unnecessary difficulty.
In Hamilton’s words, ‘Save the business plans for when you have more data to work.’