Marketwired Blog

Are Business Plans a Waste of Time?



By Tannette Johnson-Elie

 

The business plan long has been the blueprint for starting a venture and guiding it to success, but before you spend the time writing one hear this: You don’t need a formal business plan to succeed.

 

That’s the message from William Hsu, co-founder and managing partner at start-up accelerator MuckerLab. Hsu, who has been both a successful entrepreneur and an executive at AT&T and eBay, urges small business owners and entrepreneurs to scrap the traditional business plan and instead focus their energy on understanding their customers, building a solid team and developing a winning business strategy.

 

“I see entrepreneurs spending years writing their business plan. This is not a productive exercise,” says Hsu. “The market moves real fast. The market may have changed by the time you finish writing your business plan. It’s much better to spend your time talking to potential customers and really understanding what you should spend your time on.”

 

Hsu represents a new breed of tech-savvy entrepreneurs who know how to get a business up and running and make it profitable in a matter of weeks or months.  They believe that testing the market is more important than putting the effort into writing a business plan.

 

“What an entrepreneur needs to figure out is, is this business worth spending the next five or 10 years of my life investing my time and everything into?,” said Hsu. “Small business owners should be figuring out how big is the market opportunity, who are my potential customers, and how much are they willing to pay for my product?”

 

Hsu believes having a great team behind you as an entrepreneur is the most important aspect of going into business, followed by the need to take your product to market as fast as possible. Talented team members can compensate where an entrepreneur might be weak, he said.

 

Conventional wisdom says a solid business plan is necessary to raise early-stage capital from lenders and investors. Not so, says Hsu.

 

“The early stage venture capitalists have stopped reading business plans. For them, they’d rather talk to an entrepreneur and get a sense of the team, and the opportunity and the product than to sit behind a desk reading a business plan,” says Hsu. “All VCs want s a 10-to-15-minute presentation that outlines your marketing strategy, business model, marketing size, technology and the team.”

 

Conversely, there are some who still believe the tried-and-true business plan is an invaluable tool for entrepreneurs not only in starting a business, but for increasing revenue and seeking investors.

 

Wendy Baumann, president and CEO of the Wisconsin Women’s Business Initiative Corp., says small business owners need to know where they are going and simply finding and selling to customers is not a full plan.

 

Bauman’s Milwaukee-based, non-profit women’s business association offers a comprehensive business planning classes for nascent entrepreneurs and established business owners. Participants are encouraged to complete a draft business plan through completion of weekly worksheets, exercise and coaching.

 

“This is what we are hearing more and more in ‘accelerators’ and ‘lean start-ups’ and again, that is good and part of it, but one needs more,” Baumann said. “I am not talking about a book with chapters and divisions and compiled with vast amounts of market research and proformas and analysis. I am still sharing that the basics of a business plan is needed and in over 25 years of working with WWBIC – we still believe this.”

 

In defense, Hsu says he is not recommending that small business entrepreneurs jump into a business without first doing their homework.

 

“Do your homework. You still need a business strategy,” says Hsu. “It’s not about creating a 40-page document that no one will read.”

 

What’s your take on the issue? Do you support Hsu’s point of view that business plans are a waste of time? Or do you believe business plans are still necessary to succeed?

 


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