What is the purpose of making a business plan before launching a company?
Developing a business plan has always seemed like a fantastic task to me.
Or rather, fantasy.
Excel can handle absolutely everything. Really anything. It should be programmed to tell you, "Hey, don't overdo it, you're not going to grow as much next year" or "Multiply the costs by 2 and you'll be closer to reality." But that's not the case. Every year it looks better and better but it remains just as silent when it sees crazy things like all of us entrepreneurs do. I hope that with all the developments in artificial intelligence, we will soon have this feature.
And that's not Excel's fault. We always think that things will work out better than they do. This is in contrast to our usual pessimism and history, as there have always been more businesses that have failed than succeeded. You won't see a business plan that ends in the red or with slow growth. They are all growing curves, most of them exponential.
After making dozens of business plans over the past few years and not fulfilling any of them, I began to wonder if it was me. Maybe it was my fault. I started looking at statistics and talking to other entrepreneurs. "Tell me, your plan fits the reality, doesn't it? And the answer was always the same: "Not at all." I started asking investors and banks and the answer was the same: "no, no one meets it, and they don't even come close".
It is claimed that there is someone who not only achieves it but exceeds it. There are also people who say that the Yeti exists and that there is extraterrestrial life. Excel can handle anything and it seems that the beliefs of human beings can too.
The point is that developing a business plan is a task in which you estimate long-term revenues and expenses. The more adventurous ones do it over 5-6 years. Or even 10. Yes, I've seen startups with 10-year business plans. The future is so unpredictable and volatile, that I fear it's an impossible task to succeed. And if you succeed, it's by pure chance and the whim of fate.
Having a business plan can help you to have a hypothesis. It is better for estimating costs than revenues. It allows you to create a kind of budget in which you assume all the costs you're going to have. And that's where you fail the least. Revenue is where entrepreneurs are normally more optimistic and where we get carried away. In consolidated businesses with a predictable future, the business plan starts to make more sense, and, as we said, it starts to turn into the budget, its evolved sibling. In this case, it is much more realistic.
The business plan also helps you to raise funds. Both from banks and other types of investors. This is one of the big taboos in the entrepreneurial industry. Everyone knows that they are not useful, but they are still used to approve business ideas or projects. Human beings will hold on to anything.
Maybe it's like university. It's not practically useful, but you show discipline after 4 years of suffering through endless, boring classes and passing all the exams. Well, it's the same thing, you're showing that you've spent time thinking about how your business will grow, where you're going to go, what are your expectations for growth, and what are the costs associated with the business you're going to have. And maybe this effort is valuable in uncovering things about your current or future business.
That being said, and after discovering its main purposes, the advice is to spend more time thinking about how you're going to put the money in the bank (i.e. sell your product or service at a good margin) than how you're going to put it into Excel. The fact that the latter is much easier reveals why we like it so much.