We were the poster people for young and naive entrepreneurs.We spoke to a few people who we considered to be business savvy and they told us not to "waste our time" creating a 50-page business plan because it was going to take up too much time and it wasn't really necessary.
They were wrong-- WRONG WRONG WRONG and here lies the crux of my article today.
Everyone who is starting any kind of business should take a moment or two to sketch out, type out, write out, whatever you prefer, some kind of plan. It doesn't have to include pages and pages of text, financial models, and charts, but you should take the time to gather your thoughts about the product/service you plan to build a business around and figure out your approach to making it a success. This "wasted time" on a business plan is just the opposite. The time spent on a business plan will save you lots of money and time in the future.
Many business gurus today suggest just doing an executive summary which is basically a one-page explanation of your business, the market place, and what you intend to do to build the business. I support this as well.
My parents, who own a thriving pet sitting business, only did the executive summary, and it was totally sufficient for their small, local business that was built solely off of word of mouth. He doesn't intend on selling or marketing a product. They have no overhead costs other than gas and the few hundreds of dollars they spent in the beginning for business cards and flyers, and they didn't invest any money into the company, nor do they have any outstanding bills (like a mortgage) that relies on this income. An executive summary is sufficient for this kind of business.
My business, on the other hand, is completely different and I can safely say that we wasted plenty of time and money on our first business model focused on Italian Ice because we never took the time to write out ANY kind of plan--not a 1-pager, not even a sketch-- nothing. Our bank didn't seem to think this was that big of a deal either, and without a single sheet of a plan, they handed us a loan for $25,000.00. We had no clue how we were going to spend the money, how it was going to get paid back, or what the fine print read on interest rates etc. We were probably the least prepared and least deserving of a business loan as there was in that entire year...
We were picturing the world and our business through very rosy colored glasses.
Anyway, we went through the loan money and charged up hefty balances on business credit cards with high interest rates in under a year and realized too late that the money was gone, our business was not growing, and the approach that we were taking was a far cry from what we wanted to do for the rest of our lives. We also realized that while the weather is nice here, it's not really hot enough to spurn people to buy cold treats all day every day. We realized that we were going to need a lot more than 25,000 to make it successful, so bailed on that idea and here we are...3 years later with a new product that has a ton of potential, a few clients, and a financial model and a business plan. It's not perfect, but it's a start, and a much more solid one at that.
My Point is...
that if we had taken the time to write the business plan for the Italian Ice company, we would have been forced to ask questions like: what are the benefits of the product, how will the product be produced, what kind of equipment will we need, where and how are we going to sell and market the product, who is the competition, what is the competition currently doing in the market etc.
I would have been forced to consider the vital questions that all businesses should consider before spending money and time creating a new business. Going through the grueling process of writing a business plan also forces you to see if you are really passionate about the product, service etc. If you can't even sit down to write the business plan and research for the necessary information, how will you do all of the other grueling tasks in a business like making cold calls all day, dealing with accounting, and banging on doors to sell a product.
I am not saying that writing a business is the be-all end-all to starting a business, nor is it the absolute first thing you must do in the process, however before you spend tons of money, sit down and at least commit to writing a one-page executive plan and you will for sure save money and time in the long run.
I am not saying a business plan ensures success, but it's a step in the right direction
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