You don’t need a business plan (and what you can do instead)

In business model, productivity, building blocks, getting things done by neville

In my professional career I’ve been three things: a software developer, a leader and a consultant. Business planning has been a part of my journey in some form or fashion as long as I can remember.

As a software developer, business planning was one of those things that other people did. It was done behind closed doors by serious people in dark suits, shrouded in mystery and only got communicated to the rank and file after much deliberation behind more closed doors. As an employee I rarely got to see entire business plans (presumably because there was really confidential stuff in there that – if leaked – would put the business at risk and they didn’t trust me to not leak said confidential information).

As a leader, I’ve led the development of business plans. The process was both exhilarating (wouldn’t it be great if we could achieve all of this) and frustrating (communicating it was a pain and plans were seldom used extensively after the first quarter).

As a consultant, running my own business, I build business plans for myself and help my clients – solopreneurs and business owners – craft business plans. And what I’ve found is that traditional business plans are mostly useless.

Here’s why – and what you can do instead.

What are business plans for?

To get a better handle on business plans, it’s useful to start with a clear understanding of what business plans are for. Let’s start with a simple definition:

The primary function of a business plan is to get everyone working towards the same goals.

Of course, there’s a lot more to it, but in essence this is what business planning is about – setting goals, crafting plans to get there, and then getting you and your team working towards those goals.

But here’s a critical distinction:

The business plan is the output of business planning, not the tool used to do the planning.

We do planning using other tools, like the venerable (and mostly useless on its own) SWOT analysis, risk assessments, strategy tools, project planning tools and competitive analysis. The business plan is the culmination of those planning activities.

Once you have a business plan, you can use it in three ways:

  • as a reference for what you intended;
  • communicating your plan; and
  • managing your business.

The business plan as reference
If the primary function of your business plan is to get everyone working towards the same goals, your business plan needs to clearly set out those goals. But just recording the goals is not enough – you need to give some indication of how you expect to get there, and how much you’re willing to invest in those activities.

Your business plan therefore is the place where your team can go to remind themselves of what those goals are, how they’re supposed to get there, and how much money they can spend to do it.

The business plan as communication tool
With the plan in hand, you can now use it to communicate internally and externally:

  • Internally, you want to get your team (if you have one) to understand what you’ve planned and what their role is going to be in making the plans work.
  • Externally, you want to show investors, financial institutions and possibly your board of directors that you know where you’re going, you have a plan to get there and it makes sense to invest in your business.

To do these things, you may need to include information in your business plan about your business and the environment you operate in. This will help your team understand why you crafted the plans the way you did, and external parties that you know your market and how you’re going to be successful.

The idea now is that your business plan can be used to communicate both internally and externally (we’ll get to why traditional plans fail to do this in just a bit).

The business plan as management tool
Having a plan usually means that you have a pretty good idea of where you should be at various points in the future. You should be able to come back to the plan periodically and determine if you’re on track – and take corrective action if you’re not.

If your team understood the business plan (and bought into it) you should be able to easily identify and correct deviations from the plan – or change the plan to account for changing market conditions or other events.

So your business plan is ideally also a management tool.

Who should be using your business plan?

As I mentioned above a business plan can be used internally or externally:

Internally, there are effectively two groups of users of your business plan:

  • Your management team who (usually) contribute to putting the plan together, have insight into the underlying financials and commit to get their department or division to deliver on their goals.
  • Your employees, who need to know enough about the big picture and the plan to get there so they can understand how they’re going to help you get there.

Externally, there are three groups who may need insight into your business plan:

  • your Board of Directors (if you have one) who (hopefully) advised you while you were putting the plan together and will advise you as things go right or wrong;
  • investors or financial institutions who need to be convinced that you have a great business worth taking a risk on; and
  • business partners, such as key providers, who need to understand just enough about your business to know that it is in their best interests to work closely with you.

A picture tells a thousand words

Way back in 2015 I first put together a matrix of how business plans are used. Here’s what it looks like:

I wouldn’t claim that this matrix is accurate but it was a good start for me when I originally looked at business plans, how they are used and by whom. Your circumstances may require a matrix that looks a bit different – by all means create your own if you need to.

But here’s the point:

Traditional business plans don’t work for the purpose they were made for.

Why traditional plans don’t work

At the start of this article I stated that the primary function of a business plan is to get everyone working towards the same goals. Knowing that there are potentially internal and external parties involved allows us to extend that definition:

The primary purpose of a business plan is to get your team working towards the same goals, and external parties to determine if and how they can help.

Even with this extended definition, traditional plans don’t work very well. Here’s why:

Traditional business plans are difficult to digest
A traditional business plan is usually a long document with a lot of words. So long, and so many words, that there are almost always Powerpoint summaries of the business plan designed to communicate the business plan in a more concise and digestible format.

My experience is that these Powerpoint presentations often become the primary way of communicating the business plan – which begs the question of why we needed to create the traditional format in the first place. A picture speaks a thousand words, and in business plans this is very true.

Business planning takes too long
Business planning can be an arduous process, and preparing a traditional business plan (with all its words) adds onto the time you have to spend documenting the plan.

The smaller your business the less time you have to spend on stuff that doesn’t generate revenue. The additional time you have to spend to put together a traditional plan is mostly wasted.

Not everyone should see everything
A traditional business plan usually contains sensitive information – like financials – that the business owner would rather keep private. Yet a major component of traditional business plans are the business financials, which means that “sanitised” versions of the business plan have to be prepared for general consumption. This adds time and overhead – something a small business can ill afford.

Business plans are quickly outdated
The smaller your business the more likely it is that things are going to change so quickly that your business plan becomes outdated very quickly.

Smaller businesses are much more likely to be affected by the loss of a key client – or the acquisition of a new one. Startups or young businesses especially are likely to encounter things that change the direction their business is going in. So the time spent to craft a detailed traditional plan is wasted.

Even in bigger businesses I’ve seen that business plans are created with much fanfare but very soon are not used actively or proactively. The time invested in them is mostly wasted (but not totally, as we’ll see in just a bit).

What you can do instead

With all this negative stuff about traditional plans, should you plan at all? Of course the answer is yes – you need to plan quite simply because if you don’t know where you’re going you’ll end up in a place you’re probably not going to like.

But there are three things you have control over, and can make business planning faster, easier and a lot more fun:

  • the process of planning;
  • how you present the business plan; and
  • how you use the business plan.

Visual tools for faster planning and presentation
We all know now that visual tools are faster and easier to use than word-based tools. SWOT analysis has been with us since the 1970’s – part of its longevity and popularity is the simplicity of its visual presentation (it’s still a powerful tool if used correctly).

There are at least two tools that I would recommend for business planning (and use regularly with my clients):

  • The Business Model Canvas from Strategyzer is one of the most popular visual tools for designing business models today. Using the Business Model Canvas to indicate how your business is doing, where you want to go (with an accompanying Environment Map) is a fast way to craft strategy and business plans.
  • My own Tornado Method is a great way for solopreneurs and small businesses to identify how they’re doing in each of the 11 elements of their business, identify the areas they need to focus and craft a plan to get them to where they want to be.

These visual tools are also great for presenting business plans to your team – but there are good and bad ways of using them for this purpose (which is a story for another day).

If your team is small – or even just you – these visual tools are exceptionally powerful. They are collaborative, engage your team, are both planning tools and presentation tools and can be quickly updated to meet changing circumstances.

Using your business plan
You will often hear me tell small business owners that they should only do stuff that they really need to do. As a small business owner myself I know that my time is limited and I have to allocate it where I will get the most effect for my business – everything else is a waste of time or a luxury I can’t afford right now.

You can craft your business plan any way you like. If you’re small – and you don’t have to answer to external parties – you can present it any way you like.

But whatever you do, make sure the effort you put into creating it pays off somewhere, somehow. It may be as simple as deciding what you’re going to this year or for the next three years – in which case you need to do the minimum amount of planning you need to make an informed decision.

So my guideline for using your business plan is to only do as much as you need to do to have your business plan fit for purpose. Don’t do anything more.

Using your business plan for external parties
You will need a business plan to engage investors or get a loan from a bank – but even here traditional business plans may not be the best way to go.

Investors will usually need at least the following:

  • a pitch deck (a set of slides you deliver live);
  • a supporting information pack (usually based on your pitch deck but with more background information and summary financials); and
  • a shorter-form business plan with detailed financials.

Banks tend to be more conservative and old-school and may require a full—on traditional business plan with all the bits and pieces you may find useful or not. Each bank may have slightly different requirements – check with the ones you intend to approach if they can supply you with a template of what they expect. Even then, your financials are going to play a large role in whether you’re successful or not.

Summary

I have a business plan and it’s all of 3 pages long. There’s a 1-page strategy diagram that shows how I intend to develop different kinds of services and build passive income over time; a 1-page rollout plan for the year showing what I intend to develop this year, and my Tornado Method top-level assessment to show how well I’m doing right now and where I need to focus.

I can get away with this because I’m the only person in my business and I don’t have external financing – and this works for me. Your mileage may differ.

Here’s what we’ve covered in this article:

  • Business plans can be used to (record a) plan, communicate the plan and manage the business.
  • Business plans can be used internally (by you and your management team) and externally (by your Board of Directors, investors or business partners).
  • Traditional business plans are difficult to digest, take long to develop and are rarely used actively.
  • Visual planning tools are faster, easier and engage your team better than traditional business planning; further, they can be modified more easily as circumstances change.
  • You may still need some form of traditional business plan if you need outside investment.

What you can do now

First of all, know that you need a business plan. It can be anything from one page to the three that I have or more – but it should be fit for purpose.

Define what the purpose of your business plan will be
If you’re running solo it could be just to point the way. If you have a team you need to get them pointed in the right direction. And if you need funding you will need something that your backers are used to and understand.

Use visual tools for planning
Check out the Business Model Canvas and the Tornado Method.

And of course, if you think I can help drop me a note.