Business Plan Matters, But Other Steps Come First

When an aspiring business owner decides to move ahead and start a new venture, conventional wisdom says the first thing he or she needs to do is write a business plan. But research on how to plan and my own experience suggests this isn't usually very effective.

In fact, writing a formal business plan should be the final step in a three-step business planning process.

Step one is to assess your idea to determine if it is actually a viable business opportunity. Is there a large enough market? Can I charge this market enough to make a profit?

Is the concept something I can personally pull off? Do I have the experience, knowledge and access to the necessary resources to make this business successful?

This first step should not involve that much detail. It should be a quick-and-dirty first assessment of the concept.

Step two is to develop the business model. A business model adds more detail to the evaluation and begins to make sure all of the moving parts of the business work together.

What is the value that is offered to the customer and what is it worth to them? Who is my target market? What do they expect out of me as a customer? How do I get information to them and how do they want to get the product? What are the key activities to make this all come together and what will they cost? What are the resources I need to make this happen (money included)?

There is a great resource available to help would-be owners develop a business model: www.businessmodelgeneration.com. This Web site contains a large amount of free information on business modeling and links to an excellent book to guide you through the process.

Now, it's time for the plan

Step three is to write an actual formal business plan. The business plan details the elements of the business model. It helps organize what can become a complex and overwhelming array of issues.

The business plan puts everything down on paper to make sure that we have thought of all of the important "must-dos" that go into a successful startup.

Understand that the business plan is just a map, albeit a map into an unknown territory. The actual path the business takes will almost always be different from the original business plan. But the plan can help us think through the details.

It helps us understand how all of the parts of a business fit together to make a whole venture. It helps prepare us for our journey and makes us better prepared to adjust to all of the surprises that we will face almost every day we're in business.

However, this final step of writing a formal business plan is not always necessary. I know many very successful entrepreneurs who never wrote a formal business plan for their ventures.

But almost all of them understood the importance of business planning. While they may not have written a formal business plan, they did take the time to go through the first two steps of business planning.

While a formal business plan may not always be necessary, sound business planning will always improve an entrepreneur's chances for success.

(This post ran as my column in the Tennessean this morning).