When you start planning is important—the earlier the better
So, if business planning increases your likelihood of success, and in fact helps you grow faster, when should you start working on a business plan?
Research shows (7) that entrepreneurs who started the business planning process early were better at what the scientists call “establishing legitimacy.” That’s a fancy way of saying that these entrepreneurs used business planning to start the process of talking with potential customers, working with business partners, starting to look for funding, and gathering other information they needed to start their business.
Entrepreneurs that did a good job of using their business plan to “establish legitimacy” early were more likely to succeed and their businesses tended to last longer.
Not only that, starting the planning process before starting marketing efforts and before talking to customers reduces the likelihood that a business will fail (8).
That said, planning should never take the place of talking to customers. An ongoing planning process—one in which the plan is constantly revised as new information is gathered—requires that you talk to your potential customers so that you can learn more about what they need, what they are willing to pay, and how you can best reach them.
Action: Start the planning process early. Even if all you do is build out a simple elevator pitch to try your idea on for size, it will help you begin the conversation with potential customers and kick-start your business.
Planning makes you more likely to start your business
If you’re like me, and like most entrepreneurs, you like to dream up new business ideas. You constantly think of new ways to improve existing businesses and solve new problems.
But, most of those dreams never become a reality. They live on as ideas in your head while other entrepreneurs see the same opportunity and find a way to make it happen.
It turns out that there’s a way to turn more of your ideas into a viable business. A study published in Small Business Economics found that entrepreneurs that take the time to create a plan for their business idea are 152 percent more likely to start their business (9). Not only that, those entrepreneurs with a plan are 129 percent more likely to push forward with their business beyond the initial startup phase and grow it. These findings are confirmed by another study that found that entrepreneurs with a plan are 260 percent more likely to start their businesses (10).
Interestingly, these same entrepreneurs who build plans are 271 percent more likely to close down a business. This seems counterintuitive to the stats above, but when you think about it a bit more, it makes a lot of sense.
Entrepreneurs with plans are tracking their performance on a regular basis. They know when things aren’t going to plan—when sales aren’t meeting projections and when marketing strategies are failing. They know when it’s time to walk away and try a different idea instead of riding the business into the ground, which could have disastrous results.
Action: If you really want to start a business, start committing your goals and strategy to paper. Even if it’s just a simple one-page business plan, that will help you get started faster. And, once you do start, track your performance so you know when to change direction and try something different.
You’re less likely to fail if you have a plan
Nothing can absolutely prevent your company from failing, but it turns out that having a plan can help reduce your risks.
Yet another study of 223 companies found that having a plan reduced the likelihood that a business would fail. Having a plan didn’t guarantee success, unfortunately. But, those companies with a plan had better chances of success than those that skipped the planning process.
Having a plan and updating it regularly means that you are tracking your performance and making adjustments as you go. If things aren’t working, you know it. And, if things are going well, you know what to do more of.
Action: Build a plan, but don’t just stick it in a drawer. Track your performance as you go so you can see if you’re reaching your goals. Your plan will help you discover what’s working so you can build your business.
Your success depends on the type of planning you do
In the end, creating a business plan seems like common sense. You wouldn’t set out on a trip without a destination and a map, would you?
It’s great to see research back up these common sense assumptions. The research also validates the idea that the value of business planning really depends on how you approach it.
It’s not a question of whether you should plan or not plan—it’s what kind of planning you do. The best planning is iterative; it’s kept alive and it adapts.
It’s not about predicting the future as if you’re a fortune teller at a carnival. Instead, it’s a tool that you use to refine and adapt your strategy as you go, continuing to understand your market as it changes and refining your business to the ever-changing needs of your customers.
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Source: https://articles.bplans.com/do-you-need-a-business-plan-scientific-research-says-yes/
