Not every company starts with a Business Plan.
Apple didn’t – they didn’t write a plan until they needed $250K in financing to build the Apple II inventory.
Microsoft didn’t – they just started writing BASIC for the Altair, with no signed customer.
Hewlett-Packard (HP) didn’t – they just started making products out of their Palo Alto garage.
How many entrepreneurs DO start with a business plan?
A research paper from the Babson College Center for Entrepreneurship, Pre-Startup Formal Business Plans and Post-Startup Performance: A Study of 116 New Ventures, reviewed the research and cited a range of studies that showed that typically less than a third of successful entrepreneurs had written detailed, formal business plans:
A study of Harvard Business School alums that had started businesses discovered that no more than a third had written detailed business plans … Put another way, only a minority of entrepreneurs, including even MBAs from a preeminent business school, started their ventures with a formal written business plan.
For some more data on this: Amar Bhide interviewed 100 companies from the 1989 Inc. 500 list – some of the fastest-growing privately held companies in the United States. Bhide reported that the average company on this list of 500 companies had 1988 revenues of about $15 million, 135 employees, and a five-year sales growth of 1,407 percent.
Bhide found that:
- 41% of the entrepreneurs had no business plan at all and
- 26% of the entrepreneurs had just a rudimentary plan.
A decade earlier, John Case had undertaken similar research interviewing the founders of successful Inc companies, and had published it in Inc.
Case found that:
- 21% of the entrepreneurs started with a detailed, formal business plan
- 58% started with a loose, “casual” business plan
Case reported that 29% of the successful Inc 500 entrepreneurs said that they didn’t plan – they just got started (yes, these figures do not add up to 100% – which I attribute to some CEOs reporting in one section of the interview that they had a casual plan, and in another section that they just got started).
The upshot from this is that while it varies between studies, as a very rough rule of thumb among successful entrepreneurs, we could say:
- Around a third don’t have a Business Plan, they just get started
- Around a third write formal, detailed Business Plans
- Around a third do something in-between – some level of planning and documentation, a loose or casual Business Plan but not excessively rigorous or formal.
The message here is you don’t necessarily need a business plan when you start a business. You can succeed – to a high level – without one.
But doing some sort of planning is useful, even to test and validate your thinking and underlying assumptions, and to get prepared for contingencies.
If you are clear about your target market, the need you serve and the value you add, what your product or service (that sells) is, how you will do effective marketing and sales, and you have a clear action plan, you may not need a business plan.
If you would like to sharpen up your thinking and focus, and reduce risk and uncertainty, doing some business planning – and possibly even writing a business plan – may be very helpful.
What about you – have you written a business plan for your business?
Do you think business plans are valuable?
Let us know your thoughts!