Business Plans Should Move to the Back Seat

telescopioEntrepreneurship, at least from the perspective of teaching and competitions, is all about business plans. This, however, is the wrong focus.

New ventures, whether a new startup or a new idea in an established company, are about discovery. The more an entrepreneur wants to build a new market or change the parameters of an existing one, the more she needs to forget about business plans. When there are many uncertainties, the way to go is to experiment to test and reduce those uncertainties. Is the customer the market segment that we think? Will these customers pay the price we want? Are we sure that we will be able to reach these customers? Does the distribution channel respond the way we think it will?

There are many questions that a business plan will not answer. Together with my colleague Luis Martin Cabiedes, we have been running a course called Starting Internet Businesses. We never look at a business plan. Rather, we ask our students to learn whether their business idea makes sense and is scalable. We ask them to sketch a business model and to go to the market and start testing their ideas. The entire course is about discovering. Often students find getting traffic to their websites much harder than expected. In other occasions, the navigation is much harder than they anticipated.

The first step is always to go out and talk to potential customers, suppliers, and even potential competitors. There is no point in thinking about what the customer will look like or do. Instead, it is much better to talk to them and to have them test initial versions of the idea. The sooner the idea faces the reality of the market, the faster it will grow or the faster the entrepreneur will understand that the opportunity is not there.

People that want to be entrepreneurs spend lots of time convincing themselves of how good their idea is. They write business plans and put together impressive spreadsheets to further convince themselves. And in the process, they hope to convince investors with presentations.

Rather than spending their time analyzing, writing, and polishing documents and presentations, they should go to the market, ask and listen, test their ideas, and polish their business.

Devoting so much energy to a business plan makes sense when the idea is close to an existing one . You just take what you know from the existing idea and tweak it. The plan lays out how you will go about quickly executing on your idea. Let’s say that you are going to open a restaurant. If you know the industry, you pretty much know what the numbers will look like – if it is successful. Write them down in a business plan to see if they make sense. Then open your restaurant. If the concept is successful, your will hit your numbers.

But if your idea is unique, the business plan stays on the back seat as a working tool  to record your learning and your thoughts. It should take a small part of your effort; your attention should instead be on crafting a winning business.


About Tony Davila

Antonio Dávila is professor of entrepreneurship and accounting and control. Furthermore, he is the head of IESE's Department of Entrepreneurship and holder of the Alcatel-Lucent Chair of Management of Technology. From 1999 to 2006, he was part of the faculty at Stanford University's Graduate School of Business, where he still teaches periodically. Prof. Dávila earned his Ph.D. from Harvard Business School and his MBA from IESE. His teaching and research interests focus on management systems in entrepreneurial firms, new product development and innovation management, and performance measurement.

One thought on “Business Plans Should Move to the Back Seat

  1. I agree with you and yet, part of me doesn’t. I agree that when you start a business, it can be counterproductive to spend so much time working on a business plan that you don’t have the time or energy left to actually DO the business. I definitely agree that entrepreneurship involves getting your feet wet and learning on the fly, keeping an open mind, and being innovative. I think there should be a business plan, but not necessarily a polished formal one…more like a working sketch that evolves over time…a real work in progress.

    But I also think that the old adage holds true…”If you fail to plan, you are planning to fail.” One of the problems a lot of startups face is that they think that if they start a business, they will automatically make money. They have no plan and they don’t work out the details of the daily operations. (Who will my suppliers be, how will I get this product to customers, etc). So, I think they key (as with most things) is to find a balance between the two extremes.

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