Eight Reasons Startups Should Create a Business Plan
Editor’s Note: A record number of more than 10,000 new businesses were started in Rhode Island in 2020. Nearly all of them should have had a business plan, but many people don’t put in the time nor effort to plan up front. So we connected with Dave Lavinsky at Growthink, a firm that specializes in business planning for small businesses, to get his take on why startups should create a business plan. Here is Dave’s list and a few more of his insights.
When starting a business, it’s crucial to get your foundation right. A strong base gives you a better chance for success. One way to create this strong foundation is to write a business plan.
What is business planning?
Business planning is the process of shaping the future of your business by:
- Setting the long-term and short-term goals you wish to achieve.
- Choosing the strategies and operations that are necessary to achieve these goals.
- Calculating the amount of financial resources and non-financial resources (such as staffing) needed to grow your business.
- Identifying the strengths, weaknesses, opportunities and threats that affect your business.
- Understanding how to navigate the current and future market landscape.
Eight Reasons Startups Should Create a Business Plan
Business planning is an essential and integral first-step before you start putting the roots down for your new business. Here are a few ways in which business planning will help you:
1) It will give you greater clarity about your business
As you start planning your business, you’ll be able to articulate what you exactly want to achieve. This way, you’ll be able to create goals and objectives that can help you focus your efforts.
2) It will allow you to secure the resources you need to start your company
This is one of the most important benefits of business planning. When you plan your new venture, you’ll be able to identify and calculate the exact financial requirements you have. Things like the amount of seed money to start the company, funding needed for staffing, the actual skill requirements from new employees, how many vehicles, machinery, tools, etc. will be needed – all of this will become clear.
You’ll also be able to know how not to waste resources too. Business planning gives you greater clarity about when you may need more resources and when you may need less.
3) It will give you an edge over existing competitors
A primary component of business planning is studying your existing competitors. As you learn more about your competitors, you will be able to identify the market needs they’ve been unable to address. This knowledge will allow you to set-up your business in such a way that you gain competitive advantage.
4) It will help you create products or services in-line with what customers want
A key part of planning for your business is choosing which products and/or services to offer customers, how to offer them, where and when.
By researching your customers, you will learn about their demographic, geographic and psychographic characteristics. You can use these insights to create an offering that will add value to these prospects and which they will really love.
5) It will help you streamline your work and make your efforts more productive
Business planning actually takes place at two levels – the macro level and the micro level.
Macro level business planning constitutes planning for the growth of your business within the larger market/niche and competitor landscape. Micro level business planning entails putting in place measures that govern day-to-day operational activities.
When you’re able to pin down the key operations/tasks that you need to do within the business, you’ll be able to allocate resources optimally, track project milestones and ensure goal achievement.
6) It will help you identify and plug-in gaps in your strengths
When planning your business, you essentially list what you wish to create in your new company. In doing so, you’ll be able to see what your strengths are and what areas you’re lacking in, for example, which tasks you believe you can complete yourself and which will require new resources. This will help you identify your blind spots and optimize your business accordingly.
You’ll also be able to identify if your venture is feasible or not. If parts of it aren't, you’ll be better-prepared to take the steps necessary to bring your plan back into alignment with your goals.
7) It will help you choose and nurture specific revenue streams
This is one of the biggest benefits of business planning. As you identify what works in your plan and what doesn’t, you’ll be able to smartly select those niches/business avenues that have the potential to generate high revenues.
8) It will help you create the right, profitable opportunities
Brainstorming is a very important part of business planning. As you brainstorm to create the most fool-proof plan, you might realize new business ideas. Even if these ideas cannot be nurtured at the moment, you will always have a repertoire of ideas to revisit when expanding your business.
Things to do when planning for your business
Business planning will most likely be successful only when you do it correctly. Here are a few steps to consider when planning for your business:
- Have others act as a sounding board for your ideas. They can also help you brainstorm your business.
- Do a deep-dive research into your current market economic conditions, customer needs, competitor strengths & weaknesses and industry trends. This will help you identify possible business opportunities that you can tap into.
- Document your business plan into a formal document that others can read.
- Be flexible and change your business plan as your business and/or markets change.
Developing a business plan will help your startup in multiple ways. Create yours now and use it to grow your business.
Dave Lavinsky is the president and co-founder of Growthink. For more than 20 years, Growthink's business plan consultants have developed plans for more than 500 companies.
For more than 50 years, SCORE has helped more than 11 million aspiring entrepreneurs and small business owners through mentoring and business workshops. More than 11,000 volunteer business mentors in more than 300 chapters serve their communities.
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