Why startups need business plans

On Monday, 21 July 2014, NZE went to the Audacious business plan competition where Steve Silvey, CEO of PowerHouse Ventures was speaking about business plans. The University of Otago room that the event was held in was almost full of teams and individuals who wanted to create their own startups.

“Why do you need a business plan?” Steve asked the crowd. After a few seconds, a young student in one of the back rows answered that business plans help startups get investment.

They do that, Steve went on to explain, by communicating the vision that you have for your business to any stakeholders.

There has been a revolution in the tech startup industry of build now, write later, which means that instead of planning everything out, startups are just building their companies, pivoting when needed, and not following any particular plan. Back in February of 2014, NZE interviewed Tony Henikoff, the Managing Director of Techstars Chicago, who said that he hasn’t seen a written business plan in 6 years.

So why do startups still create business plans? Because a business plan communicates their vision to any other stakeholder in a well-known format, where all necessary information can be found.

For most startups, it’s not so much a planning tool as it is a communication tool, Steve goes on to continue. In it, there should be detailed goals, clear strategies, and analysis of obstacles, but that strategy should be created before a business plan comes into question. The physical document is simply a way to convey everything about your business to a third party.

As businesses get older, they start adding more historical and forecasting data into the business plan. They start examining their options for growth, creating strategies to achieve those targets, and then communicating that to stakeholders through the written document. When companies begin to mature, their business plans start to include growth and product strategies, personnel analysis, and exit strategies. The document can then be sent to anyone who needs to know everything about the business.

In essence, a business plan is a tool used to inform potential and current stakeholders of a business’s past, present, and future.

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