The value of creating a business plan is often discussed in the entrepreneurial community.
For every successful business that's been launched with a well-thought-out business plan, there seem to be equally successful businesses that have been launched with nothing more than something scribbled on the back of a napkin.In fact, the most common approach you'll hear may be the contrarian one, where entrepreneurs dismiss business plans as something they wrote and shoved in the back of a drawer.
Tim Berry, founder of Palo Alto Software (a contributor here) Small business trends) recently reported new data that shows the value of a business plan. Palo Alto conducted a survey of thousands of Business Plan Pro software users, asking questions about their business, goals, and business planning. Responses showed that users who created a business plan were nearly twice as likely to successfully grow their business or obtain capital compared to those who did not.
Tim broke down the numbers:
2,877 people responded to the survey, of which 995 completed the plan.
- 297 people (36%) received loans.
- 280 companies (36%) secured investment funding
- 499 companies (64%) expanded their business.
Of the 2,877, 1,556 had not yet completed their plans.
- 222 people (18%) received loans.
- 219 companies (18%) secured investment funding
- 501 companies (43%) expanded their business.
Of course, Tim, author of the original Business Plan Pro software program and founder of Palo Alto Software, admits he's a bit biased when it comes to business plans. And people responding to surveys for companies that develop software may be biased to say good things. So Tim had the University of Oregon's economics department assess the validity of the data. Eason Ding and Tim Hursey, under the direction of Professor Joe Stone, wrote a report on the data. “Results suggest that planning using the software is highly correlated with subsequent success for a range of companies,” they wrote.
Regardless of the type of company, its stage of growth, or its business planning objectives, Ding and Hersey’s analysis: Creating a business plan correlated with increased success for every business goal included in the study.These were getting loans, getting investment capital, making big purchases, hiring new team members, thinking more strategically, and growing the company.
The authors concluded:
“In all but a few cases, business planning appears to be positively correlated with business success as measured by our variables. While our analysis does not suggest that completing a business plan leads to success, it also shows that the type of entrepreneur who completes a business plan is more likely to have a successful business.”
And if I interpret the last sentence of the quote above correctly, the act of going through the business planning process may make you a better entrepreneur.
The bottom line is that having a business plan is better than not having one. In fact, studies show that if you take the time to create a business plan, you are twice as likely to grow your business or achieve funding.
