business plan

Should Entrepreneurs Write a Business Plan? The Pros, Cons and Alternatives

Kurt GraverBusiness Ideas, Business Plan

As an entrepreneur planning a new startup in the UK, one of the first big questions you’ll grapple with is whether you need a formal business plan. 

Traditionally, business plans have been viewed as an essential milestone before launching a company. However, in recent years, the tidal wave of “lean” internet startups has questioned that assumption. Do you need an intricately detailed 50-page document, financial projections and all? Or is there a leaner, more agile way to plan the birth of your startup?

This article examines the debate around business plans for UK startups. We’ll analyse the potential benefits, address common criticisms, and explore alternative routes you can take.

The Benefits of Creating a Business Plan

Let’s start with the time-honoured view — that all new companies should invest the time to prepare a structured business plan. There are some compelling reasons why:

Forces You to Validate Your Idea

Writing a plan forces you to thoroughly analyse every aspect of your envisioned business. This includes tough questions like: 

  • Who exactly is your target market? 
  • What competitive advantages do you offer over existing solutions?
  • How specifically will you market and sell your product?
  • What key operational processes need to be in place?
  • How much funding do you need, and how will you raise it?

Thinking through the answers and poking holes in your concept is invaluable — far better to identify flaws now than after you’ve invested significant capital.

Surfaces Hidden Assumptions

Similar to the above, the process exposes faulty assumptions and wishful thinking you may have about how customers will discover and adopt your product.

This stress testing improves your odds of spotting issues early when they can still be addressed or pivoted on rather than months later.

Attracts Investors 

Investors will expect any credible startup pitching for funding to include a business plan in their application. This shows you’ve done thorough market research and financial planning. 

While the days of 50-page printed booklets are fading, UK angel investors and venture capital firms still expect a structured plan, even if delivered as a presentation.

Supports Resource Planning

Creating detailed financial forecasts, sales pipelines, cost analysis, and funding requirements helps tremendously with resource planning. You can model different growth scenarios and ensure you have secured adequate financing.

This is vital preparation before committing to long-term overheads like office leases, equipment, hiring full-time staff, etc.

Forces Realistic Financial Projections

There’s no shortage of optimistic entrepreneurs whose dreams exceed their realistic capabilities. Developing your business plan demands sober financial planning. 

Documenting expense forecasts often brings overly ambitious founders back down to earth. This also prepares investors for realistic growth trajectories versus hockey stick moonshots.   

The Case Against Traditional Business Plans

However, writing an in-depth business plan is only sometimes advised. The most commonly cited criticisms include:

It’s a Time-Consuming Distraction

Business plans require an enormous investment of time. The recommended length is generally 30-50 pages, including executive summaries, company overviews, competitor analysis, marketing plans, operations plans, management team profiles, financial analysis, and appendices.

This time could have been spent developing products, cultivating customers, pursuing partnerships and other productive startup tasks. As Reid Hoffman of LinkedIn fame states, “if you are not embarrassed by the first version of your product, you’ve launched too late.” 

Quickly Becomes Outdated  

Startups operate in highly dynamic environments. You could spend months meticulously researching and documenting a plan, only to have new technologies or competitors emerge that require a total reboot of assumptions.  

What mattered when you wrote your plan could be irrelevant a few months later. This is why many modern entrepreneurs view business plans as restrictive rather than visionary.

Don’t Resonate with Investors

Perhaps the biggest misconception is that investors want to read a 50-page printout as part of their evaluation process. In reality, most VCs and angel investors focus on executive summaries and financial models rather than long-form prose. 

These seasoned professionals are making rapid decisions across dozens of funding applications. Lengthy business plans tend to be shelfware rather than persuasive sales tools.

Lean Startup Alternatives

For the reasons above, the strict formal business plan has fallen out of favour with many startups. But that doesn’t mean you should abandon structured planning altogether. There are alternative frameworks better suited to the fail-fast ethos of contemporary entrepreneurs. This includes:

Lean Startup Plan

The lean startup methodology advocates focusing on bare-bone documentation around your value proposition, customers, solution, metrics/costs, and revenue streams. This structured format captures critical planning elements on around 1-2 pages.

The emphasis is on identifying your riskiest assumptions and testing and iterating on them through customer engagement rather than elaborate theoretical modelling. Lean plans help startups validate ideas without getting bogged down in months of analysis paralysis.

Executive Summary 

An executive summary is a shortened version of a business plan, typically 5-7 pages, covering just the crucial elements. This hits the sweet spot between brevity and substance for many investors when evaluating funding opportunities.

It also serves as an easily digestible high-level overview for the founders and team to stay aligned on goals and strategies without overloading.

Pitch Deck

A pitch deck is a slide-based presentation focusing purely on the problem you’re solving, your solution, business model, traction, team, and funding needs. The goal is to capture an investor’s interest in as few as ten slides without overwhelming detail.

While perhaps seeming insubstantial compared to 50-page documents, pitch decks have become hugely influential in startup fundraising. As FaceBook’s first slide deck exemplified, a compelling vision beats exhaustive prose for today’s investors.   

Financial Model 

Instead of laborious business plans, many startups build detailed financial models in Excel or Google Sheets, covering projections, cash flows, P&Ls, balance sheets, KPIs, etc. This dynamic model shifts as assumptions change versus becoming outdated, like printed binders.

The focus is on the figures versus explanatory prose. The financial model supports different funding, growth and valuation scenarios.

Prototype / MVP

For some entrepreneurs, a functioning prototype or minimum viable product (MVP) is the most effective business plan. This shows tangible evidence of your capabilities while eliciting real-time feedback from prospective customers.  

Rather than theoretical forecasting to validate your idea, an MVP enables you to test it in the market. A basic version can prove or disprove assumptions faster than any written document.

Conclusion – Strike the Right Balance for Your Needs   

In summary, while elaborate formal business plans were once a compulsory rite of passage for startups, many entrepreneurs now view them as dispensable or detrimental. But that doesn’t mean you should jettison structured planning for learn-as-you-go freestyling.

Lean planning frameworks, executive summaries, pitch decks, financial models and prototypes arguably serve the needs of agile UK startups better than hefty printed binders in today’s fast-changing environment. Or you might determine a traditional plan is worth the effort for your particular regulatory or funding requirements. 

There is no one-size-fits-all solution. As the founder, you must evaluate your unique scenario, objectives, and available resources and determine the right balance of planning rigour versus speed to market. The key is to document the core elements without creating rigid structures that stifle flexibility. Identifying the optimal approach for your startup may require some trial and error.