Why do investors insist on a business plan if no business plan ever comes out as planned?
A business plan is simply a blueprint for your company. It expresses your vision of how the future will unfold.
A business plan also outlines how the firm intends to go from A to B, as well as the schedule and milestones for that trip. It also describes additional dynamics (costs, resources, revenues, and so on) encountered on the path from point A to point B. That is, it is a strategy for how your startup's concept will disrupt the market and how you intend to achieve that disruption.
However, there is no prior data that can be utilised to create relatively reliable forecasts at the starting stage. As a result, your picture of what may happen in the market with your concept is built on assumptions based on your confidence and insights. Even with larger corporations, there is only so much predictability that can be built into a business strategy based on historical data. How market dynamics develop cannot always be expected, and company strategies, even those of larger, more established organizations, can and frequently are upset.
Some of your assumptions will be confirmed, while others will not. That comes as no surprise. So, why is it vital to create a company strategy when you know that what occurs in the market will most likely be very different from what you planned for?
A business plan can assist you in defining your strategy: There is no one proper strategy' for ANY firm. Strategy is all about deciding amongst the different possibilities accessible to you and then aligning all of your resources to execute the chosen option.
As a result, a business plan becomes the document that allows everyone engaged in the execution to visualize the strategy and stay on track. It allows everyone to "see the film in their heads." And, as you might expect, the clearer the business strategy, the more likely everyone will be seeing the same movie in their heads rather than different people interpreting the road map.
Even if things do not go as anticipated, creating a business plan helps the team to get early warning signs and change plans to account for in-market inputs and data on how things are progressing.
A Business Plan conveys your goals in the context of the potential: The way you characterize the market opportunity is a critical signal of how big you think it is. (For example, local or worldwide). And how big you want to be is a good sign of your ambitions. Because angel investors and venture capitalists often invest in scalable companies, a business plan serves as a document that assists them in understanding the scope of your ambitions.
A business plan assists investors in determining whether the road map is feasible: A good concept is useless if it is not adequately executed in the market. And various distinct parts must be harmonized and effectively coordinated for a notion to be performed well. Many diverse elements must operate well together for a firm to prosper. Even one of these several factors going wrong is enough to for a business to collapse.
A business plan assists investors in determining if the team has a realistic understanding of the complexity required in implementing the concept and expanding the firm. How you have thought about your go-to-market strategies, cost structures, marketing resources required, and other factors is a good sign of whether the team has the essential ability and awareness of market dynamics to deal with the issues that come with scaling up.
As I always teach entrepreneurs, a business strategy is a useless product but a priceless process. It is not a paper that you compose and print out and use as your only guide. It is a live document that you will refer to and make changes to based on market conditions.
Also, even if they are not searching for investors, I advise founders to create a business plan. A business plan is YOUR strategy for YOUR company. One of the purposes of that business strategy is to pique the interest of potential investors.