The hidden dangers of writing a business plan

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Vincent Joyner has a sobering perspective on business plans for young entrepreneurs: they don't work.

"Research indicates that young people - under the age of 35 years or so - who do a business plan are three times more likely to fail," he says.

Vincent is CEO of the Zazida Institute of Entrepreneurship, a non-profit, registered training body dedicated to improving South Africa's entrepreneurial environment.

"Young people often don't have the industry knowledge, work experience or the managerial experience to write a good business plan. The plan tends to be merely a set of assumptions that the entrepreneur stands by as if its the gospel truth. Any business plan, from day one, is out of date and the young entrepreneurs often don't adapt quickly enough, which leads to their demise."

Drawing up a business plan for a start-up should be used to guide the business and not the basis for attracting startup capital.

Vincent shares the following harsh truths for entrepreneurs starting out in business:

  • In the startup phase, almost no-one will give you money for an idea even if have a proven ability to execute that business idea. Potential funders want to see that these ideas have been tested in the market - even if only on a micro scale.
  • It will pay you to start out very small and test your idea. If that means taking a stall at a flea market, then do that. This will allow you to understand the market demand and dynamics and after some months you will have data on market acceptance, client loyalty and pricing levels. On the other hand, if you're struggling to pay the comparatively small weekly fee for the stall from your sales then it may be time to reassess your big business dreams.
  • From an early stage, you should have processes and procedures - from order taking, purchase orders, and daily cash flow analysis - in place. Taking a firm grip on these basics will help when you enter the growth phase and are no longer solely in charge of all aspects of the business.
  • The ability to do proper cash flow analysis is a crucial skill.  "There is no point looking for cash when you're falling off the cliff," says Vincent. "You want to know that in six months you're going to need cash, and how you're going to get it.”

 

Key takeaway: A business plan should be a demonstration of reality, not hopes. Ideas are cheap, execution is king: showing a track record of testing those ideas - where clients are coming from, how you acquired them and knowing how much cash you need to generate more cash - is way more powerful than grand schemes.

 

 

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