Most startups need a business plan because they depend on venture capital funds or banks for funding.
Naturally, pitching a business idea to potential investors usually requires a business plan. But how decisive are business plans in determining the success of an entrepreneur? This is a good question and one that by no means only applies to startups.
“Sometimes you’ll have to ‘Zig’ when the plan says ‘Zag’.”
In his autobiography, Michael Bloomberg, No. 9 on the Forbes list of the world’s richest people with assets of $55 billion, details the early days of his business. One of his key ideas is that rigid planning can do more harm than good: “You will inevitably face different problems than you anticipated. Sometimes you will need to “zig” when the plan says “zag”. You don’t want a detailed, rigid plan to get in the way when you need to react instantly. While his competitors were still busy trying to find the perfect final design, he was already working on the fifth version of his prototype. “It comes down to planning rather than doing. We act from day one; others plan how to plan – for months. Bloomberg pointed out that making predictions about new trade ideas is usually a pointless and meaningless task. “The noise in the assumptions you have to make is so great, and the knowledge you have of strange areas so limited that any detailed analysis is generally irrelevant.”
“If you plan, you lose. If you don’t plan, you win.
Chinese entrepreneur Jack Ma is just as skeptical as Bloomberg when it comes to rigid business plans. With 34.6 billion dollars, the founder of Alibaba is today the richest man in China. While trying to launch his business, he approached Silicon Valley venture capitalists to raise funds. The investors he met expected him to come up with a comprehensive business plan. But, like Bloomberg, Jack Ma didn’t have a business plan. His motto was: “If you plan, you lose. If you don’t plan, you win.
But from the start, he dreamed big and set very ambitious goals. Shortly after founding his company, he told a reporter, “We don’t want to be number one in China. We want to be world number one. He was so convinced of his future success that he even had a meeting filmed in his modest apartment in February 1999 – as a document for the later history of the company. At the small meeting, he asked the following question: “In the next five or ten years, what will become of Alibaba?” Responding to his own question, he said, “our competitors are not in China but in Silicon Valley… We should position Alibaba as an international website”.
Google Founders Started Without a Business Plan
Larry Page and Sergej Brin, worth $50.8 billion and $49.0 billion, are ranked No. 10 and No. 14 on Forbes’ list of the world’s richest people. They also have things in common with Michael Bloomberg and Jack Ma. They didn’t have a well-rounded business plan when they started, and they changed their business model again and again. The two creators of Google, both born in 1973, had a bright idea: they wanted to create the best search engine in the world. According to the book, The Google Story, “None of the guys had a clear idea of how the company would make money, although it seemed like if they had the best search engine, others would like to use it in their organizations.”
Are all these examples only exceptions? How important are business plans? A 2010 scientific study compared the growth of more than 11,000 companies. The study found that planning improved business performance. However, the study also demonstrated that this applies more to established companies than to startups. And the researchers pointed out that for any business plan, it is more important to set goals and be ready to change the business model than to try to predict in detail the evolution of the company.
An important concept in understanding the success of many start-ups in Silicon Valley is the “pivot”. This means being ready to radically change the original business model at any time. The goal is not to implement an original concept and prove the quality of the initial plan. The goal is to establish a strong market position. If that means ditching the plan and taking the business in a completely new and different direction, then it’s time to pivot.