In the MedTech community, there are 2 common positions regarding business plans and business cases.
Some people consider business plan and business case the “compass” of the business, the new venture, or the new project. They rely on it, and they use it to evaluate business opportunities, new projects, and new ventures.
Others are more skeptical regarding business plans considering them less useful and some extremists consider them totally useless.
So what then is true? Let’s start with a proper definition of what a business plan and business case are.
Definition of business plan and business case
According to Friend and Zehle in their book Guide to Business Planning, “A business plan describes the business’s vision and objectives as well as the strategy and tactics that will be employed to achieve them. A business plan may also provide the basis for operational budgets, targets, procedures, and management controls”.
Conversely, a business case is described by Marty J. Schmidt in The business case guide as: “A decision support and planning tool that projects the likely financial results and other business consequences of an action”.
Why Business plans and business cases are different
A business plan normally covers an entire organization or enterprise, and it is a detailed description of how the management plan to start and grow the business.
Typically, it is a plan for a period of 1 to 5 years. It details what the organization plans to do. That is, what the cost structure will be, the expected revenues, the execution, and the risks.
On the other hand, a business case is specific to a project, or a program proposal, and normally it covers the lifecycle of the proposal. A business case explains why it is worth exploiting a business opportunity.
Also, it is the justification for a proposed project; making the case why spending money, figuring out how to address a problem, or if going after an opportunity makes sense.
The business case terminology is more common in project management than entrepreneurship.
Uses of a business plan
Writing a complete business plan or business case has played a central role in the practice of new ventures or new project creation in many companies, and for many years.
Indeed, entrepreneurs and their investors or intrapreneurs and their stakeholders typically rely on a business plan or business case to explain and assess the quality of any new project.
The logic behind these documents is to try to predict the future by using specific marketing analysis, strategy, financial research, and planning tools.
There are multiple uses for the business plan including:
- Communication tool designed to attract investors, partners, stakeholders, and decision-makers.
- A decision-making tool that helps entrepreneurs to show the most important success factors of a new venture.
- Analytical tools integrating several techniques to define the pros and cons of different options.
- Controlling tool that can be applied to monitor the short and long-term evolutions of the project.
Arguments in favor of business planning
There is a common position about business plans in line with the position of Volkman et al. (2010), who describe business plans as the core document of successful enterprise formation.
Some people still consider business plans essential for entrepreneurial success and a basic requirement for start-up financing.
Similarly, business plans are considered a useful tool to predict future changes in the existing market and to create consensus about the feasibility of a new business idea.
Moreover, courses on business plan are one of the core parts of entrepreneurship academic programs and business planning is a common content of entrepreneurship textbooks supporting the fact that academia is in favor of the planning activity.
To date, the results on the impact of planning on company performance are not totally clear; however, some studies support the position that formal planning has a positive influence on company performance.
Arguments against business planning
Despite the general agreement that planning is critical for business success, a lot of successful entrepreneurs seem not to be preparing a formal business plan.
Actually, according to Carl Schramm author of “Burn the Business Plan: What Great Entrepreneurs Really Do”, none of the most successful US companies (Amazon, Apple, Facebook, Microsoft) had a business plan before they got started.
Schramm sees also the creation of a business plan as a waste of time because it is developed for venture capitalists. But less than 1% of all new start-ups see a venture capitalist and less than 1% of all new companies have venture capitalists as an investor.
Business plans are based on a top-down approach, which is not always suitable. For example, the Segmentation-Targeting-Positioning (STP) formula is used to identify potential customers.
However, entrepreneurs don’t always start with a predetermined target; often they start with a limited set of means and accordingly, they select a market segment. This reversed sequence is more relevant when the market does not exist at the beginning of a completely new venture.
Since writing a complete business plan is very time-consuming and requires significant resources, Mintzberg suggested already in 1994 to use the time in doing actual business.
Keep in mind also that writing business plans in an unpredictable market is less relevant due to the high degree of uncertainty. And the idea that a VUCA environment requires more planning is not confirmed.
The importance and utility of business planning are related also to some cultural aspects. For example, the impact is higher in more “cautious cultures” that value uncertainty avoidance than with venture capitalists and commercial bankers.
Formal business plans are not dynamic and very flexible, therefore, they could prevent entrepreneurs from exploiting opportunities. I like what Ardichvili, Cardozo, and Ray say “Opportunities are made, not found.”
So rigid business plans could prevent entrepreneurs from developing their projects when the opportunity arises, thereby reducing the capacity for pivoting.
William A. Sahlman also stated in the article “How to write a great business plan” that the problem with business plans is “most waste too much ink on numbers and devote too little to the information that really matters to intelligent investors”.
He attributes the company’s failure in putting too much emphasis on crafting a winning business plan rather than a good fit among the four components (the people, the opportunity, the context, and the risk-reward) of any venture creation.
Final remarks
My position on business plans and business cases is that we must be pragmatic and absolutely not dogmatic.
My experience is that business cases, in both small and big companies, are often developed to build consensus around a project promising a return on the investment superior or in line with the corporate required rate.
Business plans are useless especially if the plan is written more for the form than for the substance.
Although nobody wants to admit it, the vast majority of plans for new ventures are full of assumptions and optimistic projections resulting in a high degree of errors.
Therefore, there is a risk that when the plan is approved by the senior management, they expect the team to implement it exactly as it was presented even if the plan ends up being inaccurate.
Another concrete risk with detailed business plans is that after putting a lot of work and resources into the process of developing the plan, as human beings naturally we are less open to changing direction or pivoting even if things are not going as planned.
I do not consider a well-constructed business plan and planning useless; however, before you start writing a long business plan you should focus on building and testing the product and the business model.
As described by the lean start-up movement, testing and iterating your idea quickly is fundamental. That way, you will find out if your value proposition and business model are valuable, scalable, and profitable.
I would like to finish with 2 quotes:
“No business plan survives first contact with customers”
Steve Blank
“In preparing for battle I have always found that plans are useless, but planning is indispensable.”
Dwight D. Eisenhower
Both are absolutely true.
I haven’t seen in my entire career a plan that turned out as expected and where concrete adjustments were sooner or later not required.
Hence, I think “appropriate” planning is more important than a plan itself. However, the problem is when to plan and how to plan, since the plan can be done incorrectly and based on creative assumptions.
What is your position regarding business plans? Let me know in the section below.
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