The Business Plan 261primary purpose of the process is to help the entrepreneur gain deep under-
standing of the opportunity he or she is envisioning. A business plan tests the
feasibility of an idea. Is it truly an opportunity? Many a would-be entrepreneur
has doggedly pursued ideas that are not opportunities; the time invested in a
business plan would save thousands of dollars and hours spent on such wild
goose chases. For example, if a person makes $100,000 a year, spending 200
hours on a business plan equates to a $10,000 investment in time spent ($50/hour
times 200 hours). However, the costs of launching a f lawed business concept can
quickly accelerate into the millions. Most entrepreneurial ventures raise enough
money to survive two years even if the business ultimately fails. Assuming that
the only expense is the time value of the lead entrepreneur, a two-year invest-
ment equates to $200,000, not to mention the lost opportunity cost and the like-
lihood that other employees were hired and paid and that other expenses were
incurred. So do yourself a favor and spend the time and money up front.
The business plan process can not only prevent entrepreneurs from pur-
suing a bad opportunity but also help them reshape their original visions into
better opportunities. As we will explore in the remainder of this chapter, the
business plan process involves raising a number of critical questions and then
seeking answers. Part of that question-answering process involves talking to
target customers and gauging what is their “pain.” These conversations with
customers as well as other trusted advisors can assist in better targeting the
features and needs that customers most want in a good or service. This
prestartup work saves untold effort and money other wise spent trying to re-
shape the product after the launch has occurred. This is not to say that new
ventures don’t adjust their offering based upon customer feedback, but the
business plan process can anticipate some of these adjustments in advance of
the initial launch.
Perhaps the greatest benefit of the business plan is that it allows the en-
trepreneur to articulate the business opportunity to various stakeholders in
the most effective manner. The plan provides the background to enable the
entrepreneur to communicate the upside potential and attract equity invest-
ment, and the validation needed to convince potential employees to leave their
current jobs for the uncertain future of a new venture. It is also the instru-
ment that can secure a strategic partner, key customer, or key supplier. In
short, the business plan provides the entrepreneur the deep understanding he
needs to answer the critical questions that various stakeholders will ask, even
if the stakeholders don’t actually read the written plan. Completing a well-
founded business plan gives the entrepreneur credibility in the eyes of various
stakeholders.
TYPES OF PLANS
A business plan can take a number of forms depending on its purpose. The pri-
mary difference between business plan types is length. If outside capital is