Ep 2: Are business plans valuable? Why do banks, landlords and investors expect you to have one?
Helen Vang (00:00):
This is the Startup Reality Podcast, bringing you honestconversations with founders, business owners, and industry professionals aimedat sharing what it means to find your voice, grow your business, and achievesuccess the way you define it, whether that's growing your career or starting abusiness. The Startup Reality Podcast shares insights for the journey ahead.The challenges are awaiting and the strategies used to overcome them. Today'sconversation is a debatable one, but before we begin, in the spirit ofreconciliation, the Startup Reality Podcast would like to acknowledge thetraditional custodians of country throughout Australia and their connections toland, sea, and community. We pay our respects to their elders past and presentand extend that respect to all Aboriginal and to Torres Strait Islander peopletoday. Business plans, Have you ever been asked to develop or share a businessplan for your business idea?
Helen Vang (01:04):
If you have started to dive into the world of business,it's very, very likely that you've been asked to share a business plan, whetherthat's with your bank, because you're trying to get a loan for a business,whether that's with a landlord, because you're trying to sign a retail lease,or whether that's for a investor, because they want to see, your strategy.There's going to come a time in your business journey where someone's going toask you to share a copy of your business plan. Whether or not you likedesigning one, whether or not you have one ready to go. You will be asked thisquestion and you may not believe it provides any value. Today's conversation isthe debate around what a business plan is, why it's important, why it's notimportant, but also when you are developing it, because we have to, what needsto go in it and what are focus points and how can we make it valuable?
William Page (02:17):
A business plan is a rather old school document thatessentially lays out the blueprint for what your business is going to do. Soit's often viewed as I would say a blueprint, but it could also be viewed aslike a product roadmap, a go-to-market execution strategy for your business. Soit kind of outlines what you're planning to do. And then, hopefully in mostcases, you're meant to follow the business plan.
Helen Vang (02:49):
The business plan is the blueprint for your business. Andthe key word here is that you are meant to follow the business plan, but howvaluable is that business plan and how many people actually follow a businessplan? I asked for the opinions from an industry professional that works withsmall businesses through the local council, as well as a retired familybusiness operator. Let's hear from them.
Guest 1 (03:23):
I think that business plan are very much like budgets. Youset one because that's your end goal and whether or not you hit the budget andwhatever changes along the way, you adjust. And if it doesn't work out, thenyou reassess and you re-plan. I think in hindsight, it would've been excellentfor my parents to have a business plan because they don't, they didn't haveone. They were surviving. They were doing very, very well. But if you, youknow, hindsight's a beautiful thing. When I look back at their business, couldit be have been more successful? Yes. Could there have been like, innovationsand new ways of doing things that would've added to this success of thebusiness? Yes. And would they have, you know, gotten that, that view if theyhad a business plan? Maybe, maybe not, but you know, it doesn't ever hurt tohave a business plan.
Guest 2 (04:12):
Yeah, I think business plans are outdated, but I see thevalue of having something down on paper. Um, so certainly for us when we, youknow, do a lot of grants or something like that, um, you know, we do always askfor a business plan, or more recently than we've started asking for like a linkcanvas model at least. Um, and to me, a link canvas model is probably more upto date because it's actually getting people to think more broadly. Whereasbusiness plans, it's just, it's really just, it's really basic, pretty much.And it doesn't really get people to really explore is there actually a need foryour product out there? And I guess, you know, with the work that I've done,it's that everyone has this great idea and everyone just assumes that becausethey're gonna create it, people are gonna want it, but they're not actuallyreally asking the proper questions.
Guest 2 (05:04):
Is there actually really a need out there? Is thereactually a market? And do you actually know your market? And what are youactually trying to solve in the end? And so it's always been reallyheartbreaking watching people come to you with these great ideas, and or evenworse, when they've already invested the money and these businesses, and itdoes not work out because they went with the assumption that their product isgreat and everybody wants it. So I think having something on paper forces youto actually question it more as well and if there's a guided process, then itprompts you to think about things deeper.
Helen Vang (05:41):
So the true value of having a business plan is that itprovides you with a guided process of developing a business that will beprofitable and work in market. That is one thing that all of us can agree on.But is having a business plan enough, is that all you need to build asuccessful business?
Guest 2 (06:11):
At the same time, Although it's great to have things onpaper as well, in terms of what it actually results in, or the defining factoralso can be about whether you just have the courage to do it. Because you cansit there and you can write business plans after business plan or do 20 linkcanvas models and try and perfect it. But if you actually don't do anythingabout it, there's no actual result in the end as well. And I think when I seeparticularly a lot of the migrant businesses, that's what I see. It's just beena whole lot of people who actually have a whole lot of courage to just do it aswell and maybe that's sometimes what it just takes.
Guest 1 (06:51):
But you know what's really interesting, when you weretalking about like, you could write a million plans and never start a business.I've written several business plans, but often when I write those businessplans, I come across the question of whether I am willing to commit myself tothis?
Guest 2 (07:04):
Does not work,
Guest 1 (07:05):
Or is this project actually what I think it is? And Ithink if you do a business plan properly, it should prompt you. And so I don'tthink there's necessarily anything bad in writing a hundred business plans andgoing not worth it. I've written business plans before and they've never gottenanywhere. Because when you do them properly, sometimes you start to realizethat, hey, this isn't actually a worthwhile proposal to keep on going with. Itactually involves more time or more effort, more capital than I'm willing to orhave right now. And the really interesting thing is, I remember being like 20,not wanting to finish my degree and, you know, questioning whether I shouldtake over the family business. And so what I did was I crunched the numbers tokind of say, if I took over this family business, how much, how many hourswould I spend here?
Guest 1 (07:54):
Because that was important to me, watching my parentsspend so much time running this business, how much would I have to pay them?How much would I have to pay myself? And how much profit would we have leftover? And in the end, I went, I'm better off with a corporate job. And, youknow, and I ended up doing that. And sometimes, yes, sometimes I regret notbeing my own boss, but at the same time, I know that, I did the work and ittold me that I wasn't going to get what I wanted out of it.
Helen Vang (08:23):
And there we have it. A business plan is not the soledefining factor of success, but what it does do is it helps you plan yourbusiness and plan for a product that will work in the market, but moreimportantly, also help you decide whether or not the business venture issomething that you want to personally, emotionally, and financially invest in.It helps you understand what it is that you are about to get into. Now, I knowbusiness plans is not the sexiest topic. However, people recognize that havinga business plan is important. Just writing it down isn't as important. Thisleads into a fundamental issue with business plans.
William Page (09:24):
The issue with business plans is that they sound great intheory and they look great on paper, but the problem is, that once you'vewritten a business plan, by the time you finish writing it, due to the fastpace of technology and developments in business, it's possibly already becomepart of it, at least outdated. So, uh, you need a more agile document, and youneed something that's, a lot easier to update and a lot easier to launch with.But nevertheless, yes, I, I've written, and I've used business plans before,and the reality is that a lot of banks and investors wanna see a business plan,even though they appreciate their business plans become very outdated quitequickly.
Helen Vang (10:08):
Okay so banks, landlords and investors recognize thatbusiness plans become outdated really quickly, but yet they still ask us tocomplete this. But why?
William Page (10:23):
So the reason why they are still asked for by, banks andinvestors and landlords is because they well a) it's something they've alwaystraditionally asked for, but b is because it then gives them comfort that theyknow that you've done your research, that you've got a plan, you've got astrategy, you've got an execution, outline of how you're going to expand yourbusiness. So it gives them some confidence that you are positioned to be ableto, launch your business. As I say, there is a strong component of, it'ssomething that's always been requested, that's just the way that it is. Sothere is a certain component of, you know, tradition. There's also a box tickin exercise as well. In a lot of cases, they won't even look at it. They justwanna know that you've got one, so they can tick that box. But as I say,probably the main reason is because they wanna make sure that you've, you know,you've done your due diligence, you've got a plan, you've done your research,and you know what your product looks like.
Helen Vang (11:27):
So business plans give investors and banks comfort andconfidence that your business is headed towards successful pathways based onyour forecast. But to me, a business plan is equivalent to a resume. It is notthe strongest indicator of performance because you can put whatever you want inthe business plan. It doesn't mean that you can deliver based on what's in yourresume or what's in your business plan. So why is there such a dependency on abusiness plan? But more importantly, why is there a dependency on businessplans when we all know now business owners and founders largely outsource thatpractice to deliver on the requirements so that our investors, banks, andlandlords can tick that box.
William Page (12:33):
So it's becoming increasingly common for a lot of foundersto outsource it to, what should we say, professional business writing firms. Ican think of a few, that people I know have use and they do that because theybelieve they don't have time to, to properly write the business plan and theirtime is better spent doing other things. Now, there may be an element of truththere but it seems a bit, source the business plan just to tick a box. So Iwould say you shouldn't do that. At least you shouldn't do the majority of thework in that way. Instead, you should think about how you can use a businessplan properly. Because whilst I do think business plans are traditional, ratheroutdated documents in our high tech, fast moving business environment, I dothink that they can help serve a valuable person because they help you thinkabout, they help you research first and foremost to really look at the market,to really look at who your competitors are and to think about where the marketis enough.
William Page (13:40):
They get you thinking about your team in terms of, youknow, what your management team looks like, where the gaps in the team are,where the gaps in your advisors are. They get you thinking about your productand your product roadmap, which is crucial. And understanding how you getproduct market fair, they get you thinking about how you are going to go tomarket and how you're gonna launch, what's your selves and marketing strategylook like. And you know crucially, they get you thinking about your businessmodel and, understanding how you're gonna charge and understanding thefinancials that need to be modeled to show that your business can have a pathto profitability. So I think in themselves, whilst they're an outdated conceptand a traditional concept that perhaps isn't good for this fast moving society,they do serve a purpose, if you think about using it in the right way, becausethis is all things that you need to look at in your business and you need tothink about. But because we are so keen to get going, we miss a lot of thebasics that we need to consider. So in that sense, a business plan can be aneffective tool if you think about using it the right way.
Helen Vang (14:46):
So there it is, guys, landlords, investors, banks considerthis an important document, even if it provides no value or indication tobusiness success for them. And that's why they get you to sign your life awaywith personal property security assets to ensure they can claim against you ifyou default. The purpose of ticking that box is to force you to think aboutyour business strategically so that you complete that exercise and it canprovide you with value simply because the items within a business plan areitems that you should actually complete in any business before you launch. Soif you are not thinking about the items in your business plan, then you areputting your business at risk. So even if it's not documented, the businessplan format and structure includes the components that need to be thought aboutbefore you launch a business. So it's a good practice to document it to ensurethat you have covered all the essential areas,
Helen Vang (16:14):
Which then I think means that whilst we develop businessplans, we set them up and then we never come back to them, they're probably thegreatest document to do retrospectives against anually. That could thendetermine, I guess how your business has moved away or how your business hasachieved what was initially set out. Um, and quite often it would havepotentially moved away from the original model, because quite often if you'restarting a new business, you are trying to preempt something that you're not familiarwith yet. So when I, um, opened, uh, the business in Phillip Island, I had toforward forecast five years for my business plan, right? But in a covidenvironment where I have no historical data or information to rely on, italmost feels as though looking at my business plan annually in retrospect, willhelp me to identify what I didn't account for and how I might be able toadjust, that analysis to then push the business through to the future.
Helen Vang (17:43):
So across the board, we acknowledge that some form of businessplanning is important, whether or not you document it in a formal document oryou have it on a PowerPoint slide or in the top of your head, a business planis important because it takes you through the analysis required for before youstart any business in order to determine the market and the product need. Butwhat actually goes into a business plan?
William Page (18:18):
Yeah. So no two business plans are identical. There areobviously normally some fairly significant differences, but if you were to kindof identify the mainsections you'd start with the executive summary, whichnaturally starts at the front of the business plan. And ironically althoughit's right at the front of the business plan. It's going to be the last onethat you'd write, because it included a summary essentially of all thedifferent things that are in the business plan. The second section would be a companydescription, which will outline details about the company and outline who theshareholders are, what's the vision, what's the value, and that kind ofprovides an overview of what the business is. You will then have a thirdsection, which would be your market analysis and research, which will provideframework understanding where your company is based in the market, and willoutline, you know, an industry analysis so that you show that you've done yourresearch on the market and you know where your positioned in it.
William Page (19:23):
Then probably your full section would be management andoperational structure. So Understanding who your team is outlining the skillsand experience and really seeing the value of that is you can see where theholds are, so you can consequently hire. Then the next section would be adescription of your products and your services. So that'll outline what exactlyit is that you are selling and the different features of that particularproduct and especially how they compare to other products in the market. Thepenultimate section would be your marketing, your sales strategy, your go to goto market plan, basically, which will include your seven Ps. And it'll includeall of information in terms of what kind of targets you want to hear, who yourchannel partners will be, what your marketing mix is, customer focused strategyand so forth. And your final section will be the financials. So I'll outlineyour financial projections if you need capital, that is where the capital willbe allocated in terms of figuring out what that capital is, and that'll reallyshow that your business model is sustainable.
Helen Vang (20:25):
So you've got seven key components of a business plan. Inyour opinion, which one is the most important?
William Page (20:36):
There's no one section. I guess I would equally weighmarket research description of products and services and marketing and salesstrategy. And I'll explain why. Market research constantly need to monitor whatis happening in the market. By doing so, you're better prepared. If you knowyour market, then you understand what is happening, and you know, you shouldnever launch your business about having done your market research and ensuringthat the market is big enough for your product or service to ensure that youare able to differentiate yourself. So the market research should always bedone, first and foremost. Don't, don't waste time and money developing aproduct if the market isn't right for that product.
Helen Vang (21:25):
Now this part is important because this is a core issuethat Tracy, our local council business representative, said that she saw happento a lot of businesses, people who have spent the capital setting up theirbusiness only to find out that there wasn't a need for that business.
William Page (21:48):
But I would also say, and there's something you shouldconstantly update, but I will also say description of product and the marketingsales are just as important because you need to ensure that you get productmarket fit and you have an execution plan for going to market. If you don'thave product market fit and you can't sell your product, then you could havethe best instance Slice spread was created, but if no one hears about it andbuys it, then that company, then your product is going to die. So I know it'sperhaps a slight cop out that I've chosen free of the seven sections, but I seeall three being integrally linked, and they're all sections that should beconstantly updated and constantly refreshed to take into account yourlearnings. And in this sense, if there is one reason to do a business plan, ifit gets you thinking about these free sections and really doing your researchproperly on these free sections, then it's been a worthwhile exercise.
Helen Vang (22:47):
As you can see, there's synergies across all of our viewson what value a business plan provides to a business owner. So I asked Williamwhat he thought about business plans and its correlation to success as afounder himself, but also as a coach and consultant for other founders andbusiness owners.
William Page (23:11):
So I would say the fact that you've sat down and you'vespent a lot of time thinking about a business plan and writing the businessplan will correlate much more with the chances of you having done betterresearch, having put more thought into your product, having put more thoughtinto how you're gonna go market. And as part of that exercise of having hadthose faults, you will perhaps be better prepared than someone who's just arookie and hasn't really put any time or effort into thinking about these things.So I think in that sense, it's an exercise that's worthwhile because it getsyou thinking about these issues that you otherwise might not have the time tosit down and really focus on. And they're issues that need to be focused on.You know, you need to do your research, really proper research.
William Page (23:59):
You need to spend time doing your financial plan andthinking about your business model. You need to spend time thinking about yourseven Ps. You know, in this sense, the business plan serves an importantfunction of making sure that you're prepared, making sure you put forward intothe right fins, rather than just a rookie who says, I'm gonna start a business,I'm gonna throw a hundred thousand. And then I should point out, the otherthing is gonna happen is just because you've got money doesn't mean that you'regonna succeed. Right? Whereas if you've, if you put a business plan together,then sure, there will, there will be a correlation in terms of reducing some ofthe rookie mistakes or the risks that you might face. Because by having thatbusiness plan, you will have put thought into identifying some of these risks.So it's likely to mean that you'll deploy your capital much more effectively.
Helen Vang (24:47):
And there we have it, business plans are important, butthey are important for you more than they are for anyone else. They are atedious process that I personally don't enjoy, simply because I know by thetime I've finished writing it, the plan is already beginning to change.Business is not static, and we continuously need to involve our business. Allof us know this, which is why many of us don't value the process of writing aplan that sets us on a 12 month trajectory towards a five year growth strategy.Because it sounds bizarre to think that we can follow a plan for 12 months yetalone, five years. However, the plan itself is not the valuable component. Thevaluable part of completing a business plan is the process and guidance itprovides you as a business owner to ensure that you do not forget or considerthe fundamentals of a business. That is, is there demand for your product orservice? And where do you stand among your competition? This is the StartupReality Podcast, and thank you for listening.