The Value of a Business Plan

Courtesy: Thunderbird School of Global Management
Courtesy: Thunderbird School of Global Management

By Robert Hisrich

There is an entirely different view held by most concerning the value of a business plan than was expressed in a recent presentation by a guest speaker. This speaker indicated you are better just discussing your business or business idea even with potential investors. While the most frequent reason for developing a business plan is to obtain debt or equity financing, four other useful purposes of a business plan include: determining resources needed, establishing the direction of the organization, evaluating the results achieved and obtaining a partner.

In today’s hypercompetitive, technologically-changing environment, most have the view that business plans are more important than ever, particularly when raising capital. Put yourself in the position of a private investor (angel), a venture capitalist or a banker – would you be willing to invest or lend your money or the money you are managing in something just based on a discussion? Would you not want to see the product/service idea presented in depth, the competition, the unique selling propositions (competitive advantage) of the idea, the market (its size, characteristics and growth rate), the marketing plan to effectively reach this market, the financial statements showing the results for the next five years, the organizational structure and individuals who will make sure these results will occur (including their education, background and experience) and how your original money will be returned along with the appropriate return rate? This is the essence of a business plan.

I do not know of any private investor or venture capitalist providing equity financing or a banker in terms of providing debt financing that will provide this capital to an entrepreneur or SME without a business plan showing the projected revenues, costs and profits for the next five years and explaining how these will be obtained. Even the existing businesses that I work with do a mini business plan each year to provide direction and determine any resources (finance, supply, distribution or human) that may be needed in the next year.

Students in my Global Business Plan class not only create a global business plan on their idea, the idea of someone else, or the idea of a company but have the opportunity to present this idea and all its aspects to a group of entrepreneurs and investors. Some students receive funding and other support from these investors.

On another note, any student at Thunderbird who is presently operating a business and wants to compete in a global Entrepreneur Organization (EO) competition called Global Student Entrepreneur Awards (GSEA), which is supported by the Kauffman Foundation, should send me your contact information and a description of your business. Several will be selected to work with the local EO chapter in Phoenix which has over 160 member businesses and is one of the best EO chapters in the world. We work with EO businesses in terms of creating business plans and providing internships, most of which are paid.

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