Why Creating a Business Plan Is a ‘Waste of Time’

#News(Startup) [ via IoTForIndiaGroup ]

A finely crafted, tightly defined, highly detailed business plan seems like a perfectly rational tool for getting your entrepreneurial ideas off the ground. But Carl Schramm thinks you should burn it. Schramm, an economist, Syracuse University professor and former president of the Ewing Marion Kauffman Foundation — a non-profit that encourages entrepreneurship — says that crafting a business plan is one of the biggest misconceptions about how to start a company on the right footing.

Knowledge@Wharton: Why is a business plan unnecessary?

Carl Schramm: It’s the basis of much of the teaching about how to start a business, and so much of what’s taught is basically conjecture. My book is developed off 10 years of research that we did at the Kauffman Foundation. If you look at all our older major corporations — U.S. Steel, General Electric, IBM, American Airlines — and then you look at our newer companies like Amazon, Apple, Facebook, Microsoft, none of these companies ever had a business plan before they got started. Empirically, it appears as if you don’t need a business plan.

Second, the business planning process is largely generated as a preview for venture capital. As I show in my book, from empirical studies, much less than 1% of all new startups ever see a venture capitalist. Much less than 1% of all new companies every year have venture backing of any kind. So, I largely view the creation of a business plan as something of a waste of time.

The third problem is that it seems to make starting a business somewhat like a cookbook. If you do this, and then you do this, and then you do this, the cake will come out okay. And that’s really not how it happens.

“Empirically, it appears as if you don’t need a business plan.”

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