What Exactly Is a Business Plan?

Add more -ing to your business plan, to build your business faster and smarter.

Business plans take many forms. To some, it might be a 50-page document detailing the company's financial plans for the next five years. To others, it could be a drawing on a napkin, an idea, or prototype. Or, it might exist only in concept: For many tech start-ups right now, business plans are considered a waste of time—they're even downright uncool. After all, Facebook didn't have a business plan at the beginning. Bootstrappers tend to shun business plans, too. We're not raising money, they reason. So why spend our energy writing a plan? This way of thinking isn't necessarily wrong, but it's not for everybody.

I run an organization that helps entrepreneurs launch their businesses, and I've seen a lot of people who decide to forgo business planning get into serious trouble. I met one woman, who wanted to build a website and an e-mail newsletter about religion. She and her friends loved the idea. She poured tens of thousands of dollars into building a fancy website, but after working on it full time for a year, she got frustrated by her lack of progress and approached me for advice. I asked a few basic questions: Is your primary revenue source ads in newsletters or on the website? What does it cost you to acquire a subscriber? What brands want to advertise, how much will they pay, and how much traffic do you need to get them interested? How many subscribers do you need to break-even? All I got were blank stares. We eventually got her on the right track, but her oversights cost her a lot of time, money, and aggravation.

Then there are those business owners who spend months writing their plan. I had one client—let's call him Lenny—who had a 40-page business plan complete with text, charts, footnotes, and numerous appendices, not unlike a college term paper. When we met the first time, Lenny walked in with a swagger, and dropped a spiral-bound tome on my conference table. When I tried to ask him a few questions, he simply said, "It's all in there." I explained to him that I didn't have time to read it and asked him to explain his business. Lenny tried, but had trouble keeping it clear and quick, and left out many important topics. He had spent four months writing a document that nobody wanted to read and that didn't help him articulate his ideas.

So, what is a business plan, if neither of those two things? It's the process of planning a business. It's about thinking through a business idea and sharing those thoughts clearly.

When thinking through your idea, try your best to be objective. Quiet the voices in your head that say, I just know it will work. And don't rely on just your research and analysis. Get out and talk to potential customers. Reach out to people who understand your type of business. Share your thoughts, and ask for advice and introductions.

Once you've analyzed and vetted your ideas, and you're confident that you're on the right track, shift into pitch mode. Prepare to share your ideas in a persuasive, clear, and compelling way in order to attract partners, employees, advisory board members—and investors if you need them.

The best way to share your ideas is through conversations. If you're great at making presentations, you could conduct those conversations with spoken words and a few visuals, like a product demonstration and a few drawings on a white board. But most people find it easier to keep business planning conversations on-track with the aid of a short PowerPoint presentation. Of course, this is business, and there are numbers involved. Unless you can count cards like Rain Man, you'll probably want to run the numbers using an Excel spreadsheet, and paste a few high-level charts into your PowerPoint deck. Finally, you've got to land meetings to have the conversations, so you'll want to have a one-minute elevator pitch and a one-page summary.

So when planning a business, save time and trees by ditching the 40-page term paper. Spend just a few weeks thinking through your ideas and creating a short, compelling pitch. Then buy yourself a beverage as a reward for being smart, and use the napkin as a coaster instead.

David Ronick is co-founder of UpStart Bootcamp, an organization that helps entrepreneurs launch their businesses with on-demand courses and private coaching.

Kelly Brook Robin Tunney Kate Groombridge Dania Ramirez Lucy Liu