A business plan is nothing but a plan for your business. It is an articulation of your vision on how the future will play out.
A business plan also articulates how the startup proposes to go from point A to point B, and by when. It also outlines the milestones and other dynamics (costs, resources, revenues, etc.) on the way from point A to point B. I.e. It is a plan of how the concept of your startup will alter the market, and how you intend to implement that disruption.
But at a startup stage, there is no past data that can be used to make reasonably dependable predictions. Hence the vision of what might happen in the market with your concept is based on assumptions that you have made based on your conviction and your insights. Even in more established companies, there is only so much predictability you can bring into a business plan based on past data. How in-market dynamics may change is an unknown and business plans even of larger, established companies can and often do get disrupted.
Some of the assumptions you have made will play out as assumed, others will not. Nothing surprising about that. Why then is it important to make a business plan knowing that what happens in the market is most likely to be very different from what you planned for?
A business plan helps you define your strategy
There is no ‘one right strategy’ for ANY business. Strategy is all about making a choice between the various options that are available to you, AND then aligning all your resources to support the option that has been chosen.
A business plan therefore becomes that document which helps every person involved with the implementation to visualize the strategy, and be aligned on the road map. It helps everyone ‘see the film in their mind’. And as you can imagine, the clearer the business plan, the greater the likelihood that everyone will be seeing the same film in their minds rather than different people making different interpretations of the road map.
And even if things do not go as planned, making a business plan allows the team early-warning signs so that they can adjust the plans to factor in in-market inputs and data on how things are moving.
It gives a sense of your aspirations, in the context of the potential
How you define the market opportunity is a key indicator of how large you think the opportunity is. (e.g. local or global). And how large you intend your business to be is a key indicator of your aspirations. Since angel investors and VCs typically invest in ventures that are scalable, a business plan becomes a document that helps them understand the scale of your aspirations.
A business plans helps investors understand if the road map is practical
A good idea is of no use if it is not executed well in the market. And for a concept to be executed well, a number of different aspects have to be aligned and coordinated. For a business to succeed many different things have to work well in tandem. Even one of these varies aspects going wrong is enough for a venture to fail.
A business plan helps investors understand whether the team has a practical view of the complexities that will be involved in implementing the concept and scaling the venture. How you have thought about your go-to-market plans, cost structures, resources required marketing efforts, and other aspects is a good indicator on whether the team has the necessary competence and understanding of market dynamics to deal with the challenges in scaling up.
As I keep telling entrepreneurs, a business plan is a useless product but an invaluable process. It is not a document that you write and print out and refer to as the only direction to go by. It is a living document that you will refer to and continuously make adjustments based on what happens in the market.
Also, I tell founders to make a business plan even if they are not looking for investors. A business plan is YOUR pan for YOUR business. Only one of the uses of that business plan is to get investor interest.