Why Business Plans Give Entrepreneurs a False Narrative

Business plans are something we’ve heard we need to start a business. Many entrepreneurs labor over projecting finances for a year out, before they start their business. Over the past few weeks, I’ve spent some time with Raju Vegesna, Chief Evangelist of Zoho, a global company providing a variety of solutions to businesses. Raju is not a fan of the financial projections many business owners input into their business plans.

Related articles: How To Write Your Businesses First Business Plan

In addition, Zoho’s is not focused on hiring candidates with an MBA, in fact it prefers it new hires not have an MBA. Zoho is more interested in hiring someone with a good character, passion for what they do, and who’s a great fit with the culture of Zoho. The person being hired should learn on the job. Or have some measure of expertise that they can add value to the company. Zoho is a company built on humility, simplicity and willingness to learn and grow.

Related: 9 Ways to Unlock Business Value from Your Company

Raju and I were also talking about business plans and the financial reports that many business plans call for.

He explained to me why business plan numbers give a false narrative to business owners.

By the time something becomes a number, the event has already happened. Think about your heartbeat.

By the team, you measure your heartbeat; that’s a data point that is already passed.

Marketers have “metric madness”, it’s where people have prioritized numbers so much that common sense is ignored.

Raju Vegesna, Zoho

Numbers Don’t Tell the Entire Story

Numbers are ONE data point. Yes, you should look at the numbers when buying a company, for example.

But what about the people? Are the people staying if you buy the company?

Why is the company selling?

What are the market dynamics that might change things?

What is the competitor landscape?

Yes, business owners will do their best to make the best-case scenarios, but most of the time, projections almost always fail, says Raju.

Business Plan Finances are False Guesses

When business owners put their financial projections into a business plan, they’re, most of the time, way too optimistic.

They think they’ll hit $378,000 in one year, and in reality, it takes them 4 years to hit $168,000 in gross revenue.

Business plans force a business owner to make a projection based on information they simply can’t predict.

What Numbers are Important?

Raju is a fan of using historical data to make wise business decisions for the future.

For example, you observe that on Tuesday mornings, you have the most traffic to your retail store.

You investigate further and find out that this rise in traffic happens because every Tuesday, city hall hosts a special event with the mayor, drawing a huge crowd near your retail store.

Before, you couldn’t predict this. However, now look at past data (or numbers), you can predict what will happen every Tuesday. You can plan for it and leverage this to enhance your store’s marketing.

Be Honest with Yourself

Are you projecting the numbers to yourself or to the investor.

Raju Vegesna

Are you projecting the numbers to yourself or to the investor?

If you’re projecting to the investor, then you’re going to put the best scenarios forward.

If it’s for yourself, the numbers you project might be more realistic.

If you’re putting forth very “rosy” numbers, are you committed to keeping these numbers if you’re asking for money from someone else?

Should You Have a Business Plan

It’s good to put lots of thought into your business before you launch it. Asking yourself questions like:

Who are the customers you’ll serve?

What are their pain points and the solutions you’ll provide them with

What will your pricing be like – premium or selling as cheap as possible? (Seth Godin has a nice rant on this)

What will the legal structure of your business be like – S-Corp? LLC? Corporation?

Build a business focused on serving your customers. As you make your first sales (and get your first no’s), you’ll adjust your marketing and operations plan and grow your business.

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