Why Should I Write a Business Plan?

Quite simple: you plan to dedicate a significant amount of your life time (and probably of your money) to this idea. Better make sure that you have a solid base for doing this.

I'm not saying that a business plan is a guarantee for success. I've seen too many brilliant business plans which turned out to be a business failure. But without a business plan, chances for failure are much higher. And there is just less at stake modeling a pricing strategy in Excel than trying it out in real life...

But that's only one aspect. Another one which can't be rated high enough is communication. Especially if you plan to start a business as a team, a written business plan is essential. Written means: in plain, complete sentences, as text document. While a presentation is great to get the main points across, you will be surprised about the discussions taking place when trying to convert a presentation into a full document. All of a sudden, it turns out that bullets points are interpreted differently between team members or that everybody has a different mental model of the future company.

I highly recommend to go through the exercise and try to model your business, at least for main business drivers. Try to identify the relevant parameters, and build them as parameters to play with into your spreadsheet:

Just to give you an example: Assume you plan to sell your product to business customers. What do you think is the average deal size you can strike with a customer? What is the sales cycle (some industries have sales cycles well over a year, while other products you can sell at the very first contact). Do you need to visit your customer? How many visits do you think are required to close a deal? How many customers can you handle within a month? How many can a sales rep handle? Do you need to pay sales commissions? etc.

This is just a small part of the questions you should ask yourself. Play with the parameters to judge the impact on your business model. Increasing the sales cycle (and therefore cash in) from two month to six month could kill your company if you do not have enough working capital, for example. Two additional on-site visits can severely affect your margins. Perhaps you need to reconsider your pricing? Or your sales strategy?