of discovery and decision-making, you will continue to rewire your brain and build self-confidence and expertise. You will acquire deep insight into your prospective customers and the market, and you will continue building positive psychological momentum. By the time you finish the process, you will be itching to get started as your own boss.
Yet despite the evidence for the importance of completing a business plan, one study by Inc. magazine found that only 40 percent of the founders of companies on its top-500 list had bothered to write a formal business plan. Only 12 percent said that they had conducted formal market research before launching their enterprise. Is it any wonder that so many startups fail?
There are no shortcuts to success.
A Business Plan Is a Process That Cultivates Success
To me, what’s most important about a business plan isn’t the final document. It is the process. The process of investigating your business, your customers, and your market is another form of reacting forward. In the end, your winning idea, as originally conceived, may not make the ideal business, but through this process you will learn what does and will make a successful business and how to see it through.
Research and experience back me up. A producer of business-plan software conducted a survey that found that those who complete business plans are nearly twice as likely to successfully grow their businesses as those who don’t write a plan. Regardless of the type of company, the growth stage, or the person’s intention for the business plan, the study found that writing one correlates with increased success in every business goal the study identified. These included obtaining a loan, getting investment capital, making a major purchase, recruiting a new team member, thinking more strategically, and growing the company.
The authors concluded: “While our analysis cannot say that completing a business plan will lead to success, it does indicate that the type of entrepreneur who completes a business plan is also more likely to run a successful business.”
This raises an interesting question: Are the people who are most likely to succeed anyway the ones who usually create business plans, or does drafting a plan help teach and instill the behaviors of a successful entrepreneur? I think it’s both.
One way we learn is through imitation, and this is hardwired in the brain. In the early 1990s, a team of Italian researchers discovered individual neurons in the brains of macaque monkeys that fired both when monkeys grabbed an object and when monkeys watched another primate grab the same object. This led to the discovery of what are called mirror neurons, which allow animals to observe and mentally mimic the actions and feelings of others. This is how we learn from others without necessarily going through the same experience. For instance, if someone stubs a toe on a raised paving slab and winces in pain, we grimace with empathy, since we mentally re-create what they are going through. Later, this helps us remember to step over that stone so we do not suffer the same injury.
This is analogous to what startup entrepreneurs do as they create their business plan. They are trying to identify and avoid the mistakes of others in the same industry while also identifying and mirroring the best practices of those successful companies that are doing it right.
Further, this process of discovery fosters the right attitude to achieve success. The more data we collect, the more we understand, and this reduces fear and anxiety and increases feelings of competence. This creates a sense of flow, which is a sense of happiness and achievement right now as we work toward future goals. This relates to a concept called the “paradox of intention,” which states that we must have goals, but our present happiness cannot depend on those goals. We must cultivate happiness right now, whatever our circumstances, and before attaining our goals, in order to successfully achieve those goals. This is the peak state of flow. This is what we seek by making a habit of meditation and reconnecting with nature, and it’s also cultivated through the process of creating a business plan because self-confidence rises, and that is innately linked to happiness.
The Importance of Self-Confidence
Dr. Lewis Terman, inventor of the Stanford-Binet IQ test, conducted a longitudinal investigation of 1,528 gifted children with IQs at the genius level. The objective was to understand better the relationship between human intelligence and human achievement. The study became famous for its discovery that intelligence was the lesser of several factors that determine achievement. Discipline and self-confidence were found to be more important than intelligence for achieving things.
As you do all the work necessary to turn your winning idea into a real company that fixes problems and improves the world, building and supporting your self-confidence is essential. As I say, this is one goal of building a business plan, but I want to emphasize how easy it can be to let negative information and potential problems derail the process and undermine a positive attitude.
Contrary to what many in the media say, there is never a wrong time to start a business, but there is never a right time, either. There will never be a perfect set of circumstances. The economy peaks and troughs like a roller coaster. Employment figures can fluctuate wildly. Loans can be easy to get one day and hard to get the next. However, half the companies that make up the Dow Jones Industrial Average were started in the midst of a recession. Don’t let pundits stop you from starting your business, but use the business-plan process to investigate existing circumstances and strategize how to meet them.
In other words, as you develop your business plan, expect that you will discover unforeseen problems you would otherwise have missed. That’s why the business-plan process is so important: It’s about gathering information, identifying obstacles, and figuring out how to overcome them before you start. This can take time, and some challenges will be more difficult to overcome than others. Some circumstances may inspire you to adjust your original business plan. That’s okay. . . it’s part of the process.
However, don’t let these issues or the steady diet of negative information from the media cause a cascade of equally negative thoughts that undermine your resolve. The media thrive on paralyzing us with fear so they can zap us with a dose of commercials, and pundits on TV and the radio can seem convinced that the world is about to end and everyone is out to kill everyone else. That’s not the reality I see when I travel, but it can be hard to remain focused on our winning idea when all we hear from the media is doom and gloom. So my suggestion is, if you feel your enthusiasm and self-confidence eroding, stop listening to the media.
Turn the dial, flick the switch, cancel the paper. Your RAS will benefit as you filter out the doomsday peddlers. Go cold turkey on the news if you have to, and listen only to positive, beneficial small-business advice on blogs, podcasts, and so on, ones that provide useful tips and support a positive frame of mind.
We can’t stop negative thoughts from arising, or control them when they do, but we have 100 percent control over our reactions to our thoughts. If we hear or see something that causes fear or hurts our self-confidence, we should deliberately choose a more positive reaction.
A Business Plan Focuses on Customers and the Market
What is a business plan? What does it do, and what is the goal?
Peter Cohan, a successful investor and author, once stated:
I started investing in startups in 1996 and have seen plenty of business plans. . . . I have invested in six startups and three of those were sold for a total of $2 billion. The other three went out of business. And even in that tiny sample, there is typically one connection between these successful business plans. Simply put, the successful business plans contained deep insights into the prospective customers. And the ones that failed did not.
That is the best and most concise definition for a business plan that I have ever read. A business plan describes prospective customers and the market potential, and it is written first and foremost as a blueprint for the business owner’s own benefit. So many entrepreneurs fall into the trap of thinking that a business plan is an MBA-type thesis designed to impress investors. Entrepreneurs treat the business plan as a way to explain their winning idea. It is the opposite. Instead, after a process of investigation, the plan summarizes, not how great the winning idea is, but who needs it, what problem it solves (that can’t be solved without