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Business Plan

In the following article, Zach Yeager of the University of Nevada, Reno College of Business, writes about the changing role of the business plan:

“The business plan has long been a staple for anyone hoping to start a business. This lengthy document filled with charts, graphs and detailed financial projections is an excellent way for entrepreneurs to familiarize themselves with their industry, think through their business processes, and clarify their ideas and assumptions. And, it’s typically the first thing potential investors ask to see.

However, a paradigm shift in the business-planning community is under way. Doug Erwin, vice president of entrepreneurial development for the Economic Development Authority of Western Nevada, said the entrepreneurial community is moving away from the information-rich business plan toward leaner models more focused on real-world validation. As he puts it, “People have shifted from a model of “tell me about it” to “prove it.”

“There’s nothing wrong with planning,” Erwin said. “The problem is that the second you write the business plan, it’s effectively out of date. The likelihood of you writing that plan and executing it as written is essentially zero.” A planned trajectory will change because the external business environment changes, assumptions turn out to be wrong, or new things are learned that take the business in a new direction.

The business plan is a static document. It is typically written once and then collects dust in a filing cabinet. So, instead of spending valuable time and energy writing a 40-page document that will be out of date as soon as it’s written, entrepreneurs might be better served by other options.

There are many alternatives to the business plan. Most share some common characteristics. They tend to be shorter and geared more toward presentation, and they change as a business evolves.”

Check your understanding:

A. What do these words mean? Match the word with its definition:

1. staple a. out of style
2. paradigm shift b. fixed
3. shift c. Something of prime importance
4. out of date d. use for
5. trajectory e. change direction
6. static f. develop
7. gear toward g. a radical change in theory
8. evolve h. a chosen course

B. Which of the following statements are true according to the article?
1. Writing a business plan is no longer necessary for your business.
2. Today business plans should be done differently.
3. The author is against business plans.
4. Traditional business plans are time-consuming to produce.

Answers

A. 1. c., 2. g., 3. e., 4. a., 5. h., 6. b., 7. d., 8. f

B. True: 2, 4

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