This is the VOA Special English Economics Report.
business plan, in the words of the Small Business Administration in Washington,
is a tool with three basic purposes. As a communication tool, it can show possible
investors how well you have considered your ideas. As a management tool, it can
list goals and ways to measure progress. And as a planning tool, it can help
guide a business around problems.
For people starting a new business, the biggest
problems commonly involve financing. Entrepreneurs often seek venture capital. This
is money from wealthy individuals or investment companies for the purpose of
building new businesses.
Each year, entrepreneurs
with ideas for the "next big thing" flood venture capitalists with
business plans. But John Mullins of the London Business School, writing in the
Wall Street Journal, says most business plans are never even fully read.
good business plan, he says, must define a problem that the new business will
solve. Many plans fail to show how a product or service meets a need.
business plans often assume it will be easy to gain a share of a large or
fast-growing market. Professor Mullins advises entrepreneurs to do market tests
so they have real numbers to support their claims.
And he says honesty about
possible problems with the plan is important. Successful businesses often
change plans as conditions change.
Business students spend hours and hours
learning how to write a business plan. But even a good one has its limits.
new study suggests that venture capitalists rarely consider the business plan when
deciding whether to invest in a new company.
David Kirsch is an associate
professor at the Robert H. Smith School of Business at the University of
Maryland. He and others examined more than seven hundred requests made to an
American venture capital firm. He says he was startled to find that planning
documents have such little influence.
Professor Kirsch tells us that venture capitalists
instead talk to people who know the entrepreneur. They talk to business
experts, lawyers and other knowledgeable people. The study appeared in the May
issue of Strategic Management Journal.
David Kirsch considers business plans a good way to organize
an entrepreneur's ideas. But, in his words, "A smart entrepreneur should
spend his time developing the business rather than the business plan."
that's the VOA Special English Economics Report, written by Mario Ritter. Transcripts
and archives are at voaspecialenglish.com. I'm Steve Ember.