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Evidence-Based Decision-Making
 

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EBDM & Business Plans

A surprising number of companies have no Business Plan. It is completely unclear why this would be. Nearly every business school teaches the need for a Bib Plan. That is usually the main point of the first business course of any curriculum. Almost every investor wants to see a Business Plan. Many banks want to see a Business Plan. And yet, many startups and quite a few operating businesses have nothing more than a 5 minute PowerPoint on one Excel spreadsheet that is, more or less, their Business Plan.

Why?...for the same reasons given in Evidence-Based Decision-Making – What is It? To recap, the top two reasons are:

  1. We don’t want to subject our prejudices to scrutiny and/or
  2. We don’t know how to judge the truth.

In the first case, we let our egos get in the way. We know what we want and don’t want anyone to critique our position lest we look foolish or are forced to make a change. In the second case, we lack the skills to judge claims against objective evidence. We tend to naively accept some claims as perfectly true and reject others as heretical idiocy depending on how we feel about them.

Run away from any business venture when the basic assumptions have not been stated and are not open to evaluation. It will end badly.

At typical Business Plan should follow a general outline something like1:

· Executive Summary

· General Business Description

· Industry Analysis

· Competitive Analysis

· Marketing Strategy

· Operational Description

· Human Resource Needs

· Financial Projections

· Appendixes

The body of the Business Plan should be written as a general narrative that states the assumptions and shows how they all flow together into a plan that can make money. This can start as a simple two page draft, but should grow into a complete story. The Appendixes should contain the objective evidence that supports the assumptions and the logic of the Business Plan. Unless the evidence exists, the Business Plan is, at best, just an interesting hypothesis and at its worst is a hoax to try to sucker investors.

With the availability of word processors, spreadsheets and search engines, there is no excuse for any business to not a have an up-to-date Business Plan. Companies incapable of creating a reasonably complete and documented Business Plan will always be sub-optimal and drifting from one foggy idea to another, wasting money, time and opportunity.

1Adapted from Business: A Changing World, by Ferrell, Hirt and Ferrell