This has been bugging me for a long time now: It turns out that the phrase “business plan” is a homonym, exactly as in these examples from yourdictionary.com:
Just like the different meanings for crane and date, there are at least two completely different meanings for the two-word phrase “business plan:”
- Business plan: what’s supposed to happen in a business. This normally includes priorities, strategy, assumptions, milestones, responsibilities, sales forecast, expense budget, and cash flow.
- Business plan: a document used to summarize a business to serve as part of the process of seeking investors or applying for a commercial loan.
Why does this matter? Because I see both of these two distinct meanings coming up in business conversation all the time, constantly confusing people. For example, when successful entrepreneurs tell pollsters they didn’t have a business plan when they started, they’re using definition #2 here. When smart business advisors play down the use of the business plan, they are also talking about that second definition, not the first.
I’ve been starting to distinguish the two meanings in my own work by writing about “business planning” for business plan definition #1, and “business plan document” for business plan definition #2.
That first-definition business plan is about optimizing management. It includes regular plan vs. actual review, course corrections, and managing rapid change. It doesn’t assume that there’s virtue in sticking to a plan for no other reason. It lives on your computer. The slide deck, the pitch, and the document are output of that plan. It’s Plan-As-You-Go business planning.
The second-definition business plan is something like sales collateral; it’s business goal is communicating a deal to investors, or supporting a loan application. It’s important to a subset of businesses that are seeking investment or commercial loans. I see a lot of those in my work as a member of an angel investment group and a frequent judge at business plan contests.
These are very different things, these two definitions of business plan. They are homonyms. And that confuses business discussions about business plans and business planning. Do you agree?
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