When Is a Business Plan Not a Business Plan?

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:

homonyms

Just like the different meanings for crane and date, there are at least two completely different meanings for the two-word phrase “business plan:”

  1. 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.
  2. 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?

7 thoughts on “When Is a Business Plan Not a Business Plan?

  1. I completely agree! This is great food-for-thought. It drives me crazy when I hear people in my industry (the wedding industry) say that they built a successful business without a business plan. I tell them they must’ve had some sort of plan – even if it wasn’t a formalized document. For one thing, there is no way one can know if they have a profitable business model without going thru some of the planning activities – whatever form that is in.

    Those that are confined to the “document” basis of business planning have lost the whole purpose of planning for a constantly evolving business. It’s the plan-as-you-go that keeps things exciting as a business owner…. beyond the snapshot needs of an investor, bank, etc.

  2. Tim,
    Most of us who have an idea do not necessarily have a business degree or business background. What we have is experience, reason, and logic. I am working on my 1st formal bus. plan and read and update it at least once a week. This helps me know where our path leads, what I can do, and what I need to hand off to others. I find it to be my best educational tool. This post will help me with my weekly update. Thanks.

  3. The importance of the Business Plan (the document) is highly over-rated. Most of the assumptions and forecasts turn out to be wrong…..in a hurry! It is also a static document that collects dust on someone’s credenza. I think this is the Business Plan for potential investors that you referred to.

    I propose we change the name of the second type of BP to Business Replanning to highlight the fact that to be useful, Business Plans need to be living, breathing plans in need of constant updating.

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