Entrepreneurs are natural “do-ers” rather than thinkers, but perhaps we were different. In 1996, nearly a year before we launched Executive Options, our two-year-old career-consulting company, George Stiles put together a business plan, describing how our firm would differ from others in the field and why that difference represented a business opportunity.

Stiles’ focus on planning proved to be good strategy. At that time, Rink DeWitt, a former bank CEO, wasn’t at all convinced. So on a drafty spring day, at Rink’s farmhouse in New Hampshire, we co-founders sat down and read the plan aloud to each other, line by line. It was the part about us doing the consulting–two businessmen rather than the usual cadre of junior employees with counseling degrees–that finally sold Rink on abandoning the farmhouse for our office in Wellesley, Massachusetts.

Planning is powerful. This is a message we now give to the aspiring entrepreneurs who comprise an increasing chunk of our clientele of executives-in-transition. When asked about the “plan” for their businesses-to-be, these fledglings, like so many of their successful self-made counterparts, are apt to say, “What plan?” It is up to us to be fanatical about sitting them down and saying, “Let’s think things through…”.

A Trio of Advantages

In short, for even the most relentless entrepreneurial “do-er,” formal business planning is neither an oxymoron nor an option. Rather, it is an essential entrepreneurial tool that enables a trio of powerful advantages:

• careful thought
• clarity of purpose
• and a benchmark to measure progress

To wit:

Careful Thought

While undergoing the weeks or months of agonizing research and reflection involved in drafting a business plan, an entrepreneur is forced to confront and answer questions that he or she might not have even raised if fully engaged in “doing.” In its ability to force careful thought–indeed, to discipline the entrepreneur to test the reality of enthusiastic optimism–a plan leads to a wealth of specific knowledge, which in turn boosts self-confidence. All of this goes a long way toward assuring the success of the venture.

A word of caution: There are no short cuts here. Gathering the data, doing the analysis, and writing the plan are the entrepreneur’s responsibilities. It couldn’t be any other way, for in this endeavor, process trumps product.

Clarity of Purpose

If a business plan defines the venture for the entrepreneur, it does so as well for his or her “significant others,” namely members of the management team, venture capitalists and other financiers, and professionals such as lawyers and accountants. A plan offers a clear and consistent snapshot of the organization’s objective from the outset. It provides clarity of purpose, the given against which changes can be made.

A well-documented business plan enables the entrepreneur to avoid the dangerous trap of confusing activity with progress. Instead of a mere locomotion, a plan offers a steady benchmark against which to measure progress. As each interim goal is achieved, the entrepreneur gains a greater level of personal and organizational satisfaction.

It goes without saying that a formal plan is a rock-bottom necessity for convincing venture capitalists, angels, or bankers to put money into the enterprise. Prospective investors and lenders need to be assured that the founder has researched and analyzed the venture in sufficient detail and that the management team has the background, skills, and qualifications to succeed.

Taking Advantage

In formulating a plan, an entrepreneur needs to consider three big basics: a well-thought-out concept or idea that will form the basis of the business, a clear assessment of the size of the market for the product or service, and a comprehensive study of existing or potential competitors.

That latter is key; you might recall that it was the factor that convinced Rink to jump aboard the Executive Options bandwagon. A look at your competitors should include who they are, how good they are, how they differ from what you are, who their clients or customers are–and how you can take those prospects away from them.

Beyond the basics, a list of do’s and don’ts will enable you to take best advantage of a business plan.

DO:

• Keep the plan as short as possible, no more than 20 pages.
• Start with a one-page executive summary, drafting the summary last.
• Write and arrange the plan to be orchestrated as an oral presentation.
• Estimate sales potential on hard evidence of your product’s marketability.
• Involve your management team and professional consultants.
• Disclose current or potential problems so that others hear the bad news from you first.

DON’T:

• Use jargon, which shouts arrogance; instead, shoot for verbal simplicity.
• Over-diversify; instead, focus on one or two products or markets.
• Include unnamed members of the management team who will “join later”–instead, identify everyone involved.
• Make ambiguous, vague or unsubstantiated statements, which label you a fuzzy thinker or a dreamer; instead, use facts to describe market size.

We co-founders have come a long way from that dreary day in New Hampshire, when we turned for guidance to our plan for Executive Options. Our plan was our vision in writing. It was the tangible record of our dreams. Through it, we examined a present reality, injected our own ideas, and described the new reality that we would create.

You can do this, too–if you realize and capitalize on the advantages of a formal business plan.