Do Developing-Country Entrepreneurs Need Business Plans?
Everyone in the entrepreneurship community seems to have an opinion on the topic of business plans. They range from “Yes, they are always needed, no matter how small the business” to “They are a complete waste of time”. The real, unequivocable answer is “it depends”.
You laugh. But it’s the truth, especially for those in low-income countries. So let’s dissect this.
A business plan is a document that describes what the business does, where it wants to go, and how it will get there. There’s a lot more to it, but let’s keep it simple for now. What entrepreneurs need, though, is whatever will best help them reach their growth goals.
Entrepreneurs in developing countries are not all the same; they fall along a continuum. At the risk of oversimplifying, developing-country entrepreneurs typically fall into one of three general classifications.
The Financial Essentials Group - Definitely Not
These are usually informal business owners who have no business training. They have found a way to sell something in order to survive. They may or may not have literacy or numeracy skills. Examples might include a smallholder farmer or a woman selling crafts or vegetables. These one-person tiny businesses clearly do not need anything resembling a business plan. What they need is some startup money (perhaps through a grant or village saving and loan program) and help with financial recordkeeping. This enables the business owner to manage their cash and know how much is coming and going out. This small support can have a huge impact on the success of the business.
The Budding Businesses Group – Modified Business Plans
This group of entrepreneurs has usually had some form of education, which may or may not be business related. Their businesses are typically registered and they may have college degrees. Local jobs may be limited so they start a business, usually based on a particular skill or passion. They have entrepreneurial spirit and can manage a small business, although perhaps not optimally.
These entrepreneurs may benefit from business skills training that addresses specific issues they face. Most have started their businesses without a business plan, but may need one for these reasons:
1. The business is facing problems, plateaued, and/or does not know how to grow
2. They need outside capital to expand
In the first case, a basic business plan can help address the problems and chart a course to future growth. The business owner will likely need business coaching or outside support to steer through the process and develop a realistic, well written plan. This business plan is to help the entrepreneur by providing analysis and direction.
In the second case, owners may need growth capital and seek local loans, grants, or other funding that requires submission of a cohesive business plan. It must demonstrate a stable business, growth strategy, and solid financials.
In either case an elaborate 50-page business plan is not the solution, but a basic plan or even a business canvas can provide clarity and key information for both the owner and outside investors.
The Game Changers Group – Formal Business Plans
Entrepreneurs with formal or advanced business education or backgrounds, groundbreaking startups, or innovative business ideas need full-blown business plans. This group has big plans. They will compete at high levels (often globally) for angel investment or venture capital, so they need sophisticated, detailed, buttoned-up business plans. They are on-par with high-potential global startups and usually has access to the most support from investors, institutions, incubators, and other organizations both at the national and international level.
Meeting Them Where They Are
In the book “Alice in Wonderland” by Lewis Carroll, Alice asks the Cheshire Cat, “Would you tell me, please, which way I ought to go from here?” The Cat replies, “That depends a good deal on where you want to get to.” For entrepreneurs and business plans I would add that it also depends on where the entrepreneur is.