According to various government statistics, up to 80% of businesses will fail within their first five years of operation. That number is staggering to me.

At the same time, when I look at most business owners, most of them do not have a business plan for where they want to go. When you ask entrepreneurs why they don’t have a business plan, most of them will say something like: “it’s too much work”, “I’m not trying to raise money”, “it’s all in my head already”, or “my business changes too often for a business plan to be worthwhile.”

Sound familiar?

While it’s true that a business plan can be a lengthy document that takes away from you running your business, a lack of a plan can lead you in all sorts of different directions and take your focus away from being able to build a solid company.

There are three types of business plans that I have found useful over my career as an entrepreneur. I will discuss one today and finish with the other two next week.

1) Starting a new business

Everyone has ideas about what would make a successful product or service but there are a lot of unknown quantities when you are first thinking about creating a new business.

You should do a full business plan that looks at how you are going to make money, who your competition is, how you are going to be different, what your big vision for your company will be, what your mission is, and what steps you are going to take to get there.

The plan will change as you start running the business - especially a lot of the operational details - but the initial plan will help you decide if you have a real opportunity on your hands or not.

I suspect that a lot of new entrepreneurs fail because they don’t do the proper research before getting started. They don’t know if they will be able to make money or not, have no idea how to market their products, and don’t do any kind of competitive analysis. Suddenly they start the business, realize it’s a lot harder than they thought it would be, lose a lot of money, and close down.

Every entrepreneur should do a full business plan before getting started to help understand if the idea really has any legs or if it’s going to be a dud. The extra energy spent preparing at the beginning will pay off handsomely for you down the line.

I will continue with the two other types of business plans entrepreneurs should create in Part 2 of this series next week.

Did you write a business plan for your company when you first started? Are you planning on doing it for your new business idea?

Evan Carmichael

Meet YoungEntrepreneur.com co-founder Adam Toren at this year's BlogWorld 2008!

Evan Carmichael
YoungEntrepreneur.com Blog Manager

Did you enjoy this article? If so, then subscribe to our RSS Feed.