Why do entrepreneurs need a business plan?

Entrepreneurs need a business plan as a strategic framework to help make decisions and establish a direction (Da Rin and Hellmann, 2017). The lean start-up (Blank, 2013) framework contradicts this and suggests that business plans are based on a set of untested hypotheses that need to be tested via iterative experimentation and thus, there is no need for an elaborate business plan. Whilst this is somewhat true, it is predicated on the assumption that multiple pathways can be explored with minimum commitment of resources which is often not the case (Gans, Stern and Wu, 2016). It is also predicated on the assumption that exploring one pathway will not affect going down another pathway which is often not true. For instance, an early partnership with android software may make it difficult to use apple software in the future. Consequently, a business plan allows an entrepreneur to set out their basic principles and idea, the initial choice on customers, technology, identity and competition are indeed substantial (Gans, Stern and Wu, 2017). For instance, Avatech must decide whether they will adopt a strategy which involves collaboration and control such as an IP strategy or one that adopts competition and execution such as disruption strategy. Evidently, if Avatech opt a disruption strategy their technology would be revealed to competitors making it more difficult to practice an IP strategy due to the implications on trade secret and patent protection. A requirement of patent protection is for no public disclosure before release (Bagley and Dauchy, 2012).

Furthermore, it is also essential to have some form of a business plan to pitch to investors in order to overcome asymmetric information (Da Rin and Hellmann, 2017).