Why You Still Need a Business Plan for a Website Business

It has never been easier to start a business. For $20 you can buy a domain name and your first month of web hosting, and you will be up and running with the next Facebook by next weekend right? 20 years ago the first step in starting a business was writing a solid business plan, but today many web entrepreneurs take the Lean Startup methodology and simply start experimenting from day 1. Although I highly recommend using the methods discussed in the Lean Startup to launch your web-based business, there are 2 reasons it is still important to develop a business plan for your website or application.

Defining The Market Potential
Writing a business plan helps an entrepreneur define whether or not there is a potential market for their product or service. Just because you and your high school buddies came up with a “great” idea for a website at the bar last night, does not mean that anyone is actually looking for your solution. When you are building a website, Google makes defining your market potential incredibly easy with the Google Adwords Keyword Tool.

Let’s say you want to create a web application that teaches someone how to play the kazoo. The first question is whether or not anyone is looking to learn how to play the kazoo. Simply visit the Google Adwords Keyword Tool and type in “How to Play the Kazoo.” As you can see below the keyword tool shows there are 1,600 monthly searches on Google for that keyword phrase.

Now the question is whether or not 1,600 potential monthly searches is enough to start/sustain your business.

In comparison, “How to Play the Guitar” receives over 1.2 million monthly searches on Google. As you write a business plan for your website make sure to use the free data available to you with the Google Adwords Keyword Tool to define your market potential.

Defining The Financial Potential
The biggest danger of jumping into a business without writing a business plan is that you may simply be wasting your time. You need to determine that the business has the potential to be a financial success someday; otherwise, you might as well spend your time relaxing on the beach instead of wasting it on a business that can never turn a profit. Just because there is a market that wants your product or service, that does not necessarily mean you can provide that product or service profitably. For example, you might be able to create a website to sell paper weights, but if it costs $10 to ship the orders, and customers are not willing to pay more than $10 for the product, then it doesn’t matter how many you sell the business has no potential. Working through the business plan process will help you avoid investing months or years of your life in a business that ultimately can’t be sustainable.

Although it is easy to just set up a website and start marketing your new product or service, a simple business plan can help keep you from investing too much time into a business that will never go anywhere.

Author Bio: Adam Hoeksema is the Co-Founder of ProjectionHub which is a web application that helps entrepreneurs create a full set of financial projections without the need to have a Phd in spreadsheet modeling.