Posted in General, Management, Strategy

I do not believe in business planning

I do not believe in business planning.

There – I said it.

It probably shocks you considering I TEACH that shit at university. I have written ‘manuals’ and have spoken much about it in public. I don’t have a business plan. I don’t know any small business owner who does.

Every consultant and speaker and wannabe guru advocates that having a business plan is important and in fact that it is the difference between success and failure.

The government gives millions and grants to professional trainers and invests millions in websites to advocate that simple message: get a business plan. The bankers tell you so, the financial planners tell you so.

They fall back on one simple fact to ‘prove’ the importance of a business plan: The vast majority (make up your own statistic here) of all small businesses that fail do not have a business plan, ergo the lack of a business plan is to blame for failure, and that having a business plan will lead to success.

If you were honest with yourself, you would appreciate that such a conclusion is not only objectively/ statistically/ methodologically invalid, it is just plain stupid. 100% of business that fail are run by people, and success will be assured if it was run by something else. Or 80% of business that fail have fewer than 10 products, so success will be assured if you diversify (OK, I made up that last statistic, but you get the point.)

There is no causal relationship between having a business plan and the success of a business.

If there were; I guarantee that every small business would have one. Entrepreneurs are not stupid, they know in their heart of hearts that it does not make a difference and that is why they don’t have one.

Business plans have been invented by consultants, bankers and other assorted wankers to give them something to do. I offer nothing more factual than this: If having a business plan was a recipe for success, then everybody would have had one. That is just a simple fact of human nature.

Fundamentally a business will succeed or fail on one thing and one thing alone: do you have a product/service/solution that actually meets a (sufficiently large) real need that people are willing to pay for? If not, failure is guaranteed. If you do, you have a chance of success. To achieve success you now have to execute (not plan) just execute. The bigger the business gets, you will find that the communications processes (internal and external) gets more complicated.

To facilitate communication, you need systems, processes, procedures etc. A business plan could play a role as one of these systems, but it is by no means the best or the only way, and it is definitely NOT a prerequisite.

As entrepreneurs think about their business, the nature and the scope of the opportunity, they may jot down notes. This may vary from the ‘back-of-a-napkin’ plan to something more formal, depending on their style. The reality is that as soon as they have finished putting pen to paper, the plan is obsolete anyway. As long as they have a handle on the business model and they continue to execute it, success is possible.

(The interesting thing is that there is not really good literature on business models. Either it is long academic tomes, or internet fluff that confuses simplistic and simple. My suspicion is that we have not really nailed a suitable framework, and still must rely on entrepreneurial intuition to luck upon a workable business model.)

I know it. Most entrepreneurs know it. Now, to convince the bankers.

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13 thoughts on “I do not believe in business planning

  1. As fun as it sounds, I really cannot agree with this post. In terms of physically writing down your business plan in the generally prescribed form, you can get away without doing that. But in terms of not actually having a plan at all, forget about it…you will fail.

    The idea of the business plan is to stimulate you to consider the various related aspects that a business needs to do competently and cohesively to succeed. The idea of writing it down just means you don’t need to have a thousand concepts in your head at the same time.

    Basic parts of the business plan that you need are your product/service, SWOT, financial plan that includes your margins and cash flow projections, marketing plan, etc etc. Miss any of these and more and you’re likely to fail or not come close to your potential.

    It’s all very well to say that entrepreneurs can just keep all of this in their heads but why bother…or risk it. If you don’t go through the formal motions, at least occasionally, you’re very likely to miss something that may prove critical down the track. As a SME operator you are already juggling a lot of balls. Why not clear some head space?

    If you can’t articulate your ideas, you may not really have any ideas. And if you can’t articulate them then how can you communicate them? And if you can’t communicate them then how can anyone else buy into them? Like bankers. Personally I would not want to deposit with a bank that invested in entrepreneurs that could not even articulate the various integral aspects of their business going forward.

    To say that, “If having a business plan was a recipe for success, then everybody would have had one” is also methodologically invalid. It’s not human nature to do purely what’s best for oneself. It’s human nature to be lazy. If humans did actually follow your logic then we’d all have six-packs and wouldn’t smoke or drink…because that’s what is ideal for successful health and living. It’s more accurate to say that humans seek pleasure and avoid pain in the short term. In the case of having a business plan it’s a case of avoiding the short term pain of doing it, to the long term detriment of the business.

    Having a product/service/solution that actually meets a (sufficiently large) real need that people are willing to pay for is a pre-requisite…but what if you didn’t plan your cash flow, or planned to protect your IP? Failure.

    And execute! Execute what? If you haven’t planned what you want to execute…what exactly will you be executing? Probably whatever pops into your head at the time or just putting out fires.

    It is true that as long as entrepreneurs have a handle on the business model and they continue to execute it, success is possible. But what you are really doing there is hopefully following and executing your plan. To succeed long term though, the entrepreneur needs to look ahead to the future and most likely adapt the model. That will require planning, unless the plan is to react in a status-quo knee-jerk manner.

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  2. Thanks for a thoughtful response:
    “You can never plan the future by the past.” Edmund Burke

    What I am propagating is a continuous process of living & adapting the ‘plan’ rather than trusting in the plan.
    And I can tell you that I have personally looked at and reviewed well in excess of a thousand business plans and reality unfailingly delivered something different. The plan does not guarantee success – not anymore if it ever did.

    Planning is relevant to some extent for businesses which are routinised and commoditised and predictable.
    The current GFC is proof that even the most sophisticated planning systems cannot predict the future.

    I am all for thinking about the business and all for thinking about things and articulating it. (I just don’t call that planning – as in the mission–objectives-SWOT paradigm.)

    The way I do it (not suitable for all businesses of all sizes) is that I use my notepad (hard copy) and I always frame my business, the strategies, the goals etc in the back of the book – and every opportunity I get, I come back to it and review and adapt and refine…

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  3. Thanks for a provocative post and a considered response.

    I think a ‘gameplan’ (not necessarily documented) is essential for success, and a documented business plan is only essential for communication with potential business partners/ some stakeholders,which may/not be a requirement for success. The latter depends on the situation.

    I can’t envisage a successful startup without a cashflow projection- but that is really an appendix to a formal plan, not the plan as such.

    A good point implied in Dennis’ post is that many business people go through the motions of preparing a plan, whereas clearly identifying and articulating assumptions is perhaps the most valuable. (At least in my experience of drawing up plans.)

    Hope that adds some value. Cheers.
    Stephen

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  4. “I always frame my business, the strategies, the goals etc in the back of the book – and every opportunity I get, I come back to it and review and adapt and refine…”

    that’s a plan. maybe not a formal “business plan”, but a plan for your business, nonetheless.

    the current GFC was indeed caused by failure to think ahead– when, in the late 1980’s, financiers and their political puppets ripped out regulations intended to avert disaster, disaster ensued. big surprise.

    as steve mcconnell wrote in ‘code complete’, the single biggest cause of cost and schedule overruns on software development projects is Failure To Plan Ahead (according to decades of research on the issue). when a piece of software is built based on incorrect assumptions, or on the assumption that ‘our business needs today will remain our business needs in the future, unchanged’, then the result is a brittle project which cannot flex with changing needs.

    by analogy, if a business is built without Planning for Change, then the business will not be able to keep up with change.

    in conclusion, if you’re saying a formal biz plan will not create or guarantee success, only work and creativity will, that sounds right.

    if you’re saying all business plans are brittle, static, and cannot flex with changing needs, i say that’s only true of crap business plans.

    if you’re saying ‘Don’t plan for the future, just wing it’, then i think that’s stupid advice. people who just ‘wing it’ through projects, without thinking ahead, end up spending all their time in crisis mode, putting out fires, instead of building higher.

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  5. if you’re saying a formal biz plan will not create or guarantee success, only work and creativity will, that sounds right.
    That is what I am saying

    if you’re saying all business plans are brittle, static, and cannot flex with changing needs, i say that’s only true of crap business plans.
    I think this is true for all business plan in a corporate setting where politics and process intervenes…

    if you’re saying ‘Don’t plan for the future, just wing it’, then i think that’s stupid advice.
    I am saying the future must be considered, thought through and so forth. Whether putting the thought is a ‘business plan’ is helpful, is questionable.

    I put forth all the stats on corporate failure where very fancy business planning processes exist – and indeed the GFC. We have no idea what tomorrow holds and as you rightly point out ” a business must be built for change” and I think this is the best possible way of managing.

    Thank you for a very considered comment!

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  6. if you’re blaming “Business Plans” for the global economic crisis, i think that’s asinine. i think the global economic crisis was caused by short-sighted greed, and financial regulations designed to satisfy short-sighted greed.

    planning for the future is one of the casualties of short-sighted greed.

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  7. I am not blaming business plans for anything. I am saying that if BPs were effective, how do you explain all these ‘outcomes’ that were not planned? I am pretty confident, without knowing for sure, that each and every one of those financial institutions that went bust had a formal business planning processes in place -and obviously that did not generate the planned outcome.

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  8. If you plan and never do then fail is assured. I have run my own businesses since 1985 and sold my last business in 2007.

    Having employed hundreds of people in these businesses I know that success comes from being passionate about the idea, collaboratively building a simple plan, executing it well, verify important things regularly and review frequently and make required changes.

    Last year following a number of presentations and requests I uploaded this presentation of practical examples from 23 years of running my own business to Slideshare see link http://bit.ly/57wuoC

    If you agree/disagree let me know and I’d love to hear of your examples too!

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  9. I agree: especially with “verify important things regularly and review frequently and make required changes.”

    I wrote a post about business planning as being no recipe for success (and got much criticism) but I was referring to the traditional way of doing it.

    The link above is to ‘screencast’ on your HP, right? (It does not take me to Slideshare…)

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