Thursday, 11 March 2010

Views on why entrepreneurs don't bother with business plans

Last November there was an interesting piece in the New York Times by Scott Shane called “Why Don’t All Entrepreneurs Write Business Plans?” Scott, who is professor of entrepreneurial studies at Case Western University (Cleveland, Ohio), came up with 3 reasons why entrepreneurs don’t plan:

  1. The ignorance theory - the one most cited by business school professors.
  2. The ‘Just Do It’ theory – people like to be more action-oriented.
  3. The ‘don’t-look-under-the-hood’ theory – people who don’t want to test their ideas in case they fail.

I think ‘2’ is the most common reason; that people get frustrated by over analysis and want to put their ideas into action instead. It’s not about entrepreneurs being lazy or ignorant; but smart: they know too much analysis will paralyse their idea, so they want to take a leap and put it out there.

The entrepreneur and blogger Neil Patel who's founded two internet companies, posted a great response to the NYT piece (check out his post here). I think his reasons are much more spot-on:

  1. Business plans do not automatically result in getting funding.
  2. You can’t predict the future.
  3. Time is money: it takes time – away from your business – to write a plan.
  4. The business world has changed – the idea of a business plan is outdated, things move to quickly for rigid plans.
Neil doesn’t think having a business plan will increase your chances of success. I think he’s right, plans can limit your potential; you need to be flexible, open and enterprising to make the most of a changing market.


  1. I disagree, no planning makes potential success more of a 'luck' situation, than maximising your chances of success through understanding the terraine. I am not saying you necessarily have to write it all down in a business plan format, as prescribed by business developers or advisors, but if you don't consider who your competitors are, and how you will get from the point of buying your set-up kit to cashing your first cheque, then you are doing yourself a disservice and causing yourself more heartache than you need to. If you have a great idea and really want to make a go of it, then do some pre-planning (it can take a couple of days in total to consider and sketch out.)You don't have to be providing detailed 3 year strategies but if you don't know what the values of the company are going to be or can't answer the question 'what exactly do you do?' then you will struggle to make a name for yourself or sell work/services. Also knowing who you are selling to and how they like to be communicated to is useful too.
    See the biz plan as you setting yourself some milestones, this is where i want to be in 6 months and this is how i am going to get there. Use it to suss out any potential problems, which will then free you up (now educated in your biz and ready to answer any question about all aspects of your business to others)to grow develop and run your company now you are insulated with understanding and hopefully resulting confidence. Your business always looks excellent when you actually spell it out to yourself.
    Its is also a great self help mannual as you go along, to check if you are on track or if the business is morphing into something else. It gives you a baseline to measure your success against.
    Would you drop yourself into the middle of an unknown country with no map or compass and expect to do your best, or would you plan the trip a little? The answer to that question probably answers your sentiments on how you grab oppertunity for new businesses.

  2. I see no inherent value in the kind of detailed business plans that inevitably end up gathering dust on a shelf. They're more a hoop to jump through when trying to attract funding.

    I do see value in articulating your ideas for your business and defining key goals and an overall strategy.

    Putting those things down on paper not only helps you commit to them but also forces a clarity of thought.

    But that can be done on a single page in an afternoon - and without a graph or flowchart in site.

    So going back to the NYT reasons, I'd suggest a fourth - entrepreneurs do plan, incessantly, it's just that those ideas don't get transferred onto paper in a prescribed, business school approved, format.

    Plans kick around in people's heads, in conversations with others and in doodles in notebooks.

  3. Heather, thanks for taking the time to feedback. Absolutely, any entrepreneur must have the essentials before s/he launches their business idea, having formulated their idea, know what makes it distinctive, profitable, who their audience are, who their competitors are. But don't let planning get in the way of action.
    Mark, yep quite right. Articulating goals is really powerful, but yes - a one pager can be more effective than a phone-directory-size detailed plan!