A debate has been rumbling along over the past number of years in relation to the usefulness of business plans. This is primarily being driven by the views of young start-ups in the technology sector. Many of these budding entrepreneurs state that business planning has become useless as the plans are out of date almost as soon as they are written. While this approach to management has its advocates, business rules tend to apply to everyone over the long run. Many start-ups say that they (for instance) concentrate on revenue generating actions instead of developing a business plan. This view is quite a monolithic interpretation of what business planning is meant to achieve. A good business plan is not a hybrid of a sacred text and the magna carta. It is a living document that contains the hypothesis that all business activities (including revenue generating actions) are testing – i.e. is the business viable and is the execution of the plan on track.
As the famous investor and businessman John Harvey Jones once said “Planning is an unnatural process; it is much more fun to do something. The nicest thing about not planning is that failure comes as a complete surprise, rather than being preceded by a period of worry and depression.”
Jones regularly appeared in the pages of the Financial Times in the mid 90s, ebulliently and confidently predicting the demise of the (then) tech bubble because ostensibly good ideas were warehoused in businesses that failed to generate meaningful cashflows and were often very poorly managed.
Planning sceptics have a point in that the differing speeds in business cycles across sectors requires different approaches to planning. It is however a leap too far to state that no commercial or strategic planning is necessary because of the quick cycle times in the tech sector (vs. manufacturing for instance).
Apart from the convenience of avoiding difficult tasks like planning, it is understandable why some tech companies fall into this mode of thinking. Firstly, many are financed by capital and therefore the project plan and business plan are closely aligned until they go bust or start posting revenues. In the second scenario, the company may be a cashcow where the business model and cashflows mask the requirement for short term and longer term planning.
What is concerning for traditional parts of the real economy regarding this mode of thinking is how this mindset is spreading into sectors like independent retail, distribution and tradeable services (to name a few areas I have dealt with personally in the past 18 months). These are sectors where face to face sales, customer relationship development and cashflow are the difference between success and failure. In these sectors, planning and commercial strategy matter greatly. The opportunities for up front payment are limited unlike app developers with a product in the Apple or Android stores.
While the numbers vary, in most EU countries a majority of companies (mainly micro and smaller businesses) do not have business plans for their businesses. The business failure rate is at its highest among this cohort and yet micro and small businesses employ far more people than large and medium sized companies.
An effective approach to (fit for purpose) planning and strategising is vital. Keystone Procurement has developed a guide to commercial strategy development, bid management and tendering business out to suppliers for micro, small and medium sized businesses. All of these approaches have been used with clients successfully and are directly aimed at growing both sales and profits.
For start-ups and established businesses, planning is the North Star. Without it, navigating the way towards growth is a perilous business.