The research reveals a fundamental contradiction in business planning for entrepreneurs. While planning is undeniably beneficial, our subsequent findings suggest that writing a business plan first is not the best approach. Instead, we advocate for a more strategic timing that aligns the planning process with other crucial startup activities.
At the outset, a startup business plan seems like a good idea because it answers fundamental questions like “Where are we now?” and Where do we intend to go? as well as “How will we get there?” Writing a plan first helps plan actions and boost the link between actions and running for the new project by describing how to orchestrate complex interdependencies like customers, competitors, operations, logistics, marketing, and sales. Additionally, as previously stated, planning has value. The previous research examined over 1,000 startups and divided them into planners and non-planners. We found that plan entrepreneurs are likelier to launch a successful new business.
However, adaptability and taking advantage of opportunities are the keys to business success. Entrepreneurs frequently have to pivot their business when it becomes clear that their initial customer is not the right customer or that their product or service is better suited for a different market. Due to these realities, initial business plans ultimately become nothing more than a fairy tale. Additionally, it takes time to write a plan, time that could be used to evaluate opportunities. There is yet another risk. The entrepreneur may be prevented from seeing the actual chance rather than an imagined one because of a plan’s potential to trap them in a false sense of security.
To provide concrete and applicable assistance to startups, they revisited the Panel Study of Entrepreneurial Dynamics II data, focusing on 1,000 potential entrepreneur startups in the United States. They meticulously tracked these entrepreneurs’ efforts to establish a profitable new business over six years (2005-2011). They controlled for factors like the founder’s education and prior experience, which all know from the research can influence success rates.
They used a well-known statistical method to divide the potential entrepreneurs into two groups to control for these influences: non-planners and planners. Because of this, “statistical twins” were created, which are pairs of startups with many similarities, except that one is a planner and the other is not. Consequently, it accurately determined the timing of the startup’s plan’s impact on venture viability.
They discovered that, on average, the most successful entrepreneurs wrote their business plan six to twelve months after deciding to start a business. Writing a plan in this time frame increased the likelihood of venture viability’s success by 8%. However, it was found that writing one sooner or later had no wrong effect on future success.
Next, they looked at how long it would take for founders to write a plan. They discovered three months was the best time to work on the plan. By 12%, this increased the likelihood of starting a profitable business. Spending more money than this was pointless, primarily because the information used to make the plan loses value. Sticking with the plan for just a few months was just as bad. The entrepreneur would be better off not writing a plan if the choice was between writing a plan quickly or not writing one at all.
