Writing a business plan is an important step for entrepreneurs seeking to frame their overarching purpose and goals. However, timing is important and businesses that formulate a plan from the very beginning may actually be doing more harm than good.
Francis J Greene, University of Edinburgh Business School chair in entrepreneurship, and Christian Hopp, RWTH Aachen University chair in technology entrepreneurship in the TIME Research Area, write at the Harvard Business Review that their research “shows that writing a plan first is a really bad idea”.
“It is much better to wait, not to devote too much time to writing the plan, and, crucially, to synchronise the plan with other key startup activities,” Greene and Hopp write.
Planning is important – but when is the ideal time to take this step?
As revealed by previous research, success rates for entrepreneurs who plan are higher, but getting the timing right is key. Greene and Hopp contend that “the real key to succeeding in business is being flexible and responsive to opportunities”.
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They observe that entrepreneurs will often need to change course as various realities become apparent, such as a product or service being better suited to an alternative market than the one it was originally intended for.
Meanwhile, the time-consuming process of writing a plan could hinder the pursuit of other opportunities, or lock entrepreneurs into a false sense of security, preventing them from seeing actual opportunities – as opposed to imagined ones.
Drawing on the data of 1,000 would-be US entrepreneurs, Greene and Hopp charted the entrepreneurs’ attempts to create a viable new venture from 2005 through to 2011, controlling for influences such as an entrepreneur’s background and startup conditions, and separating the entrepreneurs into two groups: planners and non-planners.
Their findings revealed that “on average, the most successful entrepreneurs were those that wrote their business plan between six and 12 months after deciding to start a business”.
“Writing a plan in this timeframe increased the probability of venture viability success by 8%,” they write. “But writing one earlier or later proved to have no distinguishable impact on future success.”
How long to spend writing a plan?
When it comes to how long founders should devote to writing a plan, Greene and Hopp found that three months was the optimal time, increasing the chances of creating a viable venture by 12%.
“Spending any longer than this was futile, mostly because the information used to inform the plan loses its currency,” they write. “Spending just a month or two on the plan was just as bad. If the choice was between quickly writing a plan or not writing a plan, the entrepreneur was better off not writing a plan at all.”
Sequencing should also be a key consideration for entrepreneurs, who should take care to ensure their planning coincides with complementary business activities.
“We found that the sweet spot for writing a plan was around the time when the entrepreneur was actually talking to customers, getting their product ready for market, and thinking through their promotional and marketing activities,” Greene and Hopp write.
“Committing a plan to paper alongside these activities increases a startup’s chance of venture viability by 27%.”