Are Business Plans Overrated?

Yes, says Kate Lister in Entrepreneur magazine, calling the business plan “‘largely a waste of time,” resulting in “a long-winded missive that’s out of date almost the moment the ink dries.” What venture capitalists really want, she argues, isn’t a lengthy written plan but a “killer executive summary and an introduction by a trusted advisor.” To my knowledge, there is little academic research on business plans. This paper summarizes some of the extant literatures, which suggests that business plans are written because entrepreneurs think they need one, not because such plans been shown to be effective.

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One Response to Are Business Plans Overrated?

  1. Randy says:

    This question may be old wine in a new bottle. James Fredrickson and T.R. Mitchell wrote a series of articles on the “comprehensiveness” of strategic planning in the early 80s, part of a wider discussion on the payoff from planning in large and small firms. As Lister notes, the process of planning has always created more value than the document. And the massive tomes to which she alludes have never been useful. Only universities seem to treasure these deplorable outcomes of deplorable processes.

    The other lesson from thirty years ago is that industry context matters. For stable industries, planning and plans are positively correlated to profits. For dynamic and turbulent industries, they are negatively correlated. I wonder if this holds for entrepreneurial entries. To the extent that entrepreneurial judgment can be captured in a venture plan or a venture planning process, is it more valuable for a new entrant in a crowded and stable industry or in an emergent and dynamic industry?

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