Is Planning Bad for Business?
Conventional wisdom dictates that business planning is a key to success. The U.S. Small Business Administration, for example, notes that the "importance of a comprehensive, thoughtful business plan cannot be overemphasized." But Araceli Camargo, the 31-year-old founder of TheCube, a co-working space in London, thinks that the impulse to plan is ultimately unnecessary. In fact, she believes it to be downright bad for business.
Last month, Camargo—who was born in Florida but immigrated to London several years ago—presented her ideas to a group of about 30 young professionals lunching on burgers and cheese steaks at reBar restaurant in Brooklyn, New York. Via a spotty Skype connection from England, she delivered a PowerPoint of her research, titled “Think, Don't Plan: Disruptive Business Strategy Tactics.”
The talk, hosted by Digital DUMBO, a New York-based organization that fosters business for New York's technology community, offered entrepreneurs (and would-be entrepreneurs) a road map for starting a business based on action, rather than planning.
"In our research, we found that successful entrepreneurs have a flexible, nimble brain," Camargo says. "There’s no formula or process to what is, essentially, a constantly moving target. Once a business is up, you have to react to the market. You have to react to your customers, to the economy, and to the things you don’t see coming."
Camargo warns against trying to attain a predetermined goal, which may no longer be relevant.
Her research highlights a growing trend among many Gen-Y entrepreneurs: business plans, often thought to be an essential tool for outlining a business and attracting venture capitalists, may be going out vogue (at least in some circles).
"Once you start your company, you’ll soon realize that a lot of decisions will have to be made on the fly and that you are going to have to rely on your intuition," writes Neil Patel, the founder of Crazy Egg and KISSmetrics. "There is no written document that can help you with any of this."
Some research supports this claim. In 2007, The Wall Street Journal reported that “budding entrepreneurs can spend months, sometimes years, polishing elaborate 50- to 100-page business plans that include financial projections, market research, and intricate details on day-to-day planning and organization…But skeptics say there's little concrete evidence that extensive planning is highly correlated to success." Two years later, in 2009, The Journal clarified further, noting that "researchers found no evidence that either the content or presentation of the plan influences venture capital-funding decisions."
Still, academic perspectives are generally wary of accepting Camargo’s anti-planning rhetoric.
For example, a 2003 study titled "Does Business Planning Facilitate the Development of New Ventures" published in the Strategic Management Journal, concluded that entrepreneurs who complete a business plan are six times more likely to get into business than those entrepreneurs who don’t. "Nearly all of the evidence offered in this article suggests that completing a business plan, and better yet, writing a business plan, is positively correlated to getting into business," the journal states. "The bottom line is this: If you are actively starting a business, then do make a business plan."
But planning, according to Camargo, can lead to a false sense of security for entrepreneurs, and can discourage necessary business "pivots" along the way. "We studied everyone from Richard Branson to local entrepreneurs, and they always say the same thing: 'I never thought my business was going to be this.' It never goes through a planned process."
Guy Kawasaki, the founder of AllTop and a proflific blogger about start-ups, says the reality probably falls somewhere in between.
"What is true is that a business plan should not take on a life of its own," he writes. "It is a tool—one of many…and may help you get your team working as a team. But it is not an end in itself."