Tuesday, January 16, 2007

Do Start-Ups Really Need Formal Business Plans?

That's the question posed in the Wall Street Journal last week. The article by Kelly K. Spors, subtitled "Studies Find Often Time Wasted Gathering Data With No Link to Success", appeared in the January 9 edition, on page B-9.

The abstract reads:
Amar Bhide, a Columbia University entrepreneurship professor, found that 41% of Inc. magazine's 1989 list of the 500 fastest-growing private firms didn't have business plans and 26% had only rudimentary plans. A follow-up by the magazine in 2002 found the numbers without a plan have remained pretty much the same. Many business concepts are "transitional in nature," meaning there are competitive advantages to starting the business quickly and by the time you write a full business plan "the opportunity will be gone."
Scott Shane, a professor at Case Western Reserve University, says most studies that discount business-planning are flawed because they don't correct for business failure rates, only accounting for businesses that survived. If they did, they would find that a far greater number of businesses that failed never had a formal business plan. Mr. Shane's research, which relies on the same sample from Sweden as Mr. [Benson Honig]'s study, controls for failure rates and shows that businesses with formal plans are more likely to survive. He says most business ideas don't have to be rushed to market and that it typically takes a long time for businesses to get started anyway. "I'm not sure that saying, 'Oh, people shouldn't write business plans' would accelerate a lot more people into the start-up process," he says. "They seem to be held back by a lot of other things."
"I'll have to confess, it's not always crucial to have the 60-page business plan" he says. While most entrepreneurs seeking should have their ideas well-formulated, "some people will get a little caught up in the perfection of their plan," he says.


If you don't have access to the whole story, let me know, and I'll make it available to you.

1 comment:

Ashdrubal said...

Hi, I haven't been able to locate the full article elsewhere. I'll appreciate if you could send it to me. Thanks! (ashdrubal@gmail.com)