Does Business Planning Facilitate the Development of New Ventures?

The article challenges the negative view of business planning in the context of new ventures. It argues that business planning is an important precursor to action in new ventures, helping firm founders make decisions, balance resource supply and demand, and turn abstract goals into concrete operational steps. The authors posit that business planning reduces the likelihood of venture disbanding and accelerates product development and venture organizing activity.

Starting a new business is an exciting journey filled with decisions and actions that can shape the future of the venture. One of the key steps in this process is business planning. But is it really that important? A research paper by Frédéric Delmar and Scott Shane, titled “Does Business Planning Facilitate the Development of New Ventures?”, provides some insightful answers.

Delmar and Shane challenge the common notion that business planning might be an unnecessary or even harmful step in the early stages of a new venture. They argue that business planning is not just a bureaucratic hurdle, but a crucial precursor to action. It helps founders make decisions, balance resource supply and demand, and turn abstract goals into concrete operational steps.

The researchers suggest that a well-crafted business plan can reduce the likelihood of a venture falling apart and can speed up product development and venture organizing activity. In other words, planning can be the difference between success and failure in the world of startups.

Delmar and Shane’s approach is rooted in organization theory, which posits that planning before taking action improves the quality of most human action. They argue that planning facilitates faster decision making by identifying missing information without first requiring the commitment of resources.

Moreover, planning helps manage the supply and demand of resources, minimizing bottlenecks that slow activity. It also identifies action steps to achieve broader goals in a timely manner. These benefits are particularly useful in the context of new venture development, where the ratio of assumption to actual information is often high.

The researchers examined the hazard of disbanding and the level of new product development and venture organizing activity in 223 new ventures initiated in the first 9 months of 1998. They found that business planning reduces the hazard of disbanding and facilitates both product development and venture organizing activity.

In simple terms, businesses that had a solid plan were less likely to fail and were more successful in developing their products and organizing their ventures. This research provides strong evidence that business planning plays a crucial role in the success of new ventures.

The research by Delmar and Shane brings a fresh perspective to the role of business planning in new ventures. It suggests that instead of viewing business planning as a hurdle, it should be seen as a stepping stone towards success. So, if you’re embarking on a new venture, remember: a well-crafted business plan might be one of your most valuable tools.

This research serves as a reminder that in the fast-paced world of startups, taking the time to plan can pave the way for success. As the old saying goes, “Failing to plan is planning to fail.”

Source:

Delmar, Frédéric, and Scott Shane. “Does business planning facilitate the development of new ventures?.” Strategic management journal 24.12 (2003): 1165-1185.