The thinking patterns of planners versus non-planners
Article based on research by Jan Brinckmann
Planning in small and medium-sized enterprises (SMEs) is common practice – but it isn't a given. For start-ups and individual entrepreneurs, growing a business by trial and error is frequently the norm.
Opinions vary regarding the merits of having a business plan, or a similar kind of planning process. Yet understanding who is more prone or averse to planning, and why, can help leaders of SMEs to recognise their own bias in this regard.
CEOs and senior managers with education and experience may prefer planning over a more reactive approach without critically analysing why. Conversely, entrepreneurs may disregard business planning altogether, without considering its benefits.
Esade Associate Professor Jan Brinckmann, together with Nicholas Dew (Naval Postgraduate School), Stuart Read (Willamette University), Katrin Mayer-Haug and Dietmar Grichnik (University of St. Gallen) looked at specific characteristics of human capital – defined as work experience (general, industry and professional) and experience – to understand better the thinking patterns of planners versus non-planners.
The 4 human factors of planning
Brinckmann and his colleagues realised that other researchers had previously identified leaders and CEOs of SMEs as catalysts of planning. In particular, the backgrounds of leaders influenced the way they processed information and their thinking patterns regarding their job. This included their preference for business planning.
While there were probably external factors – such as institutional processes that expected business plans or other planning processes – individual decision-makers in SMEs seemed to be the individuals responsible for whether planning was preferred or not.
The researchers wanted to dig deeper. What exactly is it that makes key individuals managing SMEs decide to plan or not?
To find out, they first identified four human capital factors:
- General work experience
- Entrepreneurial experience
- Industry experience
Entrepreneurs with substantial experience may not plan in unstable conditions
Planning factors were defined as having a formal business plan and a business planning process. They looked at findings from 31 independent quantitative studies of SMEs and aggregated data on 8,095 observations from 31 independent datasets to draw their conclusions.
Entrepreneurs trust experience over planning in times of chaos
Previous research indicates that entrepreneurs with substantial experience may not plan in unstable conditions or periods of time. According to research by Amar Bhide, 41% of entrepreneurs who were founders had no business plan and a further 26% had only a basic plan.
Another study found that only 12% of founders said they conducted formal market research before starting their businesses.
Brinckmann and his colleagues found that individuals with entrepreneurial experience were less likely to plan or even show some kind of proclivity for planning. This could be due to a couple of factors:
- First, entrepreneurs have had minimal exposure to planning or have never had to do it.
- Second, with more entrepreneurial experience, they feel more confident in controlling outcomes using different management techniques and strategies, and so planning becomes less relevant.
Education and experience lead to planning
Brinckmann and his co-authors found that those decision-makers with higher education and general work experience were far more likely to do some kind of structured business planning.
Nevertheless, this did not necessarily lead to the creation of a formal business plan.
Many rapidly growing companies only use formal business plans as part of the process to obtain initial funding
The researchers believe that is because formal business plans are more of a company or institutional obligation, rather than something that leaders find useful.
Another reason is that many new and rapidly growing companies only use formal business plans as part of the process to obtain initial funding.
How can these findings be used?
Individuals who believe strongly in the value of planning should learn it at school, and they may do better pursuing a non-entrepreneurial career.
Entrepreneurs will tend to prioritise doing rather than planning; they acquire other skills and experience that they value more highly. This includes building their reputation, broadening their professional network and hands-on experience managing an SME. That does not mean planning is considered completely redundant for all entrepreneurs; it's just not given equal weight.
There are also recommendations for experts who teach students about being an entrepreneur. The lean start-up model focuses on teaching bootstrapping, a do-it-yourself approach and improvisation.
Brinckmann and his colleagues suggest demonstrating how business-planning processes can be used in different contexts to help emphasise their value, rather than simply their implementation. Different kinds of planning processes and mindsets can be discussed for various stages of a company's growth, type of venture, etc.
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