Guiding New Venture Explorers – 1

by Simon Bridge and Dr Cecilia Hegarty

The hegemony of the business plan

If you are thinking of starting a new venture then most official sources of advice will assume that you are actually going to start a business and advise you that a business plan is the essential, and accepted, initial requirement any such venture. Now this veneration of the business plan is being challenged, but why has it gained so much credibility in the first place?

It has been suggested that the business plan was invented by bankers or, if not, by accountants or other professionals. It also seems likely that business plans have been advocated by professionals for the start-up of larger-scale ventures so that they can better understand the risks involved in backing a bigger venture and thus better understand its component functions.

These components include production, marketing, finance, human resources, and management and are often undertaken by separate departments. Interestingly, academics and/or trainers, similar to those offering advice for start-ups, often teach the component parts of business studies as separate business functions.

This approach which often leads to disjointed business thinking appears to have started with big businesses and their component functions and then it is assumed that the same methods can be applied to smaller entrepreneurial ventures. Consequently it has become widely accepted that, as businesses, small businesses must also need business plans.

From the perspective of many professionals dealing with small businesses, business plans are clearly a useful tool because:

  • ·         They support an approach based on analysing the component parts or activities of a business, they are a very good exercise for that approach. For instance business schools teach subjects like marketing, operations management and finance, and therefore a business plan which has sections on each of those components is going to be seen as a good exercise for practicing them.
  • ·         They clearly conform to the conventional wisdom. Thus they are widely accepted by recognised authorities as being the helpful for businesses and anyone who advocates them is unlikely to be criticised by that establishment.
  • ·         They provide an apparently logical basis for analysis and/or support decisions (and do so in a form that is easily kept on file). So for accountants and consultants they provide a generally approved and accepted framework for analysis, and for bankers and business agency staff they provide a very useful way of presenting and recording the case for support.
  • ·         They provide an accepted, and again apparently logical, syllabus for teaching the start-up process. It is relatively easy to set and score assignments based on the business plan and also to accredit such a teaching process.
  • ·         They help the cautious and what the professionals almost all have in common is an inclination towards caution. They have more to lose from an association with failure than they might stand to gain if a business they advise or support is a roaring success. Association with a failure would mean the loss of a loan or of credibility whereas major success would bring no extra compensating concrete benefit. Thus they would probably rather a business did not start at all if there was a significant possibility of it failing.

Therefore, probably because they have been taught that they are the right thing to do, because business plans suit their purposes well, because everyone else seems to advocate them, and because they often see no alternative, business plans have become the tool of choice for many business professionals. As a result, this has given rise to the notion that the business plan is the essential first step for all start-ups.

But there is an alternative, and often it can be more helpful for new start-ups. It will be described in the next instalment.