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Madness As Usual

Business Plans

  • Stefan Kühl
  • Thursday, 6. June 2024

Plannability, or: The Function of an Illusion

The idea that it is possible for start-ups to create comprehensive plans for themselves is increasingly coming in for criticism. It is alleged that such plans ultimately commit the founders to a mechanical view of organizations. On this view, the founding of a company is based on a specific purpose – the idea behind the company – which then comes, whether one likes it or not, to serve as the criterion against which all of the firm’s actions are to be judged. 

Unfortunately, the critics point out, it isn’t quite so simple. The reality of starting a new business is quite unlike the idealized descriptions provided by many business advisors. A new company’s product actually emerges through a slow process of trial and error. The customer base is often among groups completely different from those originally envisaged. Actual income and expenditure bear little relation to the projections. In short, the founding of a company is significantly messier than business plans would suggest. 

This criticism is driven by a myth that surrounds founding figures. This myth is cultivated particularly in Silicon Valley, where the mantra is that a worked-out business plan is not as important as a promising, thought-provoking business model, that the elaboration of the business strategy in some glossy brochure is less important than the frequent and informative testing of a founder’s ideas, and that accurate cash accounting is less important than initiating small and financially viable pilot schemes. 

It is certainly true that a venture-capital-backed start-up that, ideally, will be floated on the stock market within two or three years is categorically different from a bakery, café, or digital marketing  agency, all of which are mainly designed to provide a comfortable income for their founders. Nevertheless, concepts such as the ‘business model canvas’ or the ‘lean start-up’ demonstrate very clearly that procedures that have proven successful in the case of companies backed by venture capital are now promoted as models for run-of-the-mill businesses. 

While this new paradigm for founding businesses gained ground, there was nevertheless unabated demand for support in drawing up business plans. While once the drawing-up of business plans was gladly outsourced to tax advisors or business set-up advisors, nowadays there is a plethora of programmes that founders can use themselves. Programmes such as Business Plan Pro, PlanMagic Business, Smart Business Plan, Live Plan, Ultimate Business Planner, and Quick Plan promise to help business founders with the description of their business idea, the specification of the product, the identification of the necessary customer volume and sales channels, and the planning of income and expenditure for the first few years. What is behind this popularity of business plans? 

There is a single, basic reason for the increasing popularity of business plans, but it has little to do with the rosy future that is anticipated in them. There are numerous organizations that require, as part of their approval procedures, plausible plans for the new businesses they finance: banks providing credit, welfare offices authorizing the continued payment of benefits, or economic development agencies awarding prizes for especially accomplished business plans. 

Most founders of a new business therefore have to provide such documents of fictional plannability to those who are financing their enterprises. The real danger for business owners is that, seduced by the promises of the software, they begin to believe in their business plans. In truth, the best business plan is the one submitted to the bank, the welfare office, or the economic development agency and never ever looked at again. 

Prof. Stefan Kühl

links in his observations the latest results from research with the current challenges of the corporate world.

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