Crux Research is now entering its 16^th year. This places us in the 1% of start-ups – as it is well-documented that most new businesses fail in the first few years. Few are lucky enough to make it to 16.

One of the reasons experts tend to say new companies fail is a lack of business planning. However, new business successes are not a consequence of an ability to plan. Success is a function of a couple of basic things:  having a product people want to buy and then delivering it really well. It doesn’t get much more basic than that, but too many times we get lost in our ambitions and ideas and aren’t forthright with ourselves on what we are good at and not so good at.

Business plans are neither necessary nor sufficient to business success. Small businesses that focus on them remind me a bit of when a company I was with put the entire staff through training on personal organization and time management. The people that embraced the training were mostly hyper-organized to begin with and the people who might have most benefited from the training were resistant. Small businesses that rely heavily on business planning probably are using it more as reflection of their natural organizational tendencies than as a true guide to running a business. There are, of course, exceptions.

Entrepreneurs that use business plans seem to fall into two categories. First, they may feel constrained by them. If they have investors, they feel a pressure to stay within the confines of the plan even when the market starts telling them to pivot to a new strategy. They start to think adherence to the plan is, in itself, a definition of success. In short, they tend to be “process” people as opposed to “results” people.  Entrepreneurs that are “results” people are the successful ones. If you are a “process” person I’d suggest that you may be a better fit for a larger company.

Second, and this is more common, many entrepreneurs spend a lot of time in business planning before launching their company and then promptly file the plan away and never look at it again.

That is how it went for me in the corporate world. We would craft annual plans each spring and then never look at them again until late in the year when it was time to create the plan for the following year. It was sort of like giving blueprints to a contractor and then having them build whatever they want to anyway but then giving them a hard time for not following the plan… even if they had built a masterpiece.

We’d also create five-year plans every year. That never made a lot of sense to me as it was an acknowledgement that would couldn’t really plan more than a year out.

I am not against business planning in concept. I agree with Winston Churchill who said “plans are of little importance, but planning is essential.” The true value of most strategic plans is found in the thought process that is gone through to establish them and not in the resulting plan.

I’d suggest that anyone who starts a company list out the top reasons why your company might fail and then think through how you are going to prevent these things from happening. If the reasons for your potential failure are mostly under your control, you’ll be okay. We did this. We identified that if we were going to fail it was going to most likely result from an inability to generate sales, as this wasn’t where our interest or core competence lay. So, we commissioned a company to develop leads for us, had a plan for reaching out to past clients, and planned to hire a salesperson (something that never happened). The point is, while we didn’t really have a business plan, we did think through how to prevent a problem that would prevent our success.  

Before launching Crux Research, we did lay out some key opportunities and threats and thought hard about how to address what we saw as the barriers to our success. Late each fall we think about goals for the coming year, how we can improve what we are doing, and where we can best spend our time in marketing and sales. That sort of thinking is important and it is good to have formalized. But we’ve never had a formal business plan. Maybe we have succeeded in spite of that, but I tend to think we have succeeded because of it. 

Critics would probably say that the issue here is business plans just need to be better and more effective. I don’t think that is the case. The very concept of business planning for a small business can be misguided. It is important to be disciplined as an entrepreneur/small business owner. A focus is paramount to success. But I don’t think it is all that important to be “planned.” You miss too many opportunities that way.

Again, our company has never had a financial plan. I attribute much of our success to that. The company has gone in directions we would never have been able to predict in advance. We try to be opportunistic and open-minded and to stay within the confines of what we know how to do. We prefer having a high level of self-awareness of what we are good and not so good at and to create and respond to opportunities keeping that in mind. As Mike Tyson once said “everyone has a plan until they get punched in the mouth.” I wonder how many small businesses have plans that quickly got punched.

This has led us to many crossroads where we have to choose whether to expand our company or to refuse work. We’ve almost always come down on the side of staying small and being selective in the work we take on.

In the future we are likely to become even more selective in who we take on as clients. We’ve always said that we want a few core things in a client. Projects have to be financially viable, but more importantly they have to be interesting and a situation that will benefit from our experience and insight.  We have developed a client base of really great researchers who double as really great people. It sums up to a business that is a lot of fun to be in.

I would never discourage an entrepreneur from creating a business plan, but I’d advise them to think hard about why they are doing so. You’ll have no choice if you are seeking funding, as no investor is going to give money to a business that doesn’t have a plan. If you are in a low margin business, you have to have a tight understanding of your cash flow and planning that out in advance is important. I’d suggest you keep any plans broad and not detailed, conduct an honest assessment of what you are not so good at as well as good at, and prepare to respond to opportunities you can’t possibly foresee. Don’t judge your success by your adherence to the plan and if your funders appear too insistent on keeping to the plan, find new funders.