News Flash: Research Shows Planning Pays Off for Startups

05/25/2011 01:05 pm ET
  • Tim Berry Founder and Chairman, Palo Alto Software

How do you spell "no-duh?" New research just released by the SBA shows that Advance Planning Pays Off for Start-Ups. That's the headline on a good piece of reporting by Kelly Spors of the Wall Street Journal's Independent Street. And, to be fair, she also offers background on why that's news.

It's the confusion between planning and the big fat formal business plan, frankly, that causes a lot of confusion in this area. You know: the people who confuse not needing a formal business plan document with not having or wanting to plan? Kelly Spors also wrote about that, a couple of years ago, when research showed that a some successful businesses said they didn't have a formal business plan. (Again, "no duh"; that's the same confusion. Added together with people who say they didn't have a plan, which is the same dynamic as for some people saying they never studied in school (but got straight As)). 

What this research actually shows, in my first skimming of it, is that startups with formal business plans early tended to get more things done sooner. Startups that did only informal planning later, not surprisingly, tended to get things done later.

I do like this review of the state of business planning, from the text of the study:

We believe there is a substantial body of empirical evidence that indicates that the presence of a business plan during the venture creation process significantly improves the odds of successfully starting a business. In addition, Gartner and Liao (2007) found that the formality of the business plan (e.g.,unwritten, informal, formally written) significantly influences the success of starting a


So, given that as background, this new study looks at three characteristics of business planning: presence, formality, and timing. The conclusion:

We believe that the evidence from this study and evidence from previous studies using the Panel Study of Entrepreneurial Dynamics indicate that engaging in pre-venture business planning has significant benefits that appear to encourage action and success at getting into business.

Me too.