Abstract

While teaching students how to write a business plan constitutes a large part of teaching in academic entrepreneurship education and business plans are pervasive in practice, the results of empirical studies on the performance effect of planning are mixed. The business planning literature mostly uses a simple measure of planning and finds both positive and not significant effects. However theories suggest a differentiated view when relating business planning to performance.

Four different arguments can be raised, two that support a positive effect of planning, namely (i) the completed plan is a symbol that lends legitimacy to the entrepreneur and the envisioned new venture, (ii) the written plan firmly outlines goals which help the entrepreneur to focus attention and energy on attaining these goals, as well as two that support both positive and negative effects. These include (iii) learning, which reduces uncertainty about cause-effect relationships through a process of pro-active learning and which helps the entrepreneur to act better through more thorough understanding and quicker in changing environments, but can also give rise to mental rigidities and inflexibility. The last argument (iv) is increased efficiency through planning, but the activity of planning could also become so costly that its benefits are outweighed.

In an attempt to improve the measurement of business planning and to resolve a potential source for mixed findings we suggest to differentiate business planning by including indicators for the business plan’s quality, such as its formality and breadth as well as the time spent planning. Based on theoretical rationale we expect a positive performance effect of systematic business planning as compared to a more haphazard, ad-hoc planning activity.

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