Death of the business plan?

Dan Matthews examines the proposition that it is time to drop the business plan and get “adaptive”

Ask anyone how you build a flourishing company and they will tell you that it all starts with a business plan. The reasonable assumption is you have goals in mind and to achieve them you must plot a course from A to B, where A represents now and B represents success.

Just about every source of advice, from your bank manager or accountant to Dummies guides to starting a business, will tell you a business plan is a prerequisite. Lenders and investors won’t give you money unless you present one. Such is the stock of these roadmaps that people who do without are labelled mavericks.

But what if business plans are not all they’re cracked up to be? What if the central premise of such documents – that it is possible to make detailed, constructive predictions about the future – is totally flawed?

BRIGHT SPARKS, DIM FORECASTS

Big predictions made by acknowledged experts are more often wrong than they are right; so what chance have the rest of us got? Successive UK chancellors exaggerate the future tax-take and underplay how much the country will need to borrow. The Bank of England almost never manages to hold inflation at 2 per cent, its core responsibility in setting interest rates.

The United States and allied powers failed to predict the ultimate outcome of invading Iraq in 2003, and did not anticipate that disposing of a nasty tyrant would break the country into uncontrollable shards of lawlessness and chaos, something which seems a bit obvious in hindsight.

The world is turbulent and an infinite number of forces are at play. If predicting big stuff like economic trends or the impact of a war is too much to judge, then just imagine how hard it is to guess the future of a growing business buffeted about in volatile markets.

The solution to this awkward proposition is outlined in Tim Harford’s book Adapt, the thesis of which is that it is better to tread lots of paths and fail regularly on a small scale than it is to plan rigidly and fail once, big time.

It’s a fairly safe bet that most of the big economic and political forecasts that swirl around us are useless

“Forecasting isn’t totally hopeless and there are certain tactics that can work, most obviously throwing a lot of data at a problem where good data is available. But it’s a fairly safe bet that most of the big economic and political forecasts that swirl around us are useless,” says Mr Harford, who has just published a new book entitled The Undercover Economist Strikes Back.

“My guess is that people like the way that a forecast seems to convey a tremendous amount of information. Far easier to say that Assad will soon be deposed in Syria than to spend half an hour sketching out the forces at work there, even if the lesson would be much more useful than the prediction.”

REACT TO THE FUTURE

A better course of action, he says, is to consider likely scenarios and think how you will respond if any of them happen. Organisations should be built around the premise that they need to react quickly when the future arrives, not stake everything on when and in what form it will happen.

Worse still, he says, there is a defective gene within all humans that makes admitting we have failed almost impossible. Yet acknowledging that our plans are wrong and moving quickly to a new course of action is essential if we are to prevent projects from simply falling over.

“A lot of the damage from lack of foresight isn’t really about failing to see the future; it’s about failing to accept the present. There are different ways to cultivate adaptability. Good data, honest feedback and a diverse, open culture all help; but these things are easy to talk about and hard to deliver,” he says.

“My personal experience is with scenario planning at Shell. It seemed very useful to me: rather than making forecasts, the scenario technique helped people to juggle different possibilities and to talk frankly about the future. The conversation shifts from ‘will it happen?’ to ‘what will we do if it does happen?’”

It seems big companies are slow to catch on to the idea. Research by ?What If!, a strategic consultancy with a big-name client list that includes Barclays, Google, PepsiCo and Pfizer, shows 28 per cent of UK corporates think their current business model will stop working within three years.

In other findings from the research, just over a quarter of top executives said innovation in the business was being hampered by a rigid organisational structure, and 62 per cent added that it is “almost impossible” to get support to develop and test new ideas.

Tim Harford draws a distinction between this situation and Google, arguably the most successful young company on the planet. It allocates time for employees to work on new innovations that take their fancy. This policy, he says, is responsible for some of the company’s biggest commercial successes, which in money terms far outweigh the multitude of duds.

Google, a cutting-edge global success story with its finger on the pulse, is acknowledging that it can’t predict what will work and what won’t; so it tries everything, retains the money-makers and ditches the no-hopers. Mr Harford says businesses should apply this principle to other key areas of strategy too.

“Be prepared for uncertainty,” says Tobias Rooney, director at ?What If! “One way to do this is to explore potential futures and prepare patterns of response so that the business can understand how it would react were these events to happen. In reality, the future won’t turn out like this, but it will enable the organisation to hone its antennae to the triggers of uncertainty.”

One growing business that has shed the business plan in favour of a reactive approach is branding agency DesignStudio. It founded five years ago and has grown at such a rare clip that five office moves have been necessary in that short time. The business has two hubs in London and San Francisco, and employs 40 people.

“In business as in life, you can’t predict what will happen in the future and we didn’t waste our time trying,” says co-founder Ben Wright. “We set up in the aftermath of the Lehman Brothers crash and shortly after the birth of my first child, so it’s safe to say we didn’t let anything hold us back from realising our vision to start our own studio.

“If we had created a plan at the beginning, it would have been ripped up after the first month. There are so many factors we could not have predicted. We didn’t anticipate how quickly we would grow. I remember paying the guys who had the desks opposite us not to come in that week so we could use their space.

“The key for us has been agility. We’ve had to make sure we are agile and flexible enough to accommodate growth while sustaining quality, as we weren’t going to turn down opportunities just because we hadn’t foreseen them. We’ve been lucky enough that our main challenge has not been in finding clients to work with, but in building a studio that could keep up with the work.”

Corporate titans and agile startups alike are moving away from the hackneyed “blueprint for success” model and are building strategies around wide prisms of contingencies. So could business plans soon be a thing of the past? Who knows? It’s so hard to predict the future.