Is it better to prepare well or go with your gut instinct? Photo: iStock
Consider two entrepreneurs: the first spends months researching an idea, prepares a detailed business plan, invests heavily in the idea, and has a big product launch; the second spends far less time on research, has a loose business plan, invests less in the idea and has a smaller product launch.
Which is the better approach? It depends on the business, of course. No one would launch a capital-intensive venture without serious research. Certainly, most business schools teach students how to analyse markets and industries, prepare business plans, and follow the first approach.
But is that approach best for all start-up entrepreneurs? One I know told me the business plan “is in my head”. He meant the venture’s strategy was constantly changing and adapting every time he met a customer or saw an opportunity. A written business plan, or adherence to a concrete strategy, can be too rigid. It kills that great entrepreneurial trait: nimbleness.
What’s your view:
  • Have you wasted time and money on business plans that are quickly dated?
  • Do business plans stifle creativity and nimbleness?
  • Are you better off starting small and fast and letting the market tell you what’s working?
  • In this era of social networking and technology, do we need to re-think how we research business idea and launch start-up ventures?
My first venture suffered from following the traditional research approach. My business partner and I spent many months researching an idea for the education market, conducting focus groups and meeting industry people. We had an almost text-book business plan, invested (thankfully not heavily) in the product, and followed a predefined strategy. It disappointed, partly because of the idea itself and also because better opportunities emerged that produced cash faster.
Aside from launching the venture weeks before the GFC, it was clear the market for our idea had changed. New technologies had developed or strengthened even in the year between the idea’s conception and product launch. The founders’ personal circumstances changed (joyously), with new babies. If I had my time over, I would have started small, cheap and fast – and let the market tell me what the product should look like. I would have focused on a few ideas, rather than one.
A few months later, I entered a venture-finance competition with an idea hatched over a weekend, no real prototype and barely any research. It won and my team pocketed $10,000, had a venture-capital firm seriously interested, and university support to develop the idea and take it to global venture-capital  competitions. An average idea suddenly had legs, and more momentum than the much stronger education idea that had taken a year to plan and launch.
Other entrepreneurs make the same mistake of over-researching ideas. They come up with what, at the time, looks a ground-breaking concept and put everything into it. Six months later they realise no amount of research could have prepared them for the realities of the market – or life. They over-estimated their odds of success and persevered with a bad idea longer than they should have, because so much financial and personal capital was invested. They failed to adapt.
I am not suggesting start-up entrepreneurs should launch ideas on a whim, or focus on several ideas and never develop any. Nor am I against the traditional approach of researching and launching one idea and putting everything into it. But the reality is, many more new ideas fail than succeed. There is a randomness to success when it comes to new ideas, which entrepreneurs should consider.
I was reminded of this while reading Tim Harford’s book, Adapt: Why Success Starts with Failure. Like most management texts, its message is aimed more at big rather than small companies. I did not find a whole lot new in the core ideas: the notion of encouraging innovation from the ground up in workforces, having a portfolio of business experiments, and protecting innovations from bureaucracy, have been presented before. And I have read other research showing the majority of business forecasters get more predictions wrong than right.
Harford’s biggest contribution is showing how people succeed through trial and error, which forces us to adapt to changing conditions. He shows why big companies and governments struggle with the trial-and-error concept – organisational structures, business-planning processes, an inability to deal with failure, and the personal risk of career setback get in the way. His book is worth reading for this alone.
Consider how this trial-and-error concept plays out in entrepreneurship. As I’ve written before, start-up entrepreneurs manage opportunities; small business owners manage resources. An entrepreneur may move between several ideas, compared to a small business owner who focuses mostly on one. There is nothing wrong with either approach; it’s just that many would-be entrepreneurs get them mixed up.
A true start-up entrepreneur might build a portfolio of opportunities; some big, some small. They allocate capital – financial and their time – accordingly. They know some ideas will fail and that real success comes from their ability to control risk and stay in the game longer. They acknowledge that the best research is ultimately what the market says when their product is live, not a static industry report, market statistic, or business trend forecast.
My point is, the world is so complex and fast-moving that it is impossible to know how a market will react to your new idea. Start-up entrepreneurs with scarce resources do not get many second chances if their big idea flops. The good entrepreneurs constantly change and develop ideas as they go.
If you are starting a venture, at least consider the second approach. It may be that months of research, high investment and an all-or-nothing approach for one venture is the way to go. You may need a carefully crafted business plan to raise capital or for other marketing purposes. All your research may pay off in spades.
But if the idea has never been tried before, a better approach may be to view it as a part of portfolio of considered opportunities, where the market shapes the idea and the entrepreneur’s real skill is the ability move quickly, control risk, and preserve capital.
For some ideas, the best strategy might be not to have a strategy. Or at least planning to change business strategy every day, week or month as circumstances dictate, rather than doggedly sticking to a predefined strategy that could be out of date as soon as the venture is launched.