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Strategy May Be Overrated

Many books on small business start with the development of the strategic plan. A quick perusal of small business books emphasizes business planning and frequently provide detailed templates for the budding businessperson to fill out. Two things tend to happen at this stage. The first is a wildly overoptimistic strategic plan is produced that provide financial projections that show the generation of almost instant millions. This may be energizing to the entrepreneur but will often only lead to disappointment, disillusion, and failure. The second possible outcome of this business planning exercise is the realization of the drudgery of dealing with a myriad of details that all new business ventures must deal with. This alternative outcome can also provide resolve for the committed businessperson, but can also gracefully convince the less committed to give up on their dream of creating a new business of their own making. None of these outcomes are particularly productive or positive.

The reality is that business and strategic planning is overrated. The vast majority of small businesses that succeed are those that make frequent pivots. In other words, the small businesses that make it are most likely those that ditch the business plan relatively early in the process. While one does not want to simply try stuff without at least some planning, the reality is that rarely does one construct a business plan and strategy that actually gets implemented all the way through.

This ineffectiveness of strategic planning is not just the case for small businesses. Business academic and consultant Henry Mintzberg found through extensive study that most large businesses also fail in strategic planning. His book, “The Rise and Fall of Strategic Planning” is a must read for those who believe that the only way to start and succeed in business is first to have a solid and comprehensive strategic plan. In this book, Mintzberg points out that strategic plans differ quite significantly from what strategy actually gets implemented. The implemented plan is one that “emerges” in a complex process that develops almost magically on its own. It is quite a different process than the one taught in business books.

A prospective small business owner needs ideas of how to generate more cash than they will consume. They also need to know when to stay committed to their ideas and when to pivot in order to ensure the cash coming in is greater than the cash going out. Ultimately that is all the business planning that one needs. (It is also why the small business owner needs to understand finance – so they understand the cash flows …)

Rick and Dan are the authors of Small Business Finance and Valuation, published by Business Expert Press. You can also find it on Chapters/Indigo as well as on Amazon


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