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The Importance Of A Good Business Plan

2010, Journal of Business & Economics Research (JBER)

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The importance of a business plan

Business plans are like road maps: it’s possible to travel without one, but that will only increase the odds of getting lost along the way.

Owners with a business plan see growth 30% faster than those without one, and 71% of the fast-growing companies have business plans . Before we get into the thick of it, let’s define and go over what a business plan actually is.

What is a business plan?

A business plan is a 15-20 page document that outlines how you will achieve your business objectives and includes information about your product, marketing strategies, and finances. You should create one when you’re starting a new business and keep updating it as your business grows.

Rather than putting yourself in a position where you may have to stop and ask for directions or even circle back and start over, small business owners often use business plans to help guide them. That’s because they help them see the bigger picture, plan ahead, make important decisions, and improve the overall likelihood of success. ‍

Why is a business plan important?

A well-written business plan is an important tool because it gives entrepreneurs and small business owners, as well as their employees, the ability to lay out their goals and track their progress as their business begins to grow. Business planning should be the first thing done when starting a new business. Business plans are also important for attracting investors so they can determine if your business is on the right path and worth putting money into.

Business plans typically include detailed information that can help improve your business’s chances of success, like:

• A market analysis : gathering information about factors and conditions that affect your industry
• Competitive analysis : evaluating the strengths and weaknesses of your competitors
• Customer segmentation : divide your customers into different groups based on specific characteristics to improve your marketing
• Marketing: using your research to advertise your business
• Logistics and operations plans : planning and executing the most efficient production process
• Cash flow projection : being prepared for how much money is going into and out of your business
• An overall path to long-term growth

What is the purpose of a business plan?

A business plan is like a map for small business owners, showing them where to go and how to get there. Its main purposes are to help you avoid risks, keep everyone on the same page, plan finances, check if your business idea is good, make operations smoother, and adapt to changes. It's a way for small business owners to plan, communicate, and stay on track toward their goals.

10 reasons why you need a business plan

I know what you’re thinking: “Do I really need a business plan? It sounds like a lot of work, plus I heard they’re outdated and I like figuring things out as I go...”.

The answer is: yes, you really do need a business plan! As entrepreneur Kevin J. Donaldson said, “Going into business without a business plan is like going on a mountain trek without a map or GPS support—you’ll eventually get lost and starve! Though it may sound tedious and time-consuming, business plans are critical to starting your business and setting yourself up for success.

To outline the importance of business plans and make the process sound less daunting, here are 10 reasons why you need one for your small business.

1. To help you with critical decisions

The primary importance of a business plan is that they help you make better decisions. Entrepreneurship is often an endless exercise in decision making and crisis management. Sitting down and considering all the ramifications of any given decision is a luxury that small businesses can’t always afford. That’s where a business plan comes in.

Building a business plan allows you to determine the answer to some of the most critical business decisions ahead of time.

Creating a robust business plan is a forcing function—you have to sit down and think about major components of your business before you get started, like your marketing strategy and what products you’ll sell. You answer many tough questions before they arise. And thinking deeply about your core strategies can also help you understand how those decisions will impact your broader strategy.

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2. To iron out the kinks

Putting together a business plan requires entrepreneurs to ask themselves a lot of hard questions and take the time to come up with well-researched and insightful answers. Even if the document itself were to disappear as soon as it’s completed, the practice of writing it helps to articulate your vision in realistic terms and better determine if there are any gaps in your strategy.

3. To avoid the big mistakes

Only about half of small businesses are still around to celebrate their fifth birthday . While there are many reasons why small businesses fail, many of the most common are purposefully addressed in business plans.

According to data from CB Insights , some of the most common reasons businesses fail include:

• No market need : No one wants what you’re selling.
• Lack of capital : Cash flow issues or businesses simply run out of money.
• Inadequate team : This underscores the importance of hiring the right people to help you run your business.
• Stiff competition : It’s tough to generate a steady profit when you have a lot of competitors in your space.
• Pricing : Some entrepreneurs price their products or services too high or too low—both scenarios can be a recipe for disaster.

The exercise of creating a business plan can help you avoid these major mistakes. Whether it’s cash flow forecasts or a product-market fit analysis , every piece of a business plan can help spot some of those potentially critical mistakes before they arise. For example, don’t be afraid to scrap an idea you really loved if it turns out there’s no market need. Be honest with yourself!

Get a jumpstart on your business plan by creating your own cash flow projection .

4. To prove the viability of the business

Many businesses are created out of passion, and while passion can be a great motivator, it’s not a great proof point.

Planning out exactly how you’re going to turn that vision into a successful business is perhaps the most important step between concept and reality. Business plans can help you confirm that your grand idea makes sound business sense.

A critical component of your business plan is the market research section. Market research can offer deep insight into your customers, your competitors, and your chosen industry. Not only can it enlighten entrepreneurs who are starting up a new business, but it can also better inform existing businesses on activities like marketing, advertising, and releasing new products or services.

Want to prove there’s a market gap? Here’s how you can get started with market research.

5. To set better objectives and benchmarks

Without a business plan, objectives often become arbitrary, without much rhyme or reason behind them. Having a business plan can help make those benchmarks more intentional and consequential. They can also help keep you accountable to your long-term vision and strategy, and gain insights into how your strategy is (or isn’t) coming together over time.

6. To communicate objectives and benchmarks

Whether you’re managing a team of 100 or a team of two, you can’t always be there to make every decision yourself. Think of the business plan like a substitute teacher, ready to answer questions any time there’s an absence. Let your staff know that when in doubt, they can always consult the business plan to understand the next steps in the event that they can’t get an answer from you directly.

Sharing your business plan with team members also helps ensure that all members are aligned with what you’re doing, why, and share the same understanding of long-term objectives.

7. To provide a guide for service providers

Small businesses typically employ contractors , freelancers, and other professionals to help them with tasks like accounting , marketing, legal assistance, and as consultants. Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, while ensuring everyone is on the same page.

8. To secure financing

Did you know you’re 2.5x more likely to get funded if you have a business plan?If you’re planning on pitching to venture capitalists, borrowing from a bank, or are considering selling your company in the future, you’re likely going to need a business plan. After all, anyone that’s interested in putting money into your company is going to want to know it’s in good hands and that it’s viable in the long run. Business plans are the most effective ways of proving that and are typically a requirement for anyone seeking outside financing.

Learn what you need to get a small business loan.

9. To better understand the broader landscape

No business is an island, and while you might have a strong handle on everything happening under your own roof, it’s equally important to understand the market terrain as well. Writing a business plan can go a long way in helping you better understand your competition and the market you’re operating in more broadly, illuminate consumer trends and preferences, potential disruptions and other insights that aren’t always plainly visible.

10. To reduce risk

Entrepreneurship is a risky business, but that risk becomes significantly more manageable once tested against a well-crafted business plan. Drawing up revenue and expense projections, devising logistics and operational plans, and understanding the market and competitive landscape can all help reduce the risk factor from an inherently precarious way to make a living. Having a business plan allows you to leave less up to chance, make better decisions, and enjoy the clearest possible view of the future of your company.

Business plan FAQs

How does having a business plan help small business owners make better decisions.

Having a business plan supports small business owners in making smarter decisions by providing a structured framework to assess all parts of their businesses. It helps you foresee potential challenges, identify opportunities, and set clear objectives. Business plans help you make decisions across the board, including market strategies, financial management, resource allocation, and growth planning.

What industry-specific issues can business plans help tackle?

Business plans can address industry-specific challenges like regulatory compliance, technological advancements, market trends, and competitive landscape. For instance, in highly regulated industries like healthcare or finance, a comprehensive business plan can outline compliance measures and risk management strategies.

How can small business owners use their business plans to pitch investors or apply for loans?

In addition to attracting investors and securing financing, small business owners can leverage their business plans during pitches or loan applications by focusing on key elements that resonate with potential stakeholders. This includes highlighting market analysis, competitive advantages, revenue projections, and scalability plans. Presenting a well-researched and data-driven business plan demonstrates credibility and makes investors or lenders feel confident about your business’s potential health and growth.

Understanding the importance of a business plan

Now that you have a solid grasp on the “why” behind business plans, you can confidently move forward with creating your own.

Remember that a business plan will grow and evolve along with your business, so it’s an important part of your whole journey—not just the beginning.

Related Posts

Now that you’ve read up on the purpose of a business plan, check out our guide to help you get started.

The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.

14 Reasons Why You Need a Business Plan

10 min. read

Updated May 10, 2024

There’s no question that starting and running a business is hard work. But it’s also incredibly rewarding. And, one of the most important things you can do to increase your chances of success is to have a business plan.

A business plan is a foundational document that is essential for any company, no matter the size or age. From attracting potential investors to keeping your business on track—a business plan helps you achieve important milestones and grow in the right direction.

A business plan isn’t just a document you put together once when starting your business. It’s a living, breathing guide for existing businesses – one that business owners should revisit and update regularly.

Unfortunately, writing a business plan is often a daunting task for potential entrepreneurs. So, do you really need a business plan? Is it really worth the investment of time and resources? Can’t you just wing it and skip the whole planning process?

Good questions. Here’s every reason why you need a business plan.

• 1. Business planning is proven to help you grow 30 percent faster

Writing a business plan isn’t about producing a document that accurately predicts the future of your company. The  process  of writing your plan is what’s important. Writing your plan and reviewing it regularly gives you a better window into what you need to do to achieve your goals and succeed. 

You don’t have to just take our word for it. Studies have  proven that companies that plan  and review their results regularly grow 30 percent faster. Beyond faster growth, research also shows that companies that plan actually perform better. They’re less likely to become one of those woeful failure statistics, or experience  cash flow crises  that threaten to close them down. 

• 2. Planning is a necessary part of the fundraising process

One of the top reasons to have a business plan is to make it easier to raise money for your business. Without a business plan, it’s difficult to know how much money you need to raise, how you will spend the money once you raise it, and what your budget should be.

Investors want to know that you have a solid plan in place – that your business is headed in the right direction and that there is long-term potential in your venture. 

A business plan shows that your business is serious and that there are clearly defined steps on how it aims to become successful. It also demonstrates that you have the necessary competence to make that vision a reality. 

Investors, partners, and creditors will want to see detailed financial forecasts for your business that shows how you plan to grow and how you plan on spending their money. 

• 3. Having a business plan minimizes your risk

When you’re just starting out, there’s so much you don’t know—about your customers, your competition, and even about operations. 

As a business owner, you signed up for some of that uncertainty when you started your business, but there’s a lot you can  do to reduce your risk . Creating and reviewing your business plan regularly is a great way to uncover your weak spots—the flaws, gaps, and assumptions you’ve made—and develop contingency plans. 

Your business plan will also help you define budgets and revenue goals. And, if you’re not meeting your goals, you can quickly adjust spending plans and create more realistic budgets to keep your business healthy.

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• 4. Crafts a roadmap to achieve important milestones

A business plan is like a roadmap for your business. It helps you set, track and reach business milestones. 

For your plan to function in this way, your business plan should first outline your company’s short- and long-term goals. You can then fill in the specific steps necessary to reach those goals. This ensures that you measure your progress (or lack thereof) and make necessary adjustments along the way to stay on track while avoiding costly detours.

In fact, one of the top reasons why new businesses fail is due to bad business planning. Combine this with inflexibility and you have a recipe for disaster.

And planning is not just for startups. Established businesses benefit greatly from revisiting their business plan. It keeps them on track, even when the global market rapidly shifts as we’ve seen in recent years.

• 5. A plan helps you figure out if your idea can become a business

To turn your idea into reality, you need to accurately assess the feasibility of your business idea.

You need to verify:

• If there is a market for your product or service
• Who your target audience is
• How you will gain an edge over the current competition
• If your business can run profitably

A business plan forces you to take a step back and look at your business objectively, which makes it far easier to make tough decisions down the road. Additionally, a business plan helps you to identify risks and opportunities early on, providing you with the necessary time to come up with strategies to address them properly.

Finally, a business plan helps you work through the nuts and bolts of how your business will work financially and if it can become sustainable over time.

6. You’ll make big spending decisions with confidence

As your business grows, you’ll have to figure out when to hire new employees, when to expand to a new location, or whether you can afford a major purchase. 

These are always major spending decisions, and if you’re regularly reviewing the forecasts you mapped out in your business plan, you’re going to have better information to use to make your decisions.

7. You’re more likely to catch critical cash flow challenges early

The other side of those major spending decisions is understanding and monitoring your business’s cash flow. Your  cash flow statement  is one of the three key financial statements you’ll put together for your business plan. (The other two are your  balance sheet  and your  income statement  (P&L). 

Reviewing your cash flow statement regularly as part of your regular business plan review will help you see potential cash flow challenges earlier so you can take action to avoid a cash crisis where you can’t pay your bills. 

• 8. Position your brand against the competition

Competitors are one of the factors that you need to take into account when starting a business. Luckily, competitive research is an integral part of writing a business plan. It encourages you to ask questions like:

• What is your competition doing well? What are they doing poorly?
• What can you do to set yourself apart?
• What can you learn from them?
• How can you make your business stand out?
• What key business areas can you outcompete?
• How can you identify your target market?

Finding answers to these questions helps you solidify a strategic market position and identify ways to differentiate yourself. It also proves to potential investors that you’ve done your homework and understand how to compete. 

• 9. Determines financial needs and revenue models

A vital part of starting a business is understanding what your expenses will be and how you will generate revenue to cover those expenses. Creating a business plan helps you do just that while also defining ongoing financial needs to keep in mind. 

Without a business model, it’s difficult to know whether your business idea will generate revenue. By detailing how you plan to make money, you can effectively assess the viability and scalability of your business. 

Understanding this early on can help you avoid unnecessary risks and start with the confidence that your business is set up to succeed.

• 10. Helps you think through your marketing strategy

A business plan is a great way to document your marketing plan. This will ensure that all of your marketing activities are aligned with your overall goals. After all, a business can’t grow without customers and you’ll need a strategy for acquiring those customers. 

Your business plan should include information about your target market, your marketing strategy, and your marketing budget. Detail things like how you plan to attract and retain customers, acquire new leads, how the digital marketing funnel will work, etc. 

Having a documented marketing plan will help you to automate business operations, stay on track and ensure that you’re making the most of your marketing dollars.

• 11. Clarifies your vision and ensures everyone is on the same page

In order to create a successful business, you need a clear vision and a plan for how you’re going to achieve it. This is all detailed with your mission statement, which defines the purpose of your business, and your personnel plan, which outlines the roles and responsibilities of current and future employees. Together, they establish the long-term vision you have in mind and who will need to be involved to get there. 

Additionally, your business plan is a great tool for getting your team in sync. Through consistent plan reviews, you can easily get everyone in your company on the same page and direct your workforce toward tasks that truly move the needle.

• 12. Future-proof your business

A business plan helps you to evaluate your current situation and make realistic projections for the future.

This is an essential step in growing your business, and it’s one that’s often overlooked. When you have a business plan in place, it’s easier to identify opportunities and make informed decisions based on data.

Therefore, it requires you to outline goals, strategies, and tactics to help the organization stay focused on what’s important.

By regularly revisiting your business plan, especially when the global market changes, you’ll be better equipped to handle whatever challenges come your way, and pivot faster.

You’ll also be in a better position to seize opportunities as they arise.

Further Reading: 5 fundamental principles of business planning

• 13. Tracks your progress and measures success

An often overlooked purpose of a business plan is as a tool to define success metrics. A key part of writing your plan involves pulling together a viable financial plan. This includes financial statements such as your profit and loss, cash flow, balance sheet, and sales forecast.

By housing these financial metrics within your business plan, you suddenly have an easy way to relate your strategy to actual performance. You can track progress, measure results, and follow up on how the company is progressing. Without a plan, it’s almost impossible to gauge whether you’re on track or not.  

Additionally, by evaluating your successes and failures, you learn what works and what doesn’t and you can make necessary changes to your plan. In short, having a business plan gives you a framework for measuring your success. It also helps with building up a “lessons learned” knowledge database to avoid costly mistakes in the future.

• 14. Your business plan is an asset if you ever want to sell

Down the road, you might decide that you want to sell your business or position yourself for acquisition. Having a solid business plan is going to help you make the case for a higher valuation. Your business is likely to be worth more to a buyer if it’s easy for them to understand your business model, your target market, and your overall potential to grow and scale. 

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• Writing your business plan

By taking the time to create a business plan, you ensure that your business is heading in the right direction and that you have a roadmap to get there. We hope that this post has shown you just how important and valuable a business plan can be. While it may still seem daunting, the benefits far outweigh the time investment and learning curve for writing one. 

Luckily, you can write a plan in as little as 30 minutes. And there are plenty of excellent planning tools and business plan templates out there if you’re looking for more step-by-step guidance. Whatever it takes, write your plan and you’ll quickly see how useful it can be.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

Table of Contents

• 6. You’ll make big spending decisions with confidence
• 7. You’re more likely to catch critical cash flow challenges early

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, the bottom line, business plan: what it is, what's included, and how to write one.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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A business plan is a document that outlines a company's goals and the strategies to achieve them. It's valuable for both startups and established companies. For startups, a well-crafted business plan is crucial for attracting potential lenders and investors. Established businesses use business plans to stay on track and aligned with their growth objectives. This article will explain the key components of an effective business plan and guidance on how to write one.

Key Takeaways

• A business plan is a document detailing a company's business activities and strategies for achieving its goals.
• Startup companies use business plans to launch their venture and to attract outside investors.
• For established companies, a business plan helps keep the executive team focused on short- and long-term objectives.
• There's no single required format for a business plan, but certain key elements are essential for most companies.

Investopedia / Ryan Oakley

Any new business should have a business plan in place before beginning operations. Banks and venture capital firms often want to see a business plan before considering making a loan or providing capital to new businesses.

Even if a company doesn't need additional funding, having a business plan helps it stay focused on its goals. Research from the University of Oregon shows that businesses with a plan are significantly more likely to secure funding than those without one. Moreover, companies with a business plan grow 30% faster than those that don't plan. According to a Harvard Business Review article, entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don't.

A business plan should ideally be reviewed and updated periodically to reflect achieved goals or changes in direction. An established business moving in a new direction might even create an entirely new plan.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. It allows for careful consideration of ideas before significant investment, highlights potential obstacles to success, and provides a tool for seeking objective feedback from trusted outsiders. A business plan may also help ensure that a company’s executive team remains aligned on strategic action items and priorities.

While business plans vary widely, even among competitors in the same industry, they often share basic elements detailed below.

A well-crafted business plan is essential for attracting investors and guiding a company's strategic growth. It should address market needs and investor requirements and provide clear financial projections.

While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.

Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.

The length of a business plan can vary greatly from business to business. Regardless, gathering the basic information into a 15- to 25-page document is best. Any additional crucial elements, such as patent applications, can be referenced in the main document and included as appendices.

Common elements in many business plans include:

• Executive summary : This section introduces the company and includes its mission statement along with relevant information about the company's leadership, employees, operations, and locations.
• Products and services : Describe the products and services the company offers or plans to introduce. Include details on pricing, product lifespan, and unique consumer benefits. Mention production and manufacturing processes, relevant patents , proprietary technology , and research and development (R&D) information.
• Market analysis : Explain the current state of the industry and the competition. Detail where the company fits in, the types of customers it plans to target, and how it plans to capture market share from competitors.
• Marketing strategy : Outline the company's plans to attract and retain customers, including anticipated advertising and marketing campaigns. Describe the distribution channels that will be used to deliver products or services to consumers.
• Financial plans and projections : Established businesses should include financial statements, balance sheets, and other relevant financial information. New businesses should provide financial targets and estimates for the first few years. This section may also include any funding requests.

Investors want to see a clear exit strategy, expected returns, and a timeline for cashing out. It's likely a good idea to provide five-year profitability forecasts and realistic financial estimates.

2 Types of Business Plans

Business plans can vary in format, often categorized into traditional and lean startup plans. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

• Traditional business plans : These are detailed and lengthy, requiring more effort to create but offering comprehensive information that can be persuasive to potential investors.
• Lean startup business plans : These are concise, sometimes just one page, and focus on key elements. While they save time, companies should be ready to provide additional details if requested by investors or lenders.

Why Do Business Plans Fail?

A business plan isn't a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections. Markets and the economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All this calls for building flexibility into your plan, so you can pivot to a new course if needed.

How Often Should a Business Plan Be Updated?

How frequently a business plan needs to be revised will depend on its nature. Updating your business plan is crucial due to changes in external factors (market trends, competition, and regulations) and internal developments (like employee growth and new products). While a well-established business might want to review its plan once a year and make changes if necessary, a new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.

What Does a Lean Startup Business Plan Include?

The lean startup business plan is ideal for quickly explaining a business, especially for new companies that don't have much information yet. Key sections may include a value proposition , major activities and advantages, resources (staff, intellectual property, and capital), partnerships, customer segments, and revenue sources.

A well-crafted business plan is crucial for any company, whether it's a startup looking for investment or an established business wanting to stay on course. It outlines goals and strategies, boosting a company's chances of securing funding and achieving growth.

As your business and the market change, update your business plan regularly. This keeps it relevant and aligned with your current goals and conditions. Think of your business plan as a living document that evolves with your company, not something carved in stone.

University of Oregon Department of Economics. " Evaluation of the Effectiveness of Business Planning Using Palo Alto's Business Plan Pro ." Eason Ding & Tim Hursey.

Bplans. " Do You Need a Business Plan? Scientific Research Says Yes ."

Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."

Harvard Business Review. " How to Write a Winning Business Plan ."

U.S. Small Business Administration. " Write Your Business Plan ."

SCORE. " When and Why Should You Review Your Business Plan? "

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11.4 The Business Plan

Learning objectives.

By the end of this section, you will be able to:

• Describe the different purposes of a business plan
• Describe and develop the components of a brief business plan
• Describe and develop the components of a full business plan

Unlike the brief or lean formats introduced so far, the business plan is a formal document used for the long-range planning of a company’s operation. It typically includes background information, financial information, and a summary of the business. Investors nearly always request a formal business plan because it is an integral part of their evaluation of whether to invest in a company. Although nothing in business is permanent, a business plan typically has components that are more “set in stone” than a business model canvas , which is more commonly used as a first step in the planning process and throughout the early stages of a nascent business. A business plan is likely to describe the business and industry, market strategies, sales potential, and competitive analysis, as well as the company’s long-term goals and objectives. An in-depth formal business plan would follow at later stages after various iterations to business model canvases. The business plan usually projects financial data over a three-year period and is typically required by banks or other investors to secure funding. The business plan is a roadmap for the company to follow over multiple years.

Some entrepreneurs prefer to use the canvas process instead of the business plan, whereas others use a shorter version of the business plan, submitting it to investors after several iterations. There are also entrepreneurs who use the business plan earlier in the entrepreneurial process, either preceding or concurrently with a canvas. For instance, Chris Guillebeau has a one-page business plan template in his book The $100 Startup . 48 His version is basically an extension of a napkin sketch without the detail of a full business plan. As you progress, you can also consider a brief business plan (about two pages)—if you want to support a rapid business launch—and/or a standard business plan.

As with many aspects of entrepreneurship, there are no clear hard and fast rules to achieving entrepreneurial success. You may encounter different people who want different things (canvas, summary, full business plan), and you also have flexibility in following whatever tool works best for you. Like the canvas, the various versions of the business plan are tools that will aid you in your entrepreneurial endeavor.

Business Plan Overview

Most business plans have several distinct sections ( Figure 11.16 ). The business plan can range from a few pages to twenty-five pages or more, depending on the purpose and the intended audience. For our discussion, we’ll describe a brief business plan and a standard business plan. If you are able to successfully design a business model canvas, then you will have the structure for developing a clear business plan that you can submit for financial consideration.

Both types of business plans aim at providing a picture and roadmap to follow from conception to creation. If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept.

The full business plan is aimed at executing the vision concept, dealing with the proverbial devil in the details. Developing a full business plan will assist those of you who need a more detailed and structured roadmap, or those of you with little to no background in business. The business planning process includes the business model, a feasibility analysis, and a full business plan, which we will discuss later in this section. Next, we explore how a business plan can meet several different needs.

Purposes of a Business Plan

A business plan can serve many different purposes—some internal, others external. As we discussed previously, you can use a business plan as an internal early planning device, an extension of a napkin sketch, and as a follow-up to one of the canvas tools. A business plan can be an organizational roadmap , that is, an internal planning tool and working plan that you can apply to your business in order to reach your desired goals over the course of several years. The business plan should be written by the owners of the venture, since it forces a firsthand examination of the business operations and allows them to focus on areas that need improvement.

Refer to the business venture throughout the document. Generally speaking, a business plan should not be written in the first person.

A major external purpose for the business plan is as an investment tool that outlines financial projections, becoming a document designed to attract investors. In many instances, a business plan can complement a formal investor’s pitch. In this context, the business plan is a presentation plan, intended for an outside audience that may or may not be familiar with your industry, your business, and your competitors.

You can also use your business plan as a contingency plan by outlining some “what-if” scenarios and exploring how you might respond if these scenarios unfold. Pretty Young Professional launched in November 2010 as an online resource to guide an emerging generation of female leaders. The site focused on recent female college graduates and current students searching for professional roles and those in their first professional roles. It was founded by four friends who were coworkers at the global consultancy firm McKinsey. But after positions and equity were decided among them, fundamental differences of opinion about the direction of the business emerged between two factions, according to the cofounder and former CEO Kathryn Minshew . “I think, naively, we assumed that if we kicked the can down the road on some of those things, we’d be able to sort them out,” Minshew said. Minshew went on to found a different professional site, The Muse , and took much of the editorial team of Pretty Young Professional with her. 49 Whereas greater planning potentially could have prevented the early demise of Pretty Young Professional, a change in planning led to overnight success for Joshua Esnard and The Cut Buddy team. Esnard invented and patented the plastic hair template that he was selling online out of his Fort Lauderdale garage while working a full-time job at Broward College and running a side business. Esnard had hundreds of boxes of Cut Buddies sitting in his home when he changed his marketing plan to enlist companies specializing in making videos go viral. It worked so well that a promotional video for the product garnered 8 million views in hours. The Cut Buddy sold over 4,000 products in a few hours when Esnard only had hundreds remaining. Demand greatly exceeded his supply, so Esnard had to scramble to increase manufacturing and offered customers two-for-one deals to make up for delays. This led to selling 55,000 units, generating $700,000 in sales in 2017. 50 After appearing on Shark Tank and landing a deal with Daymond John that gave the “shark” a 20-percent equity stake in return for $300,000, The Cut Buddy has added new distribution channels to include retail sales along with online commerce. Changing one aspect of a business plan—the marketing plan—yielded success for The Cut Buddy.

Link to Learning

Watch this video of Cut Buddy’s founder, Joshua Esnard, telling his company’s story to learn more.

If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept. This version is used to interest potential investors, employees, and other stakeholders, and will include a financial summary “box,” but it must have a disclaimer, and the founder/entrepreneur may need to have the people who receive it sign a nondisclosure agreement (NDA) . The full business plan is aimed at executing the vision concept, providing supporting details, and would be required by financial institutions and others as they formally become stakeholders in the venture. Both are aimed at providing a picture and roadmap to go from conception to creation.

Types of Business Plans

The brief business plan is similar to an extended executive summary from the full business plan. This concise document provides a broad overview of your entrepreneurial concept, your team members, how and why you will execute on your plans, and why you are the ones to do so. You can think of a brief business plan as a scene setter or—since we began this chapter with a film reference—as a trailer to the full movie. The brief business plan is the commercial equivalent to a trailer for Field of Dreams , whereas the full plan is the full-length movie equivalent.

Brief Business Plan or Executive Summary

As the name implies, the brief business plan or executive summary summarizes key elements of the entire business plan, such as the business concept, financial features, and current business position. The executive summary version of the business plan is your opportunity to broadly articulate the overall concept and vision of the company for yourself, for prospective investors, and for current and future employees.

A typical executive summary is generally no longer than a page, but because the brief business plan is essentially an extended executive summary, the executive summary section is vital. This is the “ask” to an investor. You should begin by clearly stating what you are asking for in the summary.

In the business concept phase, you’ll describe the business, its product, and its markets. Describe the customer segment it serves and why your company will hold a competitive advantage. This section may align roughly with the customer segments and value-proposition segments of a canvas.

Next, highlight the important financial features, including sales, profits, cash flows, and return on investment. Like the financial portion of a feasibility analysis, the financial analysis component of a business plan may typically include items like a twelve-month profit and loss projection, a three- or four-year profit and loss projection, a cash-flow projection, a projected balance sheet, and a breakeven calculation. You can explore a feasibility study and financial projections in more depth in the formal business plan. Here, you want to focus on the big picture of your numbers and what they mean.

The current business position section can furnish relevant information about you and your team members and the company at large. This is your opportunity to tell the story of how you formed the company, to describe its legal status (form of operation), and to list the principal players. In one part of the extended executive summary, you can cover your reasons for starting the business: Here is an opportunity to clearly define the needs you think you can meet and perhaps get into the pains and gains of customers. You also can provide a summary of the overall strategic direction in which you intend to take the company. Describe the company’s mission, vision, goals and objectives, overall business model, and value proposition.

Rice University’s Student Business Plan Competition, one of the largest and overall best-regarded graduate school business-plan competitions (see Telling Your Entrepreneurial Story and Pitching the Idea ), requires an executive summary of up to five pages to apply. 51 , 52 Its suggested sections are shown in Table 11.2 .

Are You Ready?

Create a brief business plan.

Fill out a canvas of your choosing for a well-known startup: Uber, Netflix, Dropbox, Etsy, Airbnb, Bird/Lime, Warby Parker, or any of the companies featured throughout this chapter or one of your choice. Then create a brief business plan for that business. See if you can find a version of the company’s actual executive summary, business plan, or canvas. Compare and contrast your vision with what the company has articulated.

• These companies are well established but is there a component of what you charted that you would advise the company to change to ensure future viability?
• Map out a contingency plan for a “what-if” scenario if one key aspect of the company or the environment it operates in were drastically is altered?

Full Business Plan

Even full business plans can vary in length, scale, and scope. Rice University sets a ten-page cap on business plans submitted for the full competition. The IndUS Entrepreneurs , one of the largest global networks of entrepreneurs, also holds business plan competitions for students through its Tie Young Entrepreneurs program. In contrast, business plans submitted for that competition can usually be up to twenty-five pages. These are just two examples. Some components may differ slightly; common elements are typically found in a formal business plan outline. The next section will provide sample components of a full business plan for a fictional business.

Executive Summary

The executive summary should provide an overview of your business with key points and issues. Because the summary is intended to summarize the entire document, it is most helpful to write this section last, even though it comes first in sequence. The writing in this section should be especially concise. Readers should be able to understand your needs and capabilities at first glance. The section should tell the reader what you want and your “ask” should be explicitly stated in the summary.

Describe your business, its product or service, and the intended customers. Explain what will be sold, who it will be sold to, and what competitive advantages the business has. Table 11.3 shows a sample executive summary for the fictional company La Vida Lola.

Business Description

This section describes the industry, your product, and the business and success factors. It should provide a current outlook as well as future trends and developments. You also should address your company’s mission, vision, goals, and objectives. Summarize your overall strategic direction, your reasons for starting the business, a description of your products and services, your business model, and your company’s value proposition. Consider including the Standard Industrial Classification/North American Industry Classification System (SIC/NAICS) code to specify the industry and insure correct identification. The industry extends beyond where the business is located and operates, and should include national and global dynamics. Table 11.4 shows a sample business description for La Vida Lola.

Industry Analysis and Market Strategies

Here you should define your market in terms of size, structure, growth prospects, trends, and sales potential. You’ll want to include your TAM and forecast the SAM . (Both these terms are discussed in Conducting a Feasibility Analysis .) This is a place to address market segmentation strategies by geography, customer attributes, or product orientation. Describe your positioning relative to your competitors’ in terms of pricing, distribution, promotion plan, and sales potential. Table 11.5 shows an example industry analysis and market strategy for La Vida Lola.

Competitive Analysis

The competitive analysis is a statement of the business strategy as it relates to the competition. You want to be able to identify who are your major competitors and assess what are their market shares, markets served, strategies employed, and expected response to entry? You likely want to conduct a classic SWOT analysis (Strengths Weaknesses Opportunities Threats) and complete a competitive-strength grid or competitive matrix. Outline your company’s competitive strengths relative to those of the competition in regard to product, distribution, pricing, promotion, and advertising. What are your company’s competitive advantages and their likely impacts on its success? The key is to construct it properly for the relevant features/benefits (by weight, according to customers) and how the startup compares to incumbents. The competitive matrix should show clearly how and why the startup has a clear (if not currently measurable) competitive advantage. Some common features in the example include price, benefits, quality, type of features, locations, and distribution/sales. Sample templates are shown in Figure 11.17 and Figure 11.18 . A competitive analysis helps you create a marketing strategy that will identify assets or skills that your competitors are lacking so you can plan to fill those gaps, giving you a distinct competitive advantage. When creating a competitor analysis, it is important to focus on the key features and elements that matter to customers, rather than focusing too heavily on the entrepreneur’s idea and desires.

Operations and Management Plan

In this section, outline how you will manage your company. Describe its organizational structure. Here you can address the form of ownership and, if warranted, include an organizational chart/structure. Highlight the backgrounds, experiences, qualifications, areas of expertise, and roles of members of the management team. This is also the place to mention any other stakeholders, such as a board of directors or advisory board(s), and their relevant relationship to the founder, experience and value to help make the venture successful, and professional service firms providing management support, such as accounting services and legal counsel.

Table 11.6 shows a sample operations and management plan for La Vida Lola.

Marketing Plan

Here you should outline and describe an effective overall marketing strategy for your venture, providing details regarding pricing, promotion, advertising, distribution, media usage, public relations, and a digital presence. Fully describe your sales management plan and the composition of your sales force, along with a comprehensive and detailed budget for the marketing plan. Table 11.7 shows a sample marketing plan for La Vida Lola.

Financial Plan

A financial plan seeks to forecast revenue and expenses; project a financial narrative; and estimate project costs, valuations, and cash flow projections. This section should present an accurate, realistic, and achievable financial plan for your venture (see Entrepreneurial Finance and Accounting for detailed discussions about conducting these projections). Include sales forecasts and income projections, pro forma financial statements ( Building the Entrepreneurial Dream Team , a breakeven analysis, and a capital budget. Identify your possible sources of financing (discussed in Conducting a Feasibility Analysis ). Figure 11.19 shows a template of cash-flow needs for La Vida Lola.

Entrepreneur In Action

Laughing man coffee.

Hugh Jackman ( Figure 11.20 ) may best be known for portraying a comic-book superhero who used his mutant abilities to protect the world from villains. But the Wolverine actor is also working to make the planet a better place for real, not through adamantium claws but through social entrepreneurship.

A love of java jolted Jackman into action in 2009, when he traveled to Ethiopia with a Christian humanitarian group to shoot a documentary about the impact of fair-trade certification on coffee growers there. He decided to launch a business and follow in the footsteps of the late Paul Newman, another famous actor turned philanthropist via food ventures.

Jackman launched Laughing Man Coffee two years later; he sold the line to Keurig in 2015. One Laughing Man Coffee café in New York continues to operate independently, investing its proceeds into charitable programs that support better housing, health, and educational initiatives within fair-trade farming communities. 55 Although the New York location is the only café, the coffee brand is still distributed, with Keurig donating an undisclosed portion of Laughing Man proceeds to those causes (whereas Jackman donates all his profits). The company initially donated its profits to World Vision, the Christian humanitarian group Jackman accompanied in 2009. In 2017, it created the Laughing Man Foundation to be more active with its money management and distribution.

• You be the entrepreneur. If you were Jackman, would you have sold the company to Keurig? Why or why not?
• Would you have started the Laughing Man Foundation?
• What else can Jackman do to aid fair-trade practices for coffee growers?

What Can You Do?

Textbooks for change.

Founded in 2014, Textbooks for Change uses a cross-compensation model, in which one customer segment pays for a product or service, and the profit from that revenue is used to provide the same product or service to another, underserved segment. Textbooks for Change partners with student organizations to collect used college textbooks, some of which are re-sold while others are donated to students in need at underserved universities across the globe. The organization has reused or recycled 250,000 textbooks, providing 220,000 students with access through seven campus partners in East Africa. This B-corp social enterprise tackles a problem and offers a solution that is directly relevant to college students like yourself. Have you observed a problem on your college campus or other campuses that is not being served properly? Could it result in a social enterprise?

Work It Out

Franchisee set out.

A franchisee of East Coast Wings, a chain with dozens of restaurants in the United States, has decided to part ways with the chain. The new store will feature the same basic sports-bar-and-restaurant concept and serve the same basic foods: chicken wings, burgers, sandwiches, and the like. The new restaurant can’t rely on the same distributors and suppliers. A new business plan is needed.

• What steps should the new restaurant take to create a new business plan?
• Should it attempt to serve the same customers? Why or why not?

This New York Times video, “An Unlikely Business Plan,” describes entrepreneurial resurgence in Detroit, Michigan.

• 48 Chris Guillebeau. The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future . New York: Crown Business/Random House, 2012.
• 49 Jonathan Chan. “What These 4 Startup Case Studies Can Teach You about Failure.” Foundr.com . July 12, 2015. https://foundr.com/4-startup-case-studies-failure/
• 50 Amy Feldman. “Inventor of the Cut Buddy Paid YouTubers to Spark Sales. He Wasn’t Ready for a Video to Go Viral.” Forbes. February 15, 2017. https://www.forbes.com/sites/forbestreptalks/2017/02/15/inventor-of-the-cut-buddy-paid-youtubers-to-spark-sales-he-wasnt-ready-for-a-video-to-go-viral/#3eb540ce798a
• 51 Jennifer Post. “National Business Plan Competitions for Entrepreneurs.” Business News Daily . August 30, 2018. https://www.businessnewsdaily.com/6902-business-plan-competitions-entrepreneurs.html
• 52 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition . March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf
• 53 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition. March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf; Based on 2019 RBPC Competition Rules and Format April 4–6, 2019. https://rbpc.rice.edu/sites/g/files/bxs806/f/2019-RBPC-Competition-Rules%20-Format.pdf
• 54 Foodstart. http://foodstart.com
• 55 “Hugh Jackman Journey to Starting a Social Enterprise Coffee Company.” Giving Compass. April 8, 2018. https://givingcompass.org/article/hugh-jackman-journey-to-starting-a-social-enterprise-coffee-company/

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The road to entrepreneurial success: business plans, lean startup, or both?

New England Journal of Entrepreneurship

ISSN : 2574-8904

Article publication date: 19 February 2021

Issue publication date: 18 June 2021

The goal of this research is to investigate the relationship between two different sets of practices, lean startup and business planning, and their relation to entrepreneurial performance.

Design/methodology/approach

The authors collected data from 120 entrepreneurs across the US about a variety of new venture formation activities within the categories of lean startup or business planning. They use hierarchical regression to examine the relationship between these activities and new venture performance using both a subjective and objective measure of performance.

The results show that talking to customers, collecting preorders and pivoting based on customer feedback are lean startup activities correlated with performance; writing a business plan is the sole business planning activity correlated with performance.

Research limitations/implications

This research lays the foundation for understanding the components of both lean startup and business planning. Moreover, these results demonstrate that the separation of lean startup and business planning represents a false dichotomy.

Practical implications

These findings suggest that entrepreneurs should engage in some lean startup activities and still write a business plan.

Originality/value

This article offers the first quantitative, empirical comparison of lean startup activities and business planning. Furthermore, it provides support for the relationship between specific lean startup activities and firm performance.

Business planning

• Entrepreneurship

Lean Startup

Welter, C. , Scrimpshire, A. , Tolonen, D. and Obrimah, E. (2021), "The road to entrepreneurial success: business plans, lean startup, or both?", New England Journal of Entrepreneurship , Vol. 24 No. 1, pp. 21-42. https://doi.org/10.1108/NEJE-08-2020-0031

Emerald Publishing Limited

Copyright © 2021, Chris Welter, Alex Scrimpshire, Dawn Tolonen and Eseoghene Obrimah

Published in New England Journal of Entrepreneurship . Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at http://creativecommons.org/licences/by/4.0/legalcode

Introduction

No business plan survives first contact with a customer – Steve Blank

This quote represents the differing perspectives on the value of business planning relative to the value of lean startup methods proposed by Blank and others ( Blank and Dorf, 2012 ). Much of traditional entrepreneurial training centers on the business plan ( Honig, 2004 ). Collective research on business planning's antecedents ( Brinckmann et al. , 2019 ) and its performance outcomes have found nuanced results ( Brinckmann et al. , 2010 ), but there seem to be at least some instances where business planning reliably increases performance ( Welter and Kim, 2018 ). Studies suggest that the majority of prominent business schools offer business planning courses ( Honig, 2004 ; Katz et al. , 2016 ), and bookstores are filled with books detailing how to write a business plan ( Karlsson and Honig, 2007 ). Nonetheless, the research is fragmented at best, and often results in equivocal findings with regard to its relationship with firm performance ( Brinckmann et al. , 2010 , Delmar and Shane, 2003 ; Gruber, 2007 ). This lack of clear indication from researchers opens the door for critique of business planning from proponents of the lean startup ( Ghezzi et al. , 2015 ).

Lean startup methods have drawn increasing attention in entrepreneurial communities ( Ries, 2011 ). In accelerators, incubators and other spaces within startup ecosystems the wisdom of Eric Ries (2011) and Steve Blank ( Blank and Dorf, 2012 ) can be heard in training sessions and everyday conversations. Some entrepreneurial programs have adopted lean startup methods as well ( Bliemel, 2014 ). On one hand, conceptual articles have described how lean startup fits adjacent to current and past academic conversations ( Contigiani and Levinthal, 2019 ). On the other hand, practitioner articles have discussed the benefits and limitations of the models ( Ladd, 2016 ). In both cases, existing literature describes how these processes aim to avoid the pitfall of launching products that no one actually wants ( Blank, 2013 ).

Despite all the popular attention given to lean startup methods, little empirical research has been completed (see Trimi and Berbegal-Mirabent (2012) , Ghezzi et al. (2015) , and Ghezzi (2019) for exceptions). Some researchers (e.g. Frederickson and Brem, 2017 ) have drawn the parallels between lean startup methods and effectuation ( Sarasvathy, 2001 ), but these parallels do not sufficiently support the use of lean startup methods. While practitioners seem to embrace lean startup methods, academics have offered little in terms of direct investigation into those methods ( Shepherd and Gruber, 2020 ). Most of the research on lean startup methods focuses on cognitive processes ( Yang et al. , 2018 ; York and Danes, 2014 ). Recent critique ( Felin et al. , 2019 ) coupled with the dearth of empirical research calls into question the efficacy of lean startup methods. To that end, more research is needed to see how lean startup methods relate to new venture success especially in comparison to business planning. This is particularly important as new venture formation activities are the practices that can legitimize the firm ( De Clercq and Voronov, 2009 ).

As such, we propose the following question: which individual aspects of business planning and lean startup methods are related to success? We study the components of both business planning and lean startup methods as there is some academic support for aspects of lean startup such as experimentation ( Carmuffo et al. , 2019 ), but limited empirical investigation into lean startup more broadly. We specifically focus on the underlying activities that make up the processes of lean startup and business planning since our initial surveying showed that entrepreneurs often employ aspects of each. To examine this question, we created a survey that captured the various activities – both from lean startup and business planning – that entrepreneurs used in pursuing their new venture and compared those with measures of success.

Our findings suggest that certain lean startup activities and the act of writing a business plan are correlated with success. These findings help to undo a false dichotomy of either lean startup or business planning by suggesting that some activities from each side can lead to success. We contribute to business planning research by offering a possible explanation for the existing equivocal findings. Namely, that the act of writing a business plan may be important, but that the uses of a business plan for feedback or financing are not necessarily associated with success. We contribute to research on lean startup by offering the first quantitative support for specific lean startup activities. Taken together, this research lays the foundation for a more nuanced understanding of the value of business planning and lean startup methods.

Theoretical framework and hypotheses

The literature on business planning is vast focusing on both antecedents to business planning ( Brinckmann et al. , 2019 ) and outcomes of it ( Brinckmann et al. , 2010 ). Honig and colleagues have driven much of the research into business planning since the turn of the century ( Honig, 2004 ; Honig and Karlsson, 2004 ; Honig and Samuelsson, 2012 , 2014 ; Karlsson and Honig, 2009 ). They have challenged prior planning-performance paradigms that suggested planning would naturally increase performance ( Ajzen, 1985 ; Mintzberg and Waters, 1985 ; Ansoff, 1991 ). This debate about the value of planning has underscored the recent research into selection effects associated with business planning ( Burke et al. , 2010 ; Greene and Hopp, 2017 ).

Brinckmann et al. (2010) address this debate directly. Their meta-analytic review of business planning literature suggests that three contingencies need to be considered in terms of the effectiveness of business planning: uncertainty, limited prior information, and the lack of business planning structures. The presence of these three suggest that business planning may be less effective. We look at each of these three contingencies in more depth next.

For uncertainty, planning scholars (e.g. Priem et al. , 1995 ) suggest that unstable and uncertain environments would benefit most from planning as planning can reduce uncertainty through facilitating faster decision-making ( Dean and Sharfman, 1996 ). However, emergent strategies seem to be more effective at controlling uncertainty ( Mintzberg, 1994 ; Sarasvathy, 2001 ). Brinckmann et al. (2010) confirms the latter intuition suggesting that uncertainty makes planning efforts less effective. This logic falls in line with research on effectuation ( Sarasvathy, 2001 ), where planning is described as the appropriate strategy for risky environments and effectuation, in contrast, is appropriate for uncertain environments. Recent work has confirmed this logic depending on how accurate the entrepreneur can be when predicting the future ( Welter and Kim, 2018 ).

Turning to the concept of limited prior information, planning proponents suggest that the shorter feedback cycles in new and small firms combined with the positive motivational effects of planning will make it more effective ( Delmar and Shane, 2003 ). In essence, despite the lack of history for de novo firms, short cycle times create history quickly and planning itself serves to motivate these fledgling organizations. However, Brinckmann et al. (2010) find that these firms lack the information necessary to make such plans effective. As firms pursue novel strategies, planning seems to be less effective or firms abandon plans all together as they move forward ( Karlsson and Honig, 2009 ).

Finally, for plans to be effective firms need to have the structures in place to both plan and make use of those plans ( Brinckmann et al. , 2010 ). New firms tend to lack the organizational structures relevant to create and use plans ( Forbes, 2007 ). While Karlsson and Honig (2009) found that firms typically ignore or abandon plans after they have been made, often due to insufficient support structures, Honig and Samuelsson (2012) show that even when firms change their plans over time there is little impact on firm performance. In general, the literature on business planning suggests that planning has more benefits for established firms with data and history to support both the plan and the planning process.

Business planning activities improve the likelihood of success for new ventures.

Typically, business planning has been analyzed as the single act of writing a business plan (e.g. Honig and Karlsson, 2004 ). However, business planning is made up of a variety of activities ( Gruber, 2007 ), which entrepreneurs may utilize as a whole, or simply choose parts of the business planning process. It is worth noting that these specific activities are not mutually exclusive with lean startup activities that we will detail later. One source of the gap between the prevalence of business planning use and research supporting the efficacy of business plans may be this holistic perspective. The constituent parts of business planning may be executed as a whole, or may be chosen a la carte. Examining the various activities that make up business planning offers insight into which aspects of the process are related to firm performance.

Arguably the first step in the business planning process is the work that precedes the actual writing of a business plan. First, entrepreneurs must collect data – typically external data ( Brinckmann et al. , 2010 ). This data collection process may or may not result in an actual business plan being written and, therefore, can be treated as a separate step itself.

Beyond the data collection and writing, the planning process can play a role in routinizing the initial practices of entrepreneurs. While entrepreneurs may engage in social resourcing ( Keating et al. , 2014 ) and collective sense-making ( Wood and McKinley, 2010 ), the act of codifying the results of these activities can objectify these practices. Entrepreneurs engage socially on a number of dimensions in the pursuit of a venture, but physically writing down a business plan that can be shared externally can serve as a commitment mechanism. Entrepreneurs may share this plan with external stakeholders simply for feedback ( Wood and McKinley, 2010 ) or they may use it to seek funding ( Richbell et al. , 2006 ).

Writing a business plan improves the likelihood of success for new ventures.

Gathering secondary data improves the likelihood of success for new ventures.

Sharing a business plan with potential stakeholders in order to get feedback improves the likelihood of success for new ventures.

Sharing a business plan with potential financiers in order to obtain funding improves the likelihood of success for new ventures.

Lean startup

The concept and the phrase “Lean Startup” stem from Eric Ries (2011) and his popular press book by the same name. The phrase borrows from the idea of lean manufacturing in the sense of eliminating waste and pushing production and supply as late in the process as possible to delay purchasing until the last moment. The book draws primarily on Ries's personal experience in founding a company along with some consulting work. Further development of the ideas around lean startup methods comes from Steve Blank ( Blank and Dorf, 2012 ). Blank (2013) described three principles of lean startup: hypothesis creation, customer development, and agile development. Hypothesis creation represents the belief that founders begin with little more than untested hypotheses. Customer development represents the approach of interviewing and interacting with customers in order to verify or discard the aforementioned hypotheses. Finally, agile development conceptualizes that minimally viable products (MVPs) are deployed quickly to verify the hypotheses that are believed to be true.

These concepts are often practiced by entrepreneurs and taught at incubators and accelerators ( Ladd, 2016 ), but there is little academic research to support these practices. Ghezzi et al. (2015) offer one of the only comparative empirical studies between lean startup and business planning. Their findings from a four-case study suggest that lean startup methods lead to superior outcomes. The majority of other papers are conceptual explorations of lean startup methods focusing on the decision-making of entrepreneurs ( Frederickson and Brem, 2017 ; Yang et al. , 2018 ; York and Danes, 2014 ). These conceptual pieces draw parallels between lean startup and effectuation ( Sarasvathy, 2001 ).

The literature on effectuation is much larger than that of lean startup (see recent reviews and retrospectives by Arend et al. (2015) and Reymen et al. (2015) ). Effectuation has been defined as entrepreneurial expertise that utilizes heuristics to make decisions focused on the means available rather than on desired ends ( Sarasvathy, 2001 ). One heuristic, in particular, has driven the comparison between lean startup and effectuation: experimentation ( Camuffo et al. , 2019 ). However, the comparisons may stem from the lack of clear boundaries in effectuation (see Welter et al. , 2016 ). While some researchers might argue that effectuation is a more robust articulation of lean startup ( Frederickson and Brem, 2017 ), there are significant departures. Effectuation makes no mention of MVPs or agile development, but instead focuses on the means at hand ( Sarasvathy and Dew, 2008 ). These means direct the venture as opposed to a focus on a specific end in mind ( Sarasvathy, 2001 ). This is in contrast to lean startup methods that create specific tests in order to verify a predetermined path ( Blank, 2013 ). Thus, researchers have suggested that lean startup intersects with effectuation, as well as other research streams ( Contigiani and Levinthal, 2019 ; Ghezzi, 2019 ).

Utilizing lean startup methods improves the likelihood of success for new business ventures.

Similar to business planning, lean startup is a process with several component parts from which an entrepreneur may select without needing to accomplish each task. Moreover, these component parts may be used in conjunction with business planning activities. Since lean startup has been developed more by practitioners than academics, there is not a clearly-defined, comprehensive list of activities that constitutes lean startup. Bortolini et al. (2018) review the academic and popular press literature on lean startup and describe the process at a more theoretical level than the work of Blank (2013) and Ries (2011) . Between these two perspectives, a specific list of six lean startup activities can be derived.

The lean startup process begins with customer discovery ( Blank and Dorf, 2012 ). In its most basic sense, the process of customer discovery begins with interviewing potential customers to surface their problems. Blank (2013) describes how lean startups “get out of the building” throughout the process to validate customer assumptions regarding all aspects of a potential business model. This validation process involves a variety of different forms of potential customer interviews.

From there, entrepreneurs craft hypotheses and build experiments as Bortolini et al. (2018) describe. This part of the process can be deconstructed into developing prototypes, showing those prototypes to customers, and running experiments. These sub-processes are discrete steps that may depend on each other, but may also occur independently. For instance, entrepreneurs may develop prototypes in their own quest to improve the product without actually showing a given prototype to potential customers. Alternatively, entrepreneurs may run experiments that do not necessarily involve the use of a prototype. These experiments may include observing customers in their daily routine to better understand customer problems. Each of these processes, however, align with the practitioner perspectives and the theoretical perspectives ( Blank and Dorf, 2012 ; Bortolini et al. , 2018) .

Beyond these specific activities, we examine two other activities within lean startup: collecting preorders and pivoting. Collecting preorders for new products has been suggested by Ries (2011) , but also aligns with research on enrolling external stakeholders ( Burns et al. , 2016 ) and the principles of effectuation ( Sarasvathy, 2001 ). By seeking out early stakeholders to make commitments like preorders or input on prototypes, entrepreneurs seek social resources to enable and direct their progress ( Keating et al. , 2014 ).

Interviewing potential customers improves the likelihood of success for new business ventures.

Developing a prototype improves the likelihood of success for new business ventures.

Showing a prototype to potential customers improves the likelihood of success for new business ventures.

Experimenting to test business model assumptions improves the likelihood of success for new business ventures.

Collecting preorders improves the likelihood of success for new business ventures.

Pivoting based on customer feedback improves the likelihood of success for new business ventures.

We began our study by conducting semi-structured interviews with five entrepreneurs to guide the construction of the survey. These entrepreneurs were selected from the authors' personal networks to represent a variety of perspectives and experiences. The group included two female founders and three male founders; two of the founders created high-tech scalable businesses and three represented small businesses. The interviews lasted 75 min on average.

All interviewees were familiar with business plans. All interviewees had heard of “lean startup” but only one entrepreneur had any education on the subject – they had read Eric Ries's book ( Ries, 2011 ). Nonetheless, none of the entrepreneurs could articulate specific aspects of lean startup or how it would be different from or related to writing a business plan.

The data collected from these interviews was used to develop a survey for distribution to a wider group of entrepreneurs. Within the qualitative data we noted how both business planning and lean startup represented groups of activities to the entrepreneurs. In discussing business planning, all of the entrepreneurs discussed more than simply producing a formal business plan. While four of the five entrepreneurs created formal business plans, each discussed a slightly different process. Some included financial planning while others mentioned secondary research. On the lean startup approach, the entrepreneurs did not specifically state which activities they pursued that were in line with lean startup, but multiple entrepreneurs mentioned each of the aspects of lean startup that we included in the survey.

This qualitative investigation altered our survey design to focus more on the activities that entrepreneurs completed rather than focusing on their understanding of the different approaches. Before distributing the survey, we tested it with two entrepreneurs to obtain feedback on its understandability – one from the original interviewees and one unfamiliar with the research project. Based on these tests, minor modifications to word choice were made.

We reached out to the startup ecosystem in a major Midwestern city. The online survey was emailed to incubators, accelerators, individual entrepreneurs, and organizations that reach outside the Midwest. Participation in the study was voluntary. Participants received a $1 USD donation to a non-profit organization of their choice for completing the survey. A total of 41 entrepreneurs responded to the initial survey request. We excluded seven of these cases because they did not adequately describe their business.

To bolster the sample size, we enlisted the Qualtrics panel development team to collect approximately 100 additional survey responses from entrepreneurs. Qualtrics, in addition to providing online survey tools, is a research panel aggregator with the ability to recruit hard-to-reach demographics. Qualtrics utilizes specialized recruitment campaigns to assemble niche survey panels based on pre-specified criteria. To fit in this group, entrepreneurs must own a business that they have started within the last ten years. Respondents in this group were compensated with $25 USD for their participation and were not offered any donation option. A total of 106 completed surveys were returned from this group. We excluded 20 of these cases because they were unable to adequately describe their business. See the Appendix for the complete survey instrument.

Participants and procedures

The participants completed an online questionnaire with thirty-two questions on the details of how they started their business, the success of the business, activities they conducted while starting the business, and demographic variables. The sample was recruited via a snowball sample method as well as through a Qualtrics panel as described above.

The majority of our sample is comprised of Caucasians (81.7%), followed by Black/African Americans (11.7%), then Hispanics (3.3%), then Asians (1.7%). The median age of our sample was 46.5 years old and the sample was 49.2% female. The majority of our dataset is currently married (61.7%) with 55.8% having at least a bachelor's degree. Table 1 shows the means and standard deviations for each of the variables as well as the correlations between them.

Dependent variables

There are various difficulties in obtaining concrete objective measures of success from entrepreneurs. Reasons stem from factors such as small business owners not always running their businesses to maximize financial performance ( Jacobs et al. , 2016 ) or running a business because it allows for a preferred lifestyle ( Jennings and Beaver, 1997 ; Walker and Brown, 2004 ). Because of this, there are a few ways researchers can gain acceptable insight into the success of an entrepreneurial venture. One approach is to use subjective measures when other types of information are unavailable ( Dawes, 1999 ). Thus, following previous research ( Besser, 1999 ; Jacobs et al. , 2016 ) which has noted that entrepreneurial success may not always mean optimal financial measures and instead may be more along the lines of maintaining an acceptable level of income for themselves and their employees ( Beaver, 2002 ) or sustaining a lifestyle more aimed at being part of a creative output than being financially successful ( Chaston, 2008 ), we first analyzed the entrepreneurs' perceived organizational success. A second approach is to ask about objective success measures. We strengthened our study by asking entrepreneurs about objective measures of their firm's success via focusing on their firm's growth, specifically, asking about objective growth indicators in terms of increased number of employees, increased number of customers, or increased revenue as previous research has used these measures to indicate success ( Walker and Brown, 2004 ). Therefore, we analyzed the full model for both the subjective and objective dependent variables.

Given that entrepreneurial motivations can vary widely ( Shane et al. , 2003 ), defining success can vary based on the individual. To address this, studies have surveyed entrepreneurs for their subjective perception of their venture's success ( Fisher et al. , 2014 ; Keith et al. , 2016 ). Walker and Brown (2004 , p. 585) find that “Personal satisfaction, pride and a flexible lifestyle were the most important considerations for these business owners.” They argue that objective, financial measures that are often used in research offer objectivity and accessibility, but may not capture the true value of success for many entrepreneurs. These alternative motivations make success difficult to quantify objectively, leading researchers to utilize more subjective measures. Therefore, in line with prior research on entrepreneurial success perceptions ( Jacobs et al. , 2016 ; Besser, 1999 ), we asked respondents “How strongly do you agree or disagree with the following statement? My business is a success.” Respondents rated their agreement on a five-point Likert scale (1 = Strongly Agree, 5 = Strongly Disagree).

Firm Growth:

To strengthen the findings from our subjective measure of success we also asked respondents about objective measures of firm growth. By asking respondents about obvious measures of growth we can offer a more objective view on the success of the firm. We asked respondents if their firm had grown by any of the following three metrics: number of employees, number of customers, or total revenue (cf. Jacobs et al. , 2016 ). Given the variety of motivations of entrepreneurs, we chose not to limit the type of growth that would reflect success. In some cases, an entrepreneur may seek to increase the impact of the business by providing services to a greater number of customers, while maintaining a lean staff to control pricing. Alternatively, an entrepreneur may be seeking autonomy, and therefore choose not to hire in order to create greater autonomy. However, it is likely that some firm growth – in revenue, employees, or customers – is likely to occur in successful firms. Therefore, we combined these three types of growth as a dichotomous variable, wherein growth in any one or more of these areas would be coded as a “1” for growth and an answer of no growth in all of these areas would be coded as a “0” for no growth.

Independent variables

Business planning.

We defined business planning using four activities. We asked respondents if they (1) wrote a business plan [ Write BPlan ]; (2) gathered secondary data on industry statistics or trends [ Secondary Data ]; (3) shared your business plan with people outside the company for feedback [ BPlan Feedback ]; and (4) shared your business plan with people outside the company for funding [ BPlan Funding ]. These were not loaded as a factor as these do not represent an underlying factor, but rather are individual activities that all represent a variety of activities pertaining to the use of business plans.

We defined lean startup using six activities. We asked respondents if they (1) interviewed potential customers [ Interview ]; (2) created a prototype [ Prototype ]; (3) showed a prototype to potential customers for feedback [ Show Proto ]; (4) conducted an experiment to better understand some portion of your business [ Experiment ]; (5) used customer feedback to alter the direction of your business (“pivoted”) [ Pivot ]; and (6) accepted money for preorders [ Preorders ]. Similar to business planning activities, these were not loaded as a factor, as these activities do not represent an underlying factor, but rather a collection of potential activities.

For each of the IVs, respondents were first asked which of the above activities they engaged in during their venture startup process. The order of the activities was randomized. For each activity that was selected, respondents were asked to rate “how much did each of those activities positively impact the performance of this venture?” Respondents were given a five-point Likert scale (1 = “Not at all” to 5 = “A great deal”) and if the respondent did not do the activity, the response was coded as a 0. To calculate the IVs, each response was weighted by the level of impact. For example, if the respondent rated Experiment as a 5 for a great deal of impact, then it would be coded 5. If it was rated 3, then it would be coded 3. Any activity not completed was not rated (or effectively coded a 0).

We used the ratings to allow for variance in the impact of any activity. In our preliminary interviews, we heard that entrepreneurs may have performed the same activity, such as interviewing customers, but some placed a greater emphasis on this activity whereas others performed it only cursorily. We also performed a robustness check on the data using non-weighted values for the IVs and found similar results (these are available from the corresponding author upon request).

Control variables

We controlled for the following variables: (1) the firm's age in years [Firm Age] ; (2) the entrepreneur's prior startup experience [Ent XP] ; (3) the entrepreneur's age in years [Age] ; (4) the entrepreneur's education level [Education] ; (5) the case sample [case Sample]; and (6) if the firm was a high-tech growth firm [Hi-tech growth firms] . Firm age is likely related to perceptions of success in the minds of entrepreneurs. If an entrepreneur perceives themselves as unsuccessful, they are likely to quit pursuing their venture. Thus, entrepreneurs with older businesses are more likely to have higher perceptions of their own success. Ent XP, Age , and Education have all been investigated in the past for their relationship to entrepreneurial firm performance (e.g. Hechavarría and Welter, 2015 ). We also control for the case sample since our sample was collected in two different processes. Finally, we control for Hi-tech growth firms since some firms in our sample are oriented toward accelerated growth and others may be content with stable returns, which may impact the use and effectiveness of business planning ( Brinckmann et al. , 2010 ).

Regression results for success DV

We tested our hypotheses using hierarchical regression [ 3 ]. In Step 1, we entered Firm Age (in years), the entrepreneur's prior startup experience, the entrepreneur's age, the entrepreneur's education level, the case source, and whether the firm was a hi-tech growth firm as controls ( Van Dyne and LePine, 1998 ). In Step 2, we entered our independent variables that relate to the business plan approach: writing a business plan, gathering secondary data on the industry, sharing the business plan to receive feedback, and sharing the business plan to obtain funding. We also included the variables related to the lean startup approach: interviewing potential customers, creating prototypes, showing prototypes to potential customers for feedback, conducting an experiment to better understand a portion of the business, pivoting based on customer feedback, and accepting money for preorders.

Table 1 reports descriptive statistics and correlations, whereas Table 2 presents the hierarchical regression results for the success dependent variable. As can be seen in Table 2 , consistent with H1a , writing a business plan was related to success ( β  = 0.09, p  = 0.09). However, we do not find support for our other hypotheses: gathering secondary data on the industry, sharing the business plan to receive feedback, and sharing the business plan to obtain funding were all not significantly related to success.

When we looked at the activities that contribute to lean startup methods, we found that interviewing potential customers ( β  = 0.09, p  = 0.08) and accepting money for preorders ( β  = 0.15, p  = 0.03) supported H2a and H2e respectively, suggesting these are correlated with success. Similar to the business plan approach there was not sufficient support for all our hypotheses: creating prototypes, showing prototypes to potential customers for feedback, conducting an experiment to better understand a portion of the business, and pivoting were not supported. The findings with regard to each hypothesis are summarized in Table 3 .

Regression results for growth DV

Similar to the subjective success dependent variable, we tested our hypotheses using logistic regression for our objective growth dependent variable [ 4 ]. A logistic regression was performed for each of our approaches, the business plan and lean startup since our growth DV is dichotomous ( Mason et al. , 2018 ).

Table 1 reports descriptive statistics and correlations, whereas Table 4 presents the logistic regression results for the effects of writing a business plan, gathering secondary data on the industry, sharing the business plan to receive feedback, and sharing the business plan to obtain funding had on our growth dependent variable. The logistic regression model was statistically significant, χ 2 (10) = 39.16, p  < 0.005. The model explained 39.2% (Nagelkerke R 2 ) of the variance in business growth and correctly classified 69.2% of cases. As can be seen in Table 4 , consistent with H1a , writing a business plan was related to success ( β  = 0.30, p  = 0.036). As before we did not find support for our other hypotheses: gathering secondary data on the industry, sharing the business plan to receive feedback, and sharing the business plan to obtain funding.

Next, we looked at the actions that constitute lean startup, interviewing potential customers, creating prototypes, showing prototypes to potential customers for feedback, conducting an experiment to better understand a portion of the business, and pivoting based on customer feedback had on our growth dependent variable. The logistic regression model was statistically significant, χ 2 (12) = 53.82, p  < 0.005. The model explained 51.0% (Nagelkerke R 2 ) of the variance in business growth and correctly classified 85% of cases. Our logistic regression results found that interviewing potential customers ( β  = 0.25, p  = 0.08), accepting money for preorders ( β  = 0.89, p  = 0.04), and pivoting based on customer feedback ( β  = 0.34, p  = 0.03), provided support for H2a , H2e , and H2f respectively, suggesting these are correlated with success in terms of growth. We did not find support for our other hypotheses about lean startup activities. These were, creating prototypes, showing prototypes to potential customers for feedback, conducting an experiment to better understand a portion of the business, and pivoting. The findings with regard to each hypothesis are summarized in Table 5 .

In this paper, we sought to understand the relationship between lean startup activities and success as well as the relationship between business planning activities and success. To answer this question, we began by gathering qualitative data from entrepreneurs to better understand their perspective and language regarding these two approaches. From there, we created a survey and collected responses from 120 entrepreneurs about their activities and their perception of success and the growth of their firms. Controlling for common influencers of success, we found that the act of writing a business plan ( H1a ), interviewing potential customers ( H2a ), and taking preorders ( H2e ) were all correlated with subjective perceptions of success. For the firm growth dependent variable, we found that the act of writing a business plan ( H1a ), taking preorders ( H2e ), and pivoting based on customer feedback ( H2f ) were all correlated with objective measures of firm growth. Interestingly, these results represent a combination of lean startup and business planning activities. What is more, the two activities that are supported by both dependent variables, represent the most well-researched activities. As mentioned, the literature on business planning is well developed ( Honig and Karlsson, 2004 ), and the use of preorders is most directly tied to research on enrolling stakeholders ( Burns et al. , 2016 ) as well as effectuation ( Sarasvathy, 2001 ).

Our results give some understanding to the prior equivocal findings on business planning ( Brinkmann et al. , 2010 ). The qualitative data we gathered suggests that entrepreneurs complete different activities in their business planning process. In the past, there has not been much discussion about separate aspects of business planning or the impact they may have. Our findings suggest that the act of writing a business plan is related to success, but the other business planning activities – gathering secondary data, sharing the business plan for feedback or funding – are not related. This suggests that the planning process itself may mean more than the uses of a business plan. Even if a business plan is not revised or revisited as an entrepreneur pursues their venture ( Karlsson and Honig, 2009 ), the act of writing the plan is still connected with success. Entrepreneurs going through the exercise of planning are likely to gain a better understanding of the entire endeavor of launching a new business. This would give entrepreneurs a better grasp of what the range of possible outcomes would be and likely temper any overly optimistic and unfounded hopes. Therefore, it is likely that simply writing the business plan helps calibrate entrepreneur expectations, which, in turn, helps entrepreneurs achieve success.

Rather than viewing lean startup as a cohesive whole, our qualitative data suggests that entrepreneurs make use of differing combinations of lean startup activities. This discovery informed our survey which offers some of the first direct quantitative evidence of the efficacy of lean startup methods. What we find, however, is that not all activities are linked to success. Perhaps the most straightforward finding is that taking preorders is correlated with both subjective and objective measures of success. If entrepreneurs are able to complete their first sales prior to actually creating their products or services, then success seems much more likely. Venture success, in this case, is agnostic toward the level of innovation in the firm. As such, the critique of lean startup from Felin et al. (2019) as a method that helps orient entrepreneurs to ideas that can be quickly and transparently tested still requires further investigation.

The other relevant activities are those most aligned with customers. Interviewing customers ensures that entrepreneurs design businesses that serve customers rather than building something that no one wants ( Blank and Dorf, 2012 ). However, it is worth noting that interviewing customers must be done with an awareness of the entrepreneur's own cognitive biases ( Chen et al. , 2015 ). Furthermore, pivoting as a result of these discussions with customers also shows a response to customers' desires.

The most interesting aspect of our findings is likely the combination of activities across business planning and lean startup. While lean startup proponents might argue that “no business plan survives its first contact with customers” ( Blank and Dorf, 2012 , p. 53), the act of writing a business plan is correlated with success. It is worth noting that the separation between lean startup and business planning may be a false dichotomy. The underlying activities are not mutually exclusive and do not seem to be detrimental to each other. It is entirely possible, and based on these results advisable, that an entrepreneur would interview customers throughout the process of creating a business plan and use customer feedback to alter both the plan and the business itself. Furthermore, taking customer preorders serves to solidify the relationship between customers and the firm which would only improve that communication.

Limitations

In order to create one of the first quantitative, empirical investigations of business planning and lean startup practices, some tradeoffs needed to be made. We believe that while these limitations may restrict the strength of some of our findings, the direct nature of our approach offers a contribution to the ongoing conversations among scholars and practitioners.

Our sample size is 120. Obviously, a larger sample may lead to more robust and generalizable results. Furthermore, we gathered the sample using two different methods and controlling for the sample method was a significant predictor. We leave it to further research to expand upon our findings and investigate various entrepreneurial samples for differences that may arise.

One of our dependent variables was a subjective measure of success, which may be considered a weakness. We used this measure given the variety of preferred outcomes an entrepreneur may be pursuing – financial objectives, personal objectives, or mission-based objectives. Our other dependent variable was an objective measure of growth across three categories and serves to bolster confidence in the subjective measure.

Another area of concern may be common method variance given that we collected both independent variables and dependent variables from the same instrument. To address this concern, we collected data from individual entrepreneurs that all represented different companies and utilized two different samples so as to minimize the issues that may arise from common method variance ( Chang et al. , 2010 ). Lastly, our independent variables are more objective. For example, writing a business plan is a discrete event as is creating a prototype. For these reasons, we do not believe the common method variance is a major concern for this study.

One other potential weakness is the degree to which entrepreneurs actually utilized the activities of lean startup or business planning. The weighting scheme we employed aims to address this issue by weighting the degree to which entrepreneurs found each activity useful. However, we cannot be sure whether or not an entrepreneur executed the given activity well and this variability goes uncaptured in our study. Quantitative studies like this one will typically suffer from this limitation but case studies may be able to overcome these weaknesses (see Ghezzi et al. , 2015 ).

Finally, our design is cross sectional and does not allow us to make causal inferences. We can only imply the relationship between our independent and dependent variables. Our hope is this is a first step to future research which may be better able to test the causality of the various aspects of business planning and lean startup as they relate to entrepreneurial success.

Implications for research and practice

This manuscript has important implications for research and practice. With respect to research, we have demonstrated that aspects of business planning and lean startup both are associated with success. Furthermore, entrepreneurs seem unlikely to enact either business planning or lean startup wholesale but are likely to pursue individual aspects of these concepts. Future research can investigate how entrepreneurs select between activities as well as how training and education regarding these practices impact the entrepreneurs' choice. The training and education surrounding the entrepreneur represent aspects of the organizing context ( Johannisson, 2011 ), which influence how entrepreneurs construct their firms. Therefore, future research could add further institutional aspects or conduct randomized controlled trials to see the impact of these practices in the organizing context.

In terms of implications for practice, this research highlights the use of a variety of activities when it comes to entrepreneurial success. Some of the activities from both lean startup and business planning are useful for entrepreneurs. This also offers insight for educators as they seek to equip the next generation of entrepreneurs. Educators can offer potential entrepreneurs a wide range of activities without prognosticating one aspect of the false dichotomy between lean startup and business planning.

In this paper, we provide one of the first quantitative empirical studies investigating lean startup methods and business planning. In breaking down these areas, we undermine the false dichotomy between these two startup tools. Our findings demonstrate that truly understanding customers through preorders and interviews can lead to better business plans and better pivots. Ultimately, this results in firms with a greater chance of success. Understanding the variety of activities that entrepreneurs can pursue helps entrepreneurs and educators increase the chances of success for new businesses.

Correlations