Pre-startup planning sophistication and its impact an new venture performance in Germany

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Strategic Management theory suggests effective business planning to be an important requirement for successful start ups. However, little research has been done referring to real business plans made by entrepreneurs. Prior research is based solely on interviews with persons who founded new ventures formerly and does not examine written business plans itself. Moreover, relatively few examinations focus on start ups. The vast majority of empirical work on the planning-performance-link targets established enterprises. All in all, the level of knowledge seems to be quite marginal. This may be caused by some deficiencies associated with prior research on initial business planning. Apart from survivorship bias, limited geographic or industry coverage and an accidental lack of empirical testing, an important deficiency is the interview bias: Performance studies on start ups necessarily depend on an individual recollection of past events when not designed longitudinally. When looking on the later performance of a newly founded enterprise, an interviews approach therefore apparently is biased by selective perception, selective answering, and selective recollection of the past planning behaviour. Those retrospective approaches are thus inappropriate. The objective of this study is to analyze the relationship of planning sophistication and performance of start ups in Germany referring to real business plans. The study investigates planning practices as a determinant of new venture performance. Utilizing files of a well established German start up panel it uses a survey that reduces the distorting effects of survivorship and interview bias. This research design avoids the numerous problems of retrospective approaches. The paper intends to present some findings of an examination of written business plans. It could be found that initial business planning sophistication has a very small impact on performance and is limited at most to the profit and loss planning depth. It finds that initial business planning is rather a hygiene factor than a determining issue concerning performance. Furthermore, one can see that profit and loss planning is the most elaborate area of initial business planning and is executed far more intensely than financial planning. Staff and marketing planning on the other hand are handled as very less important planning topics. Theory and some parts of the literature let assume that planning per se makes sense. Some studies confirmed that planners perform better than non-planners or that accurate planning outperforms less sophisticated planning activities. This study is not meant to doubt this interrelation. But concerning performance, we now can conclude that planning is rather a hygiene factor than a determining issue in a way that planning elaboration resp. raised planning depth could increase performance. In other words: Initial planning is an important requirement of success, but cannot lift it, until certain minimum constraints are met.
Original languageEnglish
Title of host publicationICSB World Conference 2007 : At the Crossroads of East and West : New Opportunities for Entrepreneurship and Small Business
Number of pages21
Place of PublicationTurku
PublisherInternational Council for Small Business
Publication date2007
ISBN (Print)9789515642639
Publication statusPublished - 2007
EventICSB World Conference - ICSB 2007: At the Crossroads of East and West: New Opportunities for Entrepreneurship and Small Business. - Turku, Finland
Duration: 13.06.200715.06.2007
Conference number: 52