We have all been guilty of it at some point. Everything is going well, running smoothly and ticking along nicely and we get complacent. In fact, we have spoken to a handful of businesses in recent months who won’t spend the time planning. The simple reason is that profits are growing so fast that they feel that they don’t need to do so. One person we spoke with responded with a tacit, “of course”, when we pointed out the obvious oversight. However, nothing lasts forever and we have experienced a stable period of instability over the last 5-6 years. Those winning today may be victims tomorrow (at least that is what the leaders will claim). Those hammering their competitors may be shutting up shop by the turn of the decade. So, today we discuss the top 10 pitfalls of neglecting business planning in the good times.
Business planning
Business planning is a tool for setting the direction of an organisation, identifying objectives, choosing the strategies to get there and developing the plans to make it happen. Such planning gives leadership, investors and staff the confidence that you know where you are going. It also sets out the framework and context for decision-making and how to be successful. This isn’t to say that it is a static document that sits in a drawer and comes out for critical board meetings. Nor is it a document crafted in a darkened room from your own knowledge. A business plan is a living, aware and detailed document setting out the what, the why and the how.
Unfortunately, statistics routinely show that 47-49% of businesses do business planning. This increases significantly for start-ups that need funding. It also reduces significantly for SMEs, with as few as 33-35% engaging in the activity. Crucially, this is based on survey feedback, which may not capture the quality of such planning. This takes no account of the accuracy or authenticity of the feedback. What does routinely come to the forefront is that fast-growing businesses are more likely to have engaged in formal business planning. In our opinion, as a nation, we should be aiming for around 70% of organisations to craft detailed business plans to match. So, why do so many neglect business planning?
Let the good times roll
In general, leaders tend to claim credit when things are going well and become victims when things are not. That is to say that self-serving bias blames others when things take a turn to the negative. Additionally, recency bias means that we tend to take more recent facts and events as more likely to happen next. Similarly, normalcy bias suggests that we underestimate the probability of disaster striking despite warnings to the contrary. Finally, confirmation bias means that we tend to start searching for facts and information that support what we believe. As a handful of human biases manifest, what we are attempting to articulate is that we neglect planning for bad times. Ultimately, people tend not to accept that negative things will happen and believe things will stay as they are.
So, what happened to previously successful businesses such as Lehman Brothers, Enron, Nokia, Parmalat, BlackBerry, Blockbuster and Barings Bank? The all succumbed, for various reasons, to changes or risks that some saw coming. Some fell due to accounting fraud. Others failed to spot emerging market trends. Others failed to diligently assess risk. In general, all of these were doing very well at some point. Many other brands that we see today are no longer owned by who you think they are. McLaren Automotive and the McLaren F1 team are owned by the sovereign wealth fund of Bahrain. Ted Baker is owned by Authentic Brands Group of America and is operated in the UK under license by United Legwear and Apparel Co of America. Gucci is infamously owned by French luxury goods group, Kering. Despite success at some point, they fell into different ownership.
Top 10 pitfalls of neglecting business planning
For businesses that don’t want to disappear or dance with administration, business planning is a must. If you neglect business planning, even in the good times, the following top 10 pitfalls may await an organisation (in no particular order):
- Missing key market or industry trends;
- Reactively responding to developments;
- Increased probability of disruption;
- Competitive disadvantage;
- Falling short of customer expectations;
- Failing to spot growth opportunities;
- Difficulty in attracting or retaining talent;
- Challenges with raising finance;
- Strategic drift and lack of direction;
- Inefficient allocation of resources.
Out of context, you would think that all SMEs should engage in business planning. However, research by Wang, Walker & Redmond (2011) highlights that many have primarily personal, non-economic goals. Similarly, many owner-managed businesses have ‘capped’ or self-enforced limits to growth ambitions. In corporate and blue chip, business planning is rooted in economic outcomes. Sometimes, planning happens every few years and progress is reported against it. Unfortunately, this approach tends to lend itself to complacency and ‘back-pedalling’ in response to any disruption.
Supporting you with business planning
Now that you have read the top 10 pitfalls of neglecting business planning, it should be clearer that the good times can end. However, try to remember that confirmation bias, recency bias, normalcy bias and (sometimes) self-serving bias may lead you to disregard this advice. After all, double-digit year-on-year growth is keeping the investors happy. The banks are not giving you much hassle at a 20% EBITDA. The board nods approvingly at each set of positive quarterly results. A popular phrase is that “failing to plan is planning to fail”. We could trot out a few other anecdotes such as, “nothing good ever lasts”, or, “things don’t stay the same forever”. You get the idea.
The good times are when organisations take their foot off the gas. The bad times are when organisations panic, become reactive and go into survival mode. How about we change the narrative, get ready for anything and stop neglecting business planning?
If you would like to speak to our friendly team or book your complimentary introductory session, there are multiple ways to contact Think Beyond.
Alternatively, why not check out our range of planning services.
Finally, we previously talked about our thoughts on a different way of conducting a planning exercise.