Business plans are nonsense

Peter Drucker, the great Ayatollah of management puts it best, “The only thing we know about the future is that it will be different.” But teams all over the world are asked to produce elaborate forecasts that show every drop of rain, where it’ll fall, and how you’ll open your umbrella just in time.

For decades, business plans have been the norm when starting a new venture or adjusting an existing one. When asked for them, we oblige. We draft up initiatives that will logically get us closer to our goals. We place this intelligence inside a document and present it to venture capitalists, or perhaps ourselves, hoping they’ll concur; we have a sound plan. Maybe they’ll even give us money to fund our adventures?

It’s all crazy-talk. If all you needed to succeed in business was a business plan then everyone with a business plan would have a successful business.

Life is complex. My business partner at OHNO, Poe Chen, put it best. “A steering wheel is simple. A car is complicated. A car in traffic is complex.” Business is vastly complex and our ability to predict the future in a complex system is very, very difficult.

Last year I watched the endless enthusiasm for Unlocked, an Australian Startup funded in part by Lachlan Murdoch, only to see it vaporise because Google adjusted some features and one of the founders struggled with illness. That stuff never makes the business plans or the pitch decks. Yet it happens all the time.

We assume the point of a business plan is to set goals then demonstrate how diligently everything is planned to instil confidence in those who read it. It shows we know what we’re doing. Maybe you add some buffer into your business plans to accommodate things going wrong. Nice work. It’s starting to look like a short story now and you’re the main character.

Perhaps the real point of business plans isn’t to predict the future but to outline our enthusiasm with corresponding financial budgets, constraining what we’re really allowed to do.

You can buy an ice-cream, as long as it’s chocolate, and you can’t have a waffle cone. They’re too fu**ing expensive.

If that’s the case I’m in. The only element of business plans I adore is the budgeting part anyway. When you start a business you need to have a solid grasp of numbers and how they shape your world. A misunderstanding of this can lead to solvency problems, which turn into jail problems. If it costs you $5 to make a Pizza and you charge $3, bad things will certainly happen.

Let’s say we agree with Forbes and 80% of businesses fail in the first few years. If business plans were to accurately represent the future, we should write chapters in the back that explains where it all goes wrong, but we don’t. We aren’t writing accurate depictions of the future. We’re writing our dreams. It’s how it’s supposed to pan out. We’re all lying to ourselves. We don’t prepare for the worst. Instead, we pitch for the best.

Ironically, there’s strong evidence to support that merely reflecting on the barriers to achieving your goals is worthwhile. It’s a process known as Mental Contrasting and was developed by the motivational psychologist Gabriele Oettingen, a professor (and Princess) from NYU. Mental Contrasting helps those reach their goals, obtain better results and avoid bad habits like smoking.

Mental contrasting even shows inroads into helping develop better exercise habits and routines. Perhaps business plans would be better replaced by a daily practice of mental contrasting? At least you could tell your investors the science says it’ll help.

But maybe I’m being presumptuous. If someone has a business plan that tells your investors in 6 months you’ll be in front of a senate committee talking about how you lost your customers data to Russian bad actors, you have my deepest respect.

If anyone knows how to forecast the future it’s got to be the world of Managed Funds. I bet they have business plans. Managed Funds not only employ some of the brightest and well-compensated minds in the world, some leverage sophisticated AI algorithms that can predict all kinds of market fluctuations with precision. Well, not the kind of precision that works obviously. 95% of them underperform the market over long periods, but at least 5% of them are precise. You can even bet on this stuff. Warren Buffet has.

As Benjamin Graham, long time mentor of Mr. Buffet, professor at Colombia and author of The Intelligent Investor says,

“Your chances of picking a stock and knowing if it will go up or down is not quite zero, but it’s close.”

So why do we take the same approach in business planning? Why do we think we can crystal ball how a business will perform and think the documentation of that guess-work is worth anything at all? Why read into it? Humans (and Managed Funds) have a difficult time proving they can see around corners.

A hedge-fund throws bodies (and now AI?) at a stock, goes through publicly available information, and some not-so-public, and tries to guess where that business will be in the future, how that might result in share-holder returns, and bets on it. We do the same when writing business plans. We guess and hope it all pans out, because we’ve done the homework. We bet with our time and usually other peoples money.

“Everyone has a plan”, former boxing champion Mike Tyson notes. “Until you get punched in the face.” Wise words Mike. Business plans are great going into the ring, but few business plans withstand the first wave of customers who teach you things about your business you never saw coming. You need a framework to deal with those surprises and this is where business plans are of little use.

It’s important to note that goals are indeed vital in business, but goals aren’t business plans. What matters to most people is the outcomes you want to hit, the plans on how you get there should remain flexible. Perhaps this explains the popularity of Andy Grove’s OKR framework, made vastly famous by its adoption in Silicon Valley by Google and Intel. It allows teams to set a vision for where they need to go, and highlights what life looks like when you get there. But the activities and strategy to get there, are all subject to change, so they’re often not documented at all. The simplicity of OKRs in that regard is quite genius.

Let’s say, for instance, your goal in life is to land a rocket on mars. Great. That sounds like a solid goal. But where you buy your rocket fuel is probably something you don’t need to worry about during the planning process. As you get closer to those decisions, the right choice will usually present itself, hopefully from someone who knows something about rocket fuel. By locking yourself into those decisions too far out, you end up with a document that is hard to manage and frequently out of date. If you don’t abandon it, you’ll certainly ignore it.

Truth be told, instead of spending so much time planning up front, you’re better spent pretotyping your concept and talking to customers. You’ll save a fortune and learn a lot more.

Maybe it’s time to re-think the purpose of a business plan into something fit for the future of work.

Since the 19th century every village in the Netherlands had a nurse nearby that would care for those in need. Healthcare was run entirely as an autonomous system where plans were drawn up by those doing the work. If you needed help, you’d just contact the local nurse. But in the 90’s the health insurance system took over and wanted to consolidate planning and organisational practices to get economies of scale. The health system obliterated any self-management the nurses had and wanted specific control to ensure things went smoothly, as if they weren’t running smooth before. It would reduce costs, they said, and lift performance, leading to better outcomes.

Soon healthcare became products, and products were bundled into tiers to make offerings universally easier to manage and plan around. Then central planners were hired. Daily schedules were distributed to nurses from a central ‘ministry of planning’ type arrangement. Then it fell apart.

As Frederic Laloux in his book Reinventing Organisations cites in an interview with a nurse about the period,

“…The planning was done somewhere else by someone who didn’t know the patients. It went wrong so many times that at some point I could no longer explain to patients why nobody would come or why the agreed time wasn’t respected.”

Jos De Blok runs Buurtzorg, a Netherlands based Healthcare company he started in 2006 to combat the problem. Today, it employs close to 14,500 people and provides critical care to 80,000. Teams of 10–12 people do everything from the planning, scheduling and administration. They are closet to the problems and the most qualified to call the shots. They respond to small changes in the environment and can move with great agility.

Long term centralised planning at Buurtzorg is seen for what it is — theatrical guessing. So if it must be done, they do it much closer to the action, and have it performed by those in the know.

At Buurtzorg, time is best spent helping patients and responding to situations as they occur. Even when a crisis does occur, Jos De Blok leaves the course corrections up to individual teams who have total authority to decide on the spot.

Buurtzorg is one of the more notable Teal organisations that run on self managed principals and are re-thinking how a company should be run. Teal organisations represent the next stage of evolution of how a company is put together. They are often self managed, run by small, cross-functional, autonomous teams, and they are leaner and more productive than ever before.

A common misconception about large groups of people is that the only way to ensure you maintain quality of their work is through layers of management, intense measurement and economies of scale. All of this requires silos of specific functions like marketing and engineering being run by seperate executives who know their craft and argue to the death. But Teal organisations are not exactly small and few have executives at all.

Zappos, which runs as a Holocracy, an operating system for self management, employs over 1,500 staff and was worth over a billion dollars before it was acquired by Amazon in 2009.

A lack of general planning at Teal companies is widely common. Gor-Tex, with over 9,000 staff and over 30 locations around the world has generated a profit every year since 1958 and is known as a kind of management experiment. It has a huge amount of products and innovation is how they bring those products to market. But the innovations are not planned out exhaustively. As Gary Himmel from London Business school points out.

“(At Gor-Tex) There is no predetermined timetable; the focus is on giving product champions time to experiment and learn, and taking small risks rather than betting the ranch too early. It’s a way to ‘organize for innovation’, rather than plan for innovation, with a long-term view.”

The insanity of planning is best summed up by Chris Cowen of Holocracy One a consulting firm that helps organisations adopt the holacracy framework.

“Rather than try to predict and force a particular future, heuristic-strategies allow us to find where the organization wants to go. Meaning, we’re shifting from predict-and-control to sense-and-respond.

Think of how you ride a bike. Before you set off, do you figure out the precise steering angle you’ll need in each moment given the uneven terrain? No. You just go. And make thousands of micro-adjustments along the way.”

Frederic Laloux in his book Reinventing Organisations, discovered in his research what guides Teal organisations are two things. The organisations purpose and the values that the organisation wishes to embody. By using values and a moral compass instead of rigid plans as a guiding light, organisations are much better equipped to respond to changes. As author Dennis Bakke puts it,

“Today, there is almost too much focus on leadership, mainly because it is widely thought to be the key to economic success. In fact, the degree to which a leader can actually affect technical performance has been substantially overstated… On the other hand, the importance and impact of moral leadership on the life and success of an organisation has been greatly under-appreciated”

When you have a moral compass that can guide an organisation, there is less reliance on god-like leadership positions to swoop in and save the day. Values do that instead.

Perhaps business plans should become more like the Holacracy Constitution. A legally binding (kind of) contract that states how the organisation will run. The idea is that a Holacracy is run more like a city than a company. And there is good reason to think this is a good idea.

As Tony Hsieh, CEO of Zappos points out in an interview with Quartz,

“When cities double in size, their productivity increases by 15%. But when companies double in size, their productivity declines.”

The core of the idea is that cities are full of small, autonomous groups of people that self organise to get things done. Think of your own city. There is much less central planning than you might think. If you want to open a bakery on a street because you notice there are none around, funds and enthusiasm permitting, you can. Theres no central planning authority that lays out very considered, long-term plans about where the bakery’s will be over the next 10 years. It’s easier to let small groups adjust, rolling with the complexity of life.

Holacracy’s idea of using a constitution to provide a guiding hand to make the right decisions, is not just about getting closer to the organisations purpose. It also protects from new CEO’s and board members who might wish to overstep their rights and impose command and control practices, reverting to the old ways.

Eckart Wintzen started a software consulting company called BSO / Origin in 1973. Over two decades the company grew to over 10,000 staff with offices all over the world run entirely with self managed teams and very little central control and planning. It was purchased by Phillips, and as self-management and traditional management practices collided, the business, according to Wintzen, “lost it’s edge”.

In times of crisis, board members and leaders in traditional management seek to instil leaders who share their world views. When things go wrong, the instinct is to put control back in place to fix it. This means reverting to the traditional long term planning and command and control practices.

Business plans served us well in mechanistic times but we need useful practices for the future if we are to build the kind of successful organisations that can tackle the great challenges of our day. We need to reboot organisations and liberate them from mediocrity. We hold on to too many ceremonies from the past, despite the science telling us we should let a few of them go.

It’s perhaps time to ask yourself, with any business activity 3 very simple questions.

  1. What does the science say about this?
  2. Do we really need it? Is our time spent better elsewhere?
  3. And finally, does this activity help get us closer to our purpose?

By checking in with our activities, and thinking from a point of first principals, including writing business plans, we might get to the best outcome of all. Better organisations, from soup to nuts.

Our mission at OHNO is to reboot the workplace and liberate teams from mediocrity. We think there are too many ceremonies and practices we all know in our hearts to be useless & wasteful, and lots of them don’t serve our customers or help us enjoy what we do. At OHNO we value outcomes over traditions.

We want to liberate teams from those burdens by helping them get to the heart of what’s slowing them down using a really clever product we built called OHNO. If you liked this article or care about our mission, I’d love to hear from you. You can reach me on Twitter here.

And you can always try OHNO for free and discover what’s holding you back from your goals at http://ohno.ai

Chief Product Officer @ Whispir (ASX:WSP) 🖥 Writer 📚 Tea nerd 🍵 Machine Learning Enthusiast 🤖