Does Business Planning Facilitate the Development of New Ventures?

Abstract

The study challenges prior criticism of business planning, arguing that business planning is an important precursor to action innew ventures. The effect of business planning on three aspects of new venture development is examined: product development, venture organizing activity, and disbanding. Empirically, the hazard of the three categories is examined longitudinally in 223 new ventures in a random sample of Swedish firm founders for a period of 30 months, starting in 1998. A review of the previous literature is offered,and three working hypotheses are advanced: (1) business planning reduces the hazard of new venture disbanding; (2) business planning facilitates product development in new ventures; and (3) business planning facilitates venture-organizing activity in new ventures. The results offer insights into new venture controls for venture-levelvariation in opportunities. Findings also foreground the importance of longitudinal examination of the effects of planning on venture development, aswell as patterns for control variables. Ultimately, by helping firm founders tomake decisions, business planning increases the chance of venture survival, accelerating product development and venture organizing. Both theoretical and methodological implications are presented, and several directions for futurere search on business planning in new ventures are offered. (CBS)

Keywords: Closing firms, Firm survival, Management decisions, Organizational structures, Product development