Death of The Business Plan

Switching From Business Plans to Business Models,
A New Paradigm of Entrepreneurship

Published July 18, 2014

Updated April 15, 2020

For decades, the business plan has been the starting point for entrepreneurs thinking about making the plunge. These documents are an excellent learning tool that elegantly forces an entrepreneur to think through each aspect of her business and understand all of its moving parts. These documents have been a mainstay of business school curricula, largely because they offer almost any professor or instructor a blueprint for learning, even if that instructor has never launched a real business. Further, banks and investors have traditionally required a business plan, which allows them to evaluate both the entrepreneur and the market potential of the opportunity.

Business plans are built upon a fundamental assumption that the past is a good predictor of the future. This assumption drives the market research paradigm, which suggests that by analyzing existing market structures, competitors and customer segments, the entrepreneur can discover an unmet market need and design a business model to exploit that need. However, what if a new market is emerging and there is no ‘past’ that can be analyzed? How did brewing entrepreneurs Kurt and Rob Widmer in Oregon, or Mike Hale of Hale’s Ales in Seattle “discover” the brewpub business model? What if Omar Ansari of Surly Brewing had resigned himself to play by the rules – and the “Surly Law” in Minnesota never existed? For these entrepreneurs, no amount of market research could have led them to their future. What did they do? They used the means at their disposal – Who am I, what do I know, whom do I know?…They used their ingenuity and “created” a future that had not previously existed. The brewpub business model was created, not discovered. Frustrated by the constraints of the three-tiered system, struggling with distributors that did not understand craft beer, these entrepreneurs leveraged their state governments and their connections, and changed the laws to allow the brewpub business model to become legal – they created their own future when discovery was not an option.

At CAS, we’ve been studying new venture creation and marketing under extreme uncertainty for years (Holloway & Sebastiao, 2010; Whalen & Holloway, 2012). We’re inspired by different thinking and we’ve built our multi-business model approach based on what entrepreneurs actually do (business model experimentation), instead of what is easy to teach (business planning) (Read, Sarasvathy, Dew, Wiltbank, & Ohlsson, 2011; Sarasvathy, 2001; Sarasvathy & Dew, 2005).

Inspired by these scholars, we’ve found that market entry and experimentation trump market research when uncertainty is high. This shifts the conversation from business planning to business models. Our multi-business model paradigm is the foundation of our Business Model Innovation Curriculum. Using a multi-business model approach is a better way to think about your craft beer business. Don’t try to discern your future by studying Anheuser Busch’s past; create your future for yourself! Here are the key differences in shifting from the business-planning paradigm to the business model paradigm (adapted from Schlesinger, 2009):

References:

Holloway, S. & Sebastiao, H. 2010. The Role of Business Model Innovation in the Emergence of Markets: A Missing Dimension of Entrepreneurial Strategy? Journal of Strategic Innovation and Sustainability, 6(4).