Professor Paul Steffen from QUT delivered a bombshell with breakfast at the South West Chamber of Commerce last week.
“Our research indicates that business plans are worse than useless,” he said. His research into Innovation and Entrepreneurship indicates that flexibility in response to market demand is a far more important tool for success.
He believes that sayings such as “If you fail to plan, you plan to fail,” lead people to waste time in constructing a strategic plan and aligning their business to it.
“The most successful businesses simply adjust their business to increase profit when there is an opportunity,” he said.
This is consistent with the advice of Matthew Snelleksz, reported in Business Voice last month. Snellekz advises that any business plan longer than 90 days is largely a waste of time.
“No-one can see that far into the future,” he said.
The focus of Professor Steffen’s talk was his key finding that profitability often leads to growth but it rarely works the other way around. Companies focused on growth rarely become profitable: more often failing, or struggling to survive.
He pointed out that this is hardly surprising, given that profitable companies have the capacity to think strategically and invest in the flexibility required to meet market demand.
His research also revealed that smart companies acquire competitors in tough times and innovate in the boom. Companies that cash in during the boom by competing on price or expansive marketing have little to show for their investment when the going gets tough.
These lessons may seem to be common sense when spelled out by Professor Steffen, but they are in contrast to the advice regularly dished out to business.
The federal government’s small business tools recently published in Westender’s Business Voice, promote the importance of long term planning – albeit as a tool for raising finance and convincing investors that you know what you are doing.
Even Snelleksz’ advice to focus on sales first, then cashflow and profitability, has been taken by some business owners to indicate that growing the top line is their first priority. Snelleksz himself does not see it that way. “Sales is the business owner’s first responsibility because without sales you have no business, but there is no point in selling your time [or products] at a loss.”
This is consistent with the old adage that if you are going to go broke it is better to do it under a tree fishing than working off your rear end for nothing.