Why do Business Plans Fail and What Makes for Good Planning?

I want to clarify that today, I'm specifically discussing planning. There are many reasons why businesses fail: lack of market need, poor competitive positioning, lack of focus, bad timing, etc. We're stepping away from that and talking specifically about planning- what causes planning to fail and what do you need for good business planning?

If you plan ahead, you'll typically have a good idea of how viable the market is, what milestones you want to achieve, the timeline and so on. The number one problem, and this is something pretty much all entrepreneurs face (I've experienced it plenty), is unexpected problems. Many people I know have been caught short because of total unknowns. Now, the point isn't to say you have a problem you can't solve. The reason most plans fail is because they fail to capture flexible circumstances.

Obviously you can't know in advance that the truck your delivery driver is bringing your concrete in will show up late or break down, leaving you dry, or that your leased building is going to require a complete restructuring of its plumbing system, costing another $20k that you can barely afford. What you can know is that problems are probably going to show up sooner or later, some you'll know in advance, others you won't.

There's a lot of confidential information in our own business plan, but some of the general features that are relevant in this context include: contingency plans for reasonably predictable scenarios (service revenues in main areas tick downwards for example) and flexibility for unforeseen scenarios that get placed in more general categories (for example, if a project is expected to cost $100k, you may want to buffer by 30% to say 70-130k instead (surprises aren't always bad)).

So, the idea is that you take very specific scenarios you can't know and place them in more general buckets, like costs, and subject those buckets to variance.

Ultimately, good planning requires judgement and flexibility. That could look like a probability tree for decision making, and in the case of financial modelling (or any other business modelling), scenario analysis. I encourage everyone to plan in terms of probabilities across scenarios instead of specific events or actions.

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