Lecture 1 – Business Planning vs. Effectuation
Introduction
This lecture explores whether entrepreneurs should prioritise careful planning or immediate
action. While business plans (BP) are traditionally viewed as essential for success, many
entrepreneurs succeed precisely by acting first and adapting later.
Two key studies address this tension:
1. Brinckmann, Grichnik & Kapsa (2010) — meta-analysis on whether business
planning improves performance.
2. Sarasvathy (2001) — conceptual theory of effectuation, showing how entrepreneurs
act under uncertainty without relying on prediction.
Article 1 — Brinckmann, Grichnik & Kapsa (2010): “Should
entrepreneurs plan or just storm the castle?”
Context & Research Question
The authors ask: Does business planning improve small firm performance — and under
what conditions?
Planning: thorough planning, market research, analysis, and careful consideration of various
factors before acting.
Storm the caste: metaphorical representation of opposite approach, where entrepreneurs
take bold, daring, and potentially risky actions to establish their business. It implies a more
aggressive and less risky approach. Market is a battlefield.
Research interest
- Education importance: Universities worldwide emphasize the importance of business
plans.
- Facilitation of entrepreneurship and regional development: BP competitions are a key
instrument to facilitate entrepreneurship because they serve as a practical platform
for entrepreneurs to present ideas and get feedback. This also stimulates regional
economic development across the globe.
- Investment consideration: Professional investors require entrepreneurs to write a
well-formulated BP before they will consider an investment.
,Research gaps
There are two opposing perspectives on business planning (BP)
1. On one hand, BP can enhance firm performance by speeding up decision-making,
improving resource allocation, and providing clear goals that make later actions more
efficient.
2. On the other hand, BP can hinder adaptability by consuming time that could be
used for execution and by creating cognitive rigidity and organizational inertia. This
makes firms slower to change and less flexible.
Research remains divided: some find BP improves coordination and legitimacy, while others
argue it restricts learning and responsiveness.
Research aim
The paper analyses the general (i.e., main/direct) relationship between business planning
and performance.To this end, the paper draws on three moderating factors:
1. The development stage of the firm
2. The form of business planning undertaken
3. The cultural context in which the planning-performance relationship occurs (a
country’s level of uncertainty avoidance, UA)
Method
The authors conducted a meta-analysis combining data from 47 studies on small firms to
see the overall effect of planning on performance and how it depends on firm stage and
culture. This study focuses on two types of small firms: startups and mature (established)
small firms.
Results & Interpretation
● Main effect H1: Business planning in small firms has a small positive effect on firm
performance (r = 0.20) - Supported !
● Moderator effect H2: Stage of firm development.
Established firms benefit more from business planning than start-ups - Supported!
Start-ups operate in unpredictable environments; heavy planning here can waste time and
reduce flexibility. They should put some time in planning, but not too much, and then storm
the castle. In contrast, established firms with experience and data can use plans effectively
to allocate resources and coordinate activities.
● Moderating effect H3: Form of business planning undertaken.
,H3: The outcome of business planning has a greater effect on firm performance than the
business planning process – Not Supported!
The performance effect of BP outcome (the end products of the business planning process,
which is typically a written business plan) determines similar positive performance effects as
studies focusing on the BP process (the activities and actions that go into the creation of a
BP such as market research etc.). Both outcome and process of business planning augment
firm performance with comparable strength.
● Moderating effect H4: Cultural context in which the planning-performance relationship
occurs.
H4: Business planning has a greater effect of firm performance in cultures with low
uncertainty avoidance than it does in cultures with high uncertainty avoidance -S.
BP is less beneficial for the performance in cultures characterized by higher uncertainty
avoidance than firms in cultures with low uncertainty avoidance. Where uncertainty is high,
leaders might stick more closely to their plans.
Implications for theory:
Overall, BP is a value-creating activity. However, BP is not equally beneficial under all
circumstances. Findings challenge conventional entrepreneurship wisdom that BP is
particularly important for new firms:
- High uncertainty and missing information reduce the positive effect of BP on
performance in new firms.
- Higher UA reduces the benefits of BP
→ adhering to BP limits strategic flexibility and openness to changes.
Unpredicted events as opportunities/exploitable contingencies.
Implications for practitioners:
Basic BP activities sufficient in the firm’s initial years.
- Allocate resources to other activities enabling information gathering,uncertainty
reduction, and learning.
- Long pre-planning activities detached from market interaction and feedback appear
detrimental.
Mental preparation and willingness to adjust BPs is critical. Close execution of BP not
beneficial perse.
If an entrepreneur is considering whether to plan or storm the caste, the study suggests
assessing the circumstances of the situation they are entering. They should be ready to
adapt their plans as they learn more and as things change. In new markets where things are
unpredictable, sometimes you must be a bit daring to get started, even if it’s risky and might
cost you. On the other hand. In more stable markets where things are predictable, taking the
time to plan might save you from start-up costs. You are more likely to do well if you pay
attention to what is happening in the market.
, Article 2 — Sarasvathy (2001): “Causation and Effectuation”
Core Idea & Framework
Sarasvathy introduces effectuation in contrast to causation — Causation rests on the logic of
prediction - Effectuation rests on the logic of control (under uncertainty).
Causation: causator takes a particular goal as given and focuses on selecting between
means to create that goal.
Effectuation: effectuator takes a set of means as a given and focuses on selecting between
possible effects that can be created with that set of means.
Causation Effectuation
Goal-oriented: decide on an end, then Means-oriented: start with existing means, let
find means. goals emerge.
Focus on prediction and analysis. Focus on flexibility and co-creation.
Best in stable environments. Best in uncertain, dynamic environments.
Five Principles of Effectuation
1. Bird-in-hand (given means) – Start with who you are, what you know, and whom
you know. Using a combination of these means, entrepreneurs start to imagine
possibilities and take actions. Goals result from the entrepreneur’s
imaginations/aspirations and interactions during the process.
2. Affordable loss – Risk only what you can afford to lose. Entrepreneurs decide what
they are willing to lose rather than what they expect to make. By this, entrepreneurs
stop depending on prediction and focus on cultivating opportunities with perceived
low failure costs that generate future options.
Introduction
This lecture explores whether entrepreneurs should prioritise careful planning or immediate
action. While business plans (BP) are traditionally viewed as essential for success, many
entrepreneurs succeed precisely by acting first and adapting later.
Two key studies address this tension:
1. Brinckmann, Grichnik & Kapsa (2010) — meta-analysis on whether business
planning improves performance.
2. Sarasvathy (2001) — conceptual theory of effectuation, showing how entrepreneurs
act under uncertainty without relying on prediction.
Article 1 — Brinckmann, Grichnik & Kapsa (2010): “Should
entrepreneurs plan or just storm the castle?”
Context & Research Question
The authors ask: Does business planning improve small firm performance — and under
what conditions?
Planning: thorough planning, market research, analysis, and careful consideration of various
factors before acting.
Storm the caste: metaphorical representation of opposite approach, where entrepreneurs
take bold, daring, and potentially risky actions to establish their business. It implies a more
aggressive and less risky approach. Market is a battlefield.
Research interest
- Education importance: Universities worldwide emphasize the importance of business
plans.
- Facilitation of entrepreneurship and regional development: BP competitions are a key
instrument to facilitate entrepreneurship because they serve as a practical platform
for entrepreneurs to present ideas and get feedback. This also stimulates regional
economic development across the globe.
- Investment consideration: Professional investors require entrepreneurs to write a
well-formulated BP before they will consider an investment.
,Research gaps
There are two opposing perspectives on business planning (BP)
1. On one hand, BP can enhance firm performance by speeding up decision-making,
improving resource allocation, and providing clear goals that make later actions more
efficient.
2. On the other hand, BP can hinder adaptability by consuming time that could be
used for execution and by creating cognitive rigidity and organizational inertia. This
makes firms slower to change and less flexible.
Research remains divided: some find BP improves coordination and legitimacy, while others
argue it restricts learning and responsiveness.
Research aim
The paper analyses the general (i.e., main/direct) relationship between business planning
and performance.To this end, the paper draws on three moderating factors:
1. The development stage of the firm
2. The form of business planning undertaken
3. The cultural context in which the planning-performance relationship occurs (a
country’s level of uncertainty avoidance, UA)
Method
The authors conducted a meta-analysis combining data from 47 studies on small firms to
see the overall effect of planning on performance and how it depends on firm stage and
culture. This study focuses on two types of small firms: startups and mature (established)
small firms.
Results & Interpretation
● Main effect H1: Business planning in small firms has a small positive effect on firm
performance (r = 0.20) - Supported !
● Moderator effect H2: Stage of firm development.
Established firms benefit more from business planning than start-ups - Supported!
Start-ups operate in unpredictable environments; heavy planning here can waste time and
reduce flexibility. They should put some time in planning, but not too much, and then storm
the castle. In contrast, established firms with experience and data can use plans effectively
to allocate resources and coordinate activities.
● Moderating effect H3: Form of business planning undertaken.
,H3: The outcome of business planning has a greater effect on firm performance than the
business planning process – Not Supported!
The performance effect of BP outcome (the end products of the business planning process,
which is typically a written business plan) determines similar positive performance effects as
studies focusing on the BP process (the activities and actions that go into the creation of a
BP such as market research etc.). Both outcome and process of business planning augment
firm performance with comparable strength.
● Moderating effect H4: Cultural context in which the planning-performance relationship
occurs.
H4: Business planning has a greater effect of firm performance in cultures with low
uncertainty avoidance than it does in cultures with high uncertainty avoidance -S.
BP is less beneficial for the performance in cultures characterized by higher uncertainty
avoidance than firms in cultures with low uncertainty avoidance. Where uncertainty is high,
leaders might stick more closely to their plans.
Implications for theory:
Overall, BP is a value-creating activity. However, BP is not equally beneficial under all
circumstances. Findings challenge conventional entrepreneurship wisdom that BP is
particularly important for new firms:
- High uncertainty and missing information reduce the positive effect of BP on
performance in new firms.
- Higher UA reduces the benefits of BP
→ adhering to BP limits strategic flexibility and openness to changes.
Unpredicted events as opportunities/exploitable contingencies.
Implications for practitioners:
Basic BP activities sufficient in the firm’s initial years.
- Allocate resources to other activities enabling information gathering,uncertainty
reduction, and learning.
- Long pre-planning activities detached from market interaction and feedback appear
detrimental.
Mental preparation and willingness to adjust BPs is critical. Close execution of BP not
beneficial perse.
If an entrepreneur is considering whether to plan or storm the caste, the study suggests
assessing the circumstances of the situation they are entering. They should be ready to
adapt their plans as they learn more and as things change. In new markets where things are
unpredictable, sometimes you must be a bit daring to get started, even if it’s risky and might
cost you. On the other hand. In more stable markets where things are predictable, taking the
time to plan might save you from start-up costs. You are more likely to do well if you pay
attention to what is happening in the market.
, Article 2 — Sarasvathy (2001): “Causation and Effectuation”
Core Idea & Framework
Sarasvathy introduces effectuation in contrast to causation — Causation rests on the logic of
prediction - Effectuation rests on the logic of control (under uncertainty).
Causation: causator takes a particular goal as given and focuses on selecting between
means to create that goal.
Effectuation: effectuator takes a set of means as a given and focuses on selecting between
possible effects that can be created with that set of means.
Causation Effectuation
Goal-oriented: decide on an end, then Means-oriented: start with existing means, let
find means. goals emerge.
Focus on prediction and analysis. Focus on flexibility and co-creation.
Best in stable environments. Best in uncertain, dynamic environments.
Five Principles of Effectuation
1. Bird-in-hand (given means) – Start with who you are, what you know, and whom
you know. Using a combination of these means, entrepreneurs start to imagine
possibilities and take actions. Goals result from the entrepreneur’s
imaginations/aspirations and interactions during the process.
2. Affordable loss – Risk only what you can afford to lose. Entrepreneurs decide what
they are willing to lose rather than what they expect to make. By this, entrepreneurs
stop depending on prediction and focus on cultivating opportunities with perceived
low failure costs that generate future options.
