Planning in SMEs

Small and medium-sized enterprises have some specific problems and certain advantages when it comes to business planning.  Often they lack the skills and resources required to carry out the depth of research needed or they lack the time to develop detailed and structured corporate plans.

However, the current Chair of the Chartered Institute of Marketing has described small businesses as natural marketers and that due to their small size, they can adapt more quickly to environmental change.

Some small businesses do not adequately plan.  If business plans or marketing plans are prepared, they are too often a means of placation to bank managers or peer-to-peer lenders.  Plans are prepared for external stakeholders not to outline the future direction of the business or to achieve stated goals.

Whittington (2001) described four approaches to strategy that he saw as prevalent in small business planning:

  1. Classical:  This approach relies on rational planning methods and environmental analysis as the basis for decision-making and long-term planning.
  2. Evolutionary:  This approach assumes survival of the fittest.  It is the law of the jungle.  Correct strategies develop over time and in reaction to environmental changes.  Ad hoc responses are given to environmental challenges.  Under the evolutionary model of small business planning, long-term plans are not feasible.
  3. Process:  Strategy is subservient to existing and fallible business processes (of both the business and its market).  Strategy is a ‘bottom-up’ process where staff react to environmental change.  Senior management may not be in control of business procedures.
  4. Systematic:  The ends and means of strategy are closely linked to the local social systems in which it takes place.  Companies follow processes dictated by local social restraints rather than strict business considerations.

Given these four approaches, it is clear that many small firms see themselves as emergent and profit-maximising.  The operate on the basis of survival of the fittest and they fail because they cannot adapt to environmental challenges or the actions of competitors.

Statistics vary but the latest set of figures I have seen show that 91% of small businesses survive their first year but that only forty percent of those businesses last  for five years.

I have also seen worrying statistics that 60% of small businesses have no business or marketing plan and 80% of those that do only plan 12 months in advance.  Planning should not be an annual chore; it shouldn’t be a  tick box exercise.  Whittington rejects the toolbox format prevalent in so many business texts found in high street bookshops.  Planning processes should be organised to meet the business’s culture and to fit within its resource base.

The differences between the four approaches to planning really matter.  Each approach will offer strikingly different solutions to the same set of variables.  This means managers of small businesses may be offered radically different choices and outcomes.

Weak planning processes mean that many small companies are at the mercy of their environment and they are not in a suitable position to plan for the long-term.  this doesn’t mean that there is no strategy at play; just that the strategy has developed in reaction to environmental change.

An often quoted and possibly apocryphal mantra is “there are no small businesses, only businesses that haven’t got big yet”.  Business is about growth.  Whether it is about growth of earnings and profitability, growth geographically or growth in terms of scale.

If you want your small business to grow and be sustainable in the long-term, it is important that you develop appropriate and robust strategic planning processes.