Business planning is increasingly under attack. Some suggest that it’s a thing of the past, calling business plans “historical artifacts”. Others continue to believe in it, and they hold national and international competitions in order to identify the best business plans (with prizes totalling $1 million, in one case). In my first post about this debate, I want to share a couple of interesting facts about how deeply rooted business planning is in the history of commerce and business.
As early as two millennia ago, when new traders considered operating along the Silk Road or the Spice Route, they engaged in a very simple version of business planning that shared some common features with what many entrepreneurs do today. They attempted to figure out whether an opportunity in the market would yield a profitable undertaking before they committed themselves to doing it. They took into account fluctuations in prices of goods, costs of inputs, and cost of capital (e.g. interest rates on loans), and evaluated whether the returns would be large enough to justify the perils of making a difficult journey, often in remote and unsafe locations. These basic ideas have not changed much until today.
Business planning became much more sophisticated during the “Age of Discovery” when Europeans began to look for maritime routes to Asia after the Ottomans’ conquest of Constantinople (today’s Istanbul, Turkey). These expeditions were very expensive in terms of manpower, ships, and armaments, which made royal families of Europe reluctant to fund every proposal that was presented to them. They became selective, and began to employ committees of specialists to carry out an in-depth evaluation of each expedition’s potential risks and returns. The financing needed for a large expedition, such as the famous one led by Christopher Columbus, typically required funding from several sources in different European territories. For instance, bankers in Italy provided half of Columbus’s funding while the Catholic Monarchs of Spain provided the rest. In order to explain the proposed expedition to different backers, Columbus circulated a document about the “Enterprise of the Indies” that explained the operational plan and the expected revenues from the expedition. Famously, things did not go according to plan. Nevertheless, this type of planning helped him to secure a deal with the Catholic Monarchs whereby he would be entitled to ten percent of the profits from his expedition.
Taking these deep roots into account, I think it would be foolish to suggest that business planning will soon disappear. Business planning has proven to be a valuable exercise for enterprising individuals for many centuries. The form and structure of business planning may change radically in the future, but the exercise itself is here to stay.