All of the financial writers of the world may have some questions to answer after the results of a study were released. According to Barbara Bird, associate professor of management at American University’s Kogod School of Business, even more important than a solid business plan, an entrepreneur needs to dive in, make quick decisions, learn from mistakes, and continually experiment. This “street smarts” appeared to be a better indicator of long term success than any other factor.
What that translates to is business common sense according to Bird and her colleague, J. Robert Baum, associate professor of entrepreneurship at the University of Maryland’s Robert H. Smith School of Business. Their six year study tracked a group of business owners from 2002 to 2008 gauging their small business’ success through the recession. They found that the businesses who were able to survive the economic downturn were the ones who continually changed in response to their business climate, adapted to the headwinds, and continually tried new ideas.
In contrast, those who were stagnant and hoped to ride out the bad times were the ones that either closed their doors or suffered considerable downturns in their businesses.
To give the financial writers of the world credit, the authors of the study aren’t advocating starting a business without a good plan. In fact, quite the opposite. Some of their recommendations are:
- Do your research. Know how the market will respond to your product or service before you roll it out. Don’t commit valuable capital to a business before you have studied the popularity of the idea.
- Work with somebody who has expert level experience in the business. If you are planning to start a business by yourself, work for somebody else first. Learn the industry using somebody else’s time and money instead of going in blindly on your own.
- Be actively involved at all times. Some day you may be able to sit behind a desk and run the business but at the beginning stages, you have to be a front line employee. You are your company’s biggest expert.
Business plans and a good capital base are valuable items when opening the doors of your business for the first time but nothing beats a good dose of street smarts. Understand your business, understand your product, and understand the market at the highest level before starting your business. Once you have this level of knowledge the intuition will be a natural outpouring of superior planning.