Business Planning in Entrepreneurial Teams: An Information Processing Perspective

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Title of the Article : Business Planning in Entrepreneurial Teams: An Information Processing Perspective

Author Information : Wei Yu (Whitman School of Management, Syracuse University) Johan Wiklund (Whitman School of Management, Syracuse University)

Year of Publication : Under review

Summary of Findings : We found that having and revising a business plan during the startup process enhance team performance, especially for educationally diverse teams.

Research Questions : 1. What is the role of business planning in nascent entrepreneurial teams, considering the information processing requirements for those teams? 2. How is the role of business planning in nascent entrepreneurial teams different for homogeneous and diverse teams?

What we know : As new ventures are being launched, entrepreneurial teams operate under high levels of uncertainty. Intended products, markets and business models often change during the formative stages of development as new information becomes available and is processed by the team. Consequently, many aspects of teamwork change, such as goals and targets, the roles of team members and the actual work tasks to be carried out. Important aspects of teamwork need to be reassessed and re-negotiated among team members in the process, increasing the need for team interaction and information exchange. In short, an entrepreneurial team’s capacity for information processing is of the essence. However, entrepreneurial team information processing is not seamless. Free riding, lack of communication, and heighted conflicts can happen, as well as a focus on the majority views which can overlook minority perspectives. These obstacles can reduce teams’ problem solving abilities and subsequently hamper team performance. Diverse teams may suffer more from these problems because diversity can lead to conflicts and misunderstanding. In this paper, we argue that business planning can in fact assist team information processing and help reduce certain informational drawbacks that stands in the way. The business plan requires the team to gather information from members, collectively discuss required tasks, decide on strategies and identify missing information. This provides a platform for team members to communicate with each other, discuss different information and integrate their perspectives. It also helps assign roles and functions to team members and to coordinate work so as to improve team performance.

Novel Findings : The pros and cons of business planning have been extensively debated in the entrepreneurship literature. Prior studies have viewed a business plan through the lens of rational planning or as a symbolic activity in response to institutional forces, which set the expectations that new ventures write business plans. In this paper, we instead propose that business planning can be viewed as an effective platform for teams’ information processing and elaboration. Thus, we offer causal mechanisms through which business planning translates into performance. We find that business planning increases entrepreneurial team performance in terms of the number of activities completed to move the venture forward. We also find that business planning provides greater performance benefits in educationally diverse than in homogenous teams. Further, we find that the business planning increases entrepreneurial team performance through increasing team members’ contributions (e.g., information, advice and training) to the whole team.

Novel Methodology : We relied on data from the Panel Study of Entrepreneurial Dynamics II (PSED II), which is a representative sample of entrepreneurs trying to start businesses in the USA. We used OLS regression for team performance, and survival analysis for firm performance.

Implications for Practice : This research highlights the importance of business planning for entrepreneurial teams that are trying to establish their ventures. It also addresses the conditions under which diverse and homogeneous teams are likely to do better, and when business plans are most effective.

Implications on Research: Building on our conceptualization of the business plan as an information elaboration platform, future research can investigate in detail the contextual factors that can make the best use of this platform. For example, literature on team information processing argues that deep and elaborated information processing would be most effective when the task at hand is complex and difficult. Routine and easy tasks require efficiency more than comprehensiveness and elaboration. As a result, teams that pursue innovative opportunities that involve more uncertainty and complexity than imitative opportunities may benefit more from business planning.

Full Citations : Yu, W. & Wiklund, J. (2015) Business Planning in Entrepreneurial Teams: An Information Processing Perspective. Journal of Business Venturing. Under Review.

Abstract : In this paper we invoke teamwork as an information processing framework to hypothesize how a business plan can improve the performance of entrepreneurial teams, in particular teams that are diverse. We test these hypotheses on a longitudinal sample of close to 400 entrepreneurial teams surveyed multiple times over several years. We find that both having a business plan and revising that business plan during the startup process enhances team performance but neither influences firm performance. Further, we find that educationally diverse teams benefit more from the business plan revision because it enhances informational benefits while reducing informational challenges imposed by diversity. This research advances the literature on business planning, as well as the literature on entrepreneurial teams.

Wei Yu

Wei Yu

Wei Yu is a Ph.D. student in entrepreneurship at the Martin J. Whitman School of Management.
Wei Yu
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