Yeah we know! We have been told this many times, especially in the last few years. Tools such as Eric Ries’ Lean Startup have gained tons of momentum. “Fail fast” mantras have spread around the (startup-) world like viruses, except they usually don’t bring disease but rather cure. “Trial and error” (while minimizing waste of resources) is another accepted methodology amongst entrepreneurs. They say business plans are a thing of the past, at least in the early stages of startup ventures. I could go on…
Planning sucks and we know it. What we do not fully understand yet, are the precise reasons for it. Today, I want to give an explanation that hasn’t been given the attention it deserves: we humans just aren’t good at planning. I will approach the subject from a psychological point of view and explain why we have to accept that and find other ways to be successful in a business- and startup-world that suffers from ever-increasing complexity.
Planning fallacy – a cognitive limitation
“The planning fallacy is a tendency for people and organizations to underestimate how long they will need to complete a task, even when they have experience of similar tasks over-running” (wikipedia). It was first introduced by Daniel Kahneman and Amos Tversky in their 1979 paper titled “Intuitive prediction: biases and corrective procedures“. What’s interesting is the fact that this kind of underestimation only applies to ones own work, not when analyzing the work of others. Ever since its introduction it has been confirmed in multiple studies.
Bent Flyvbjerg, an economic geographer from Denmark (used to be professor of planning, currently professor of major programm management at Oxford university) specializes on the analysis of mega-projects. In his study “Underestimating Costs in Public Works Projects” he has analyzed roughly 260 mega-projects (e.g. Sydney’s opera house) and found that nine out of ten large infrastructure projects suffer from severe underestmation of costs. One of the main reasons he identified is uncertainty resulting from the long times large projects take to be completed. He also mentions different and unaligned incentives of people involved, and the underestimated need to individualize technology for every large project. Naturally, one wonders why planners don’t learn from their mistakes. The provocative argument by Flyvbjerg is plain and simple: strategic objectives lead planners to lie about their project, to make it look better on paper and have a better chance to secure funding, a circumstance he calls “survival of the unfittest”. Alas, it seems like the projects that look best on paper, are statistically the ones that perform the most out of sync with their schedule.
Planning fallacy extended – the nature of uncertain things
First, in 2003 Kahnemann and Lovallo extended the previous definition of the planning fallacy in their work “Delusions of Success“. They propose that beyond time other aspects should be included, namely underestimations of costs and risks as well as overestimations of benefits of one’s actions.
Second, the latest compelling argument against planning I have stumbled upon is proposed by Nicholas Taleb in his latest book Antifragile, in which he introduces things that gain from disorder (e.g. weightlifting, in which your muscle gets stronger over time when exposed to shocks). He makes the appealing case that the schedule of a project will always suffer from random events and shocks, because of the inherent nonlinear nature of it. There is no such thing as negative time, thus, unexpected happenings will always add time and costs to a project plan. A project, or a startup for that matter, is a fragile thing, which does not gain from disorder. This is an interesting addition/correction he makes regarding the planning fallacy theory. It is not just a psychological issue, but results from the nonlinear structure of projects. They are always hurt by randomness, a point most researchers before him have generally missed, but practitioners (lean startup movement) have acknowledged (not always necessarily understood, though).
Planning in startups – the planning fallacy in action
Now, this line of thought is easily applied to the case of startups. They are operated by entrepreneurs, humans, who suffer from the cognitive limitations of sucking at planning. Moreover, they operate in extreme uncertainty for quite some time and usually have all the nonlinear characteristics of projects, which we have learned are, by nature, hurt by disorder.
Therefore, I argue that the planning fallacy should be regarded as a simple but powerful explanation as to why we shouldn’t rely on planning when starting up a business. Much rather, we have to be quick on our feet, that means: learn fast, minimize waste. Smart experimentation is the way to go, as we can’t predict the future. And in order not get lost, you should have an overarching big vision that will keep you focused in the mean time of trials and tribulations.
What are your experiences with your projects/startups? When your plan didn’t work out the way you thought it would, was it your own fault or was it the nature of the circumstances? Let me know…