Journal of Management 2004 30(1) 29–48
Institutional forces and the written business plan
Graduate School of Business, and International Afﬁliate, University of Haifa,
Mount Carmel, 31905 Haifa, Israel
Jönköping International Business School, Box 1026 SE-55111, Jönköping, Sweden
Received 1 March 2002; received in revised form 9 October 2002; accepted 19 November 2002
In this study, we examined factors that led nascent organizations to write business plans, fol-
lowing 396 nascent entrepreneurs during a two-year period. We examined both the production
and the outcomes of written business plans produced in nascent organizations. Our ﬁndings
show that institutional variables, such as coercion and mimetic forces, are important pre-
dictors inﬂuencing the propensity of new organizations to write business plans. Our results
are contrary to rationalist predictions of planning-performance, and are more in line with
institutional predictions. Interestingly there was no evidence to support positive outcomes,
in terms of proﬁtability, for those nascent organizations that produced business plans during
a two-year initial period. We discuss the implications for institutional theory and studies of
nascent businesses, as well as for the literature on business planning.
© 2003 Elsevier Inc. All rights reserved.
The writing of a business plan is an activity extensively endorsed by recent litera-
ture, venture capital ﬁrms, governmental support agencies, and universities (Ames, 1989;
Hindle, 1997; Kahrs, 1995; Maitland, 1996). In fact, business planning can be considered
to be one of the most widely regarded aspects of pre-startup planning. We deﬁne a business
plan as a written document that describes the current state and the presupposed future of an
organization. Despite their ubiquity, a serious research gap exists regarding why new orga-
nizations write business plans, and what consequences result from them (Castrogiovanni,
1996). The value and positive effects of business plans have been taken for granted rather
than critically studied. In this research, we examine a number of factors inﬂuencing why
individuals expend effort writing business plans, as well as exploring outcomes to assess
what, if any, effect the planning process has on new organizations.
∗Corresponding author. Tel.: +972-4-8249582; fax: +972-4-8249194.
E-mail addresses: firstname.lastname@example.org (B. Honig), email@example.com (T. Karlsson).
0149-2063/$ – see front matter © 2003 Elsevier Inc. All rights reserved.
30 B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48
Scholars in a variety of disciplines have been interested in identifying conditions that
facilitate the spread of common practices. Research examining the diffusion of planning
business plans should yield more efﬁcient and economically viable new ﬁrms. Plans are
claimed to provide practical beneﬁts to new organizations, such as greater proﬁts and other
competitive advantages that may lead to a higher probability of long-term survivability.
In the rational view, more successful ﬁrms will have been planning ﬁrms, and so they will
signalto the market the positiveattributestobegainedthrough effectiveplanning.Empirical
research on the economic outcomes of business planning has been inconclusive, with some
maintaining that planning assists with the growth and success of new ﬁrms (Bracker, Keats
& Pearson, 1998;Schwenk & Shraeder, 1993), and others failing to ﬁnd any association
(Boyd, 1991; Robinson & Pearce, 1983).
Onealternativetoastrictly rational economic perspectiveistheinstitutionalview(Mezias,
1990; Mezias & Scarselletta, 1994). A key interest in institutional theory is how social re-
lationships and actions become taken for granted, and how our cognitive set of shared
meanings and possible actions are constructed (Dacin, 1997). Beneﬁts claimed to accrue to
pre-startup planning include both symbolic and legitimating forces that may generate in-
direct effects on survival (Castrogiovanni, 1996). In this research, we examine antecedents
to, and outcomes of, writing business plans. We use the results to reﬂect upon institutional
perspectives as well as that of economic rationality.
Testing the Impact of Institutional Sources
Institutional theory suggests that institutionalization is a social process by which struc-
tures, policies, and programs acquire “taken for granted” status (Meyer & Rowan, 1977).
Many studies with an institutional perspective focus on the issue of why organizations
seem not only to take things for granted, but also why assumptions spread and make
organizations more similar. Institutional forces drive organizations to become similar in
the ways in which they act and in how they develop. Firms homogenize. The concept
that best captures the process of homogenization is isomorphism (DiMaggio &
Powell, 1983). Outside actors assume new organizational managers have written/should
write a business plan. This leads us to believe that institutional pressures play an important
role in the homogenization of nascent organizations with respect to the written business
Althoughourknowledgeregardingthe institutional pressures in large/oldorganizationsis
extensive,informationabout the institutionalforces on neworganizationsis scarce. Nascent
organizations are commonly assumed to be strongly subject to market forces. Greenwood
and Hinings (1996) argue that new organizations and new institutional ﬁelds are less con-
strained than their larger and older counterparts. Using a similar argument, institutional
pressures are said to be more salient in mature institutional ﬁelds (Baron, Dobbin &
Jennings, 1986). In contrast, Stinchcombe (1970), and later Aldrich and Fiol (1994), argue
thatneworganizationsin new institutional ﬁeldsare strongly subjectedto institutional rules.
They point out that new organizations do not yet have access to social networks, and so have
a greater need to prove themselves in order to gain legitimacy. Thus, these two competing
B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48 31
Figure 1. Institutional sources, institutional pressures, and business planning behavior.
institutional views of newness vis-à-vis institutional forces represent an issue that remains
largely unresolved, and provide an interesting and important issue for empirical study.
Drawing upon an institutional framework, we suggest that business planning behavior in
nascent organizations is best explained as a result of isomorphism, which is created by insti-
tutional agents. While many studies of institutional processes focus on the self-reinforcing
process of institutionalization, we study who and how institutionalization is reinforced. In
Figure 1, the relationship between institutional agents, institutional pressure and behavior
32 B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48
Institutional pressures are of three kinds: coercive, mimetic, and normative (DiMaggio &
Powell, 1983). We view these primary pressures as upheld by speciﬁc institutional sources.
Coercive pressures are upheld by government agencies, normative by the educational sys-
tem and mimetic by other organizations within the institutional ﬁeld (Karnoe, 1995). We
hypothesize two outcomes of such conformity: That it leads to improved possibilities for
survival, and second, that it leads to improved possibilities for creating a proﬁtable busi-
ness. While Karnoe tests this analytical framework in a qualitative comparative study of the
wind turbine industry in Denmark and the USA, we utilize this analytical framework in a
quantitative study on new organizations in Sweden.
Coercive isomorphism is the result of formal pressures on organizations by exogenous
forces(Meyer& Rowan, 1977; Oliver,1991).In the caseof business planning, to ourknowl-
edgethere is no legislativeframeworkthat coerces organizationsto write businessplans, but
there are other formalized pressures that inﬂuence new organizations into doing so. Nascent
ﬁrms frequently have contact with assistance agencies at both national and regional levels.
Examples include the SBA (Small Business Association) in the USA, employment ofﬁces,
regional development facilities and incubators, worldwide. These organizations often place
constraints on nascent entrepreneurs, mandating that speciﬁc resources or various forms of
assistanceare contingent on theirparticipation in other unrelatedactivities(Honig, 1998). In
Sweden, public agency ofﬁces provide potential entrepreneurs with technical and ﬁnancial
support on condition that they complete an approved business plan. As one respondent in
our pilot study stated:
“it (writing a business plan) was really about getting access to the government subsidies
for starting up your own business, ’cause they wanted a business plan from everyone who
tried to start up their own company.”
This leads to our ﬁrst hypothesis:
Hypothesis 1: Nascent organizations whose founders contact public support agencies
have a greater propensity to produce business plans than those without such contact.
Mimetic isomorphism is often a result of organizations attempting to limit uncertainty
by modeling their behavior after similar successful organizations in their ﬁeld (DiMaggio
& Powell, 1983; Haunschild, 1994; Haverman, 1993). An entrepreneur familiar with the
business plan written by a known successful entrepreneur may endeavor to write one him
or herself. From a procedural point of view, TQM, SWOT analyses, and business plans
all represent diffusion based on mimetic opportunities that appear in particular sectors. For
example,ina recent study ofmanufacturing ﬁrms, all 29cases were found toutilize business
plans, reviewed either annually or at 18-month intervals (Brown, 1998).
Mimeticbehavior may also be the resultof attempts togain legitimacy in the eyes of other
members of the organization. Actors may provide what seems to be a rational approach to
planning, one that appears to have succeeded elsewhere. We theoretically and empirically
B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48 33
distinguish mimetic isomorphism from coercive and normative forces. Thus, we attempt to
empirically isolate the individual effects of these forces. Very few studies explicitly control
for coercive and normative inﬂuences, a critical factor when attempting to isolate mimetic
isomorphism (Mizruchi & Fein, 1999).
Institutionalization is frequently determined by industry location, where mimetic pro-
cesses are easily observed. Mature industries provide the opportunity for mimetic isomor-
phism because new entrants have an opportunity to observe and learn from the established
competitors (Castrogiovanni, 1996). The emergence and diffusion of the Hollywood studio
system is one such example (Lampel & Shamsie, 2000). Jones (2001) demonstrated the
liability of new industries by showing how legitimating forces redeﬁned the development
of the ﬁlm industry, as it migrated from regulatory to cultural legitimacy. In the emerging
ﬁlm industry, institutional rules changed for both technological entrepreneurs and content
(cultural) entrepreneurs, so altering the mimetic approaches taken by competitors as the
environment matured. Only once the “rules of the game” were well entrenched, were a
common set of strategic mimetic approaches possible and/or desirable.
New organizations imitate existing organizations within their industry, particularly in
aspects deeply embedded into the industrial sector’s cultural norms. This method of mea-
suring mimetic isomorphism has been used by several researchers. Mezias, for example,
examined the accounting practices of the largest 200 nonﬁnancial corporations in the USA
for generally accepted accounting principles, and Burdos examined the adoption of early
retirement programs in Canadian Universities (Burdos, 2001; Mezias, 1990).
Manufacturing ﬁrms are subjected to similar physical and structural constraints, as well
as engaging in more precise, unforgiving, mature and developed processes. They require
They have been observed to engage in mimetic processes irrespective of economic or efﬁ-
ciency gains. For example, in a study examining 39 automotive assembly plants worldwide,
high-involvement work practices similar to those practiced by Japanese manufacturers dif-
fused irrespective of efﬁciency gains, such as reduced defects. Further, the rate of adoption
of the practices was found to be independent of complementary practices and technologies
or factory productivity (Pil & Macdufﬁe, 1996). We maintain that manufacturing ﬁrms are
more likely to undertake similar mimetic planning activities than other sectors, such as
sales, marketing, and services, whose fundamental processes are more amenable toward
new modes of operation, and are more ﬂexible in their structure.
Hypothesis 2: Nascent organizations in industries where business planning is deeply
rooted have a greater propensity to produce business plans than those in other industrial
Normativeisomorphicforces inﬂuence customary and professional procedures andactiv-
ities deemed socially expected and responsible (Meyer, Ramirez & Soysal, 1992). Writing a
business plan provides legitimacy, signals professionalism and indicates that the person(s)
involved are “serious” to the outside world. For those individuals who do not otherwise
obtain any particular beneﬁts from the activity, we suspect normative forces to be central.
34 B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48
The entrepreneurship ﬁeld “abounds with normative literature setting out prescriptions
for the creation of a venture’s entrepreneurial business plan” (Hindle, 1997: 2). The world-
wide growth of the business school at both the undergraduate and MBA level, along with
the increasing professionalization and diffusion of management education, are normative
processes in their own right. The interests of such stakeholders converge on a number of
relevant points. Courses that typically instruct students in the art of writing a business
plan support academic scholarship, appointments, journals, conferences, and doctoral pro-
grams. Consequently, the publication of business plan literature that escalated beginning in
the 1980s yielded several inﬂuential texts (e.g., Ames, 1989; Fry & Stoner, 1985; Hisrich &
Peters, 1989;McDermott, Vecchi & McKenna, 1986;McKenna & Oritt, 1981; Timmons,
1980). Common to these books and articles are a focus on new or small ﬁrms, arguments
for and against business plans, and a structure of anywhere from 13 to 200 bullet points that
entrepreneurs should cover, when he/she writes a business plan. As one of our respondents,
a graduate in business studies at the university level, stated in our pilot study:
“In school it was very important. A business plan is deﬁnitely the ﬁrst thing that you
should think of (when you start a new ﬁrm).”
We thus include the importance of business education in our third hypothesis:
Hypothesis 3: Nascent organizations whose founders have a business education have
a greater propensity to produce business plans than those whose founders do not have a
Outcomes of Institutional Conformity
We test two outcomes of writing a business plan, the ﬁrst that institutional conformity
leadsto survival,and the second thatit leads to increasedproﬁtability.Asindicatedin Figure
1, we test survival and proﬁtability separately, for two different reasons. First, we wish to
add to the debate within institutional theory regarding whether or not conformity leads to
proﬁtability or survival (Greenwood & Hinings, 1996;Scott, 2000). Second, we use these
outcomes to evaluate the economic rational explanation regarding why business plans are
written. If the argument is valid, writing a plan should result in beneﬁcial outcomes such as
survival or proﬁtability.
The relationship between business planning and survival of the nascent organization has
implications for arguments based both on economic rationality and institutional theory.
From an economic point of view, survival represents the success of the organization. From
an institutional perspective, completing a business plan yields the nascent entrepreneur
increased legitimacy, even in the event of sustained economic losses. Legitimating can be
a particularly difﬁcult factor either constraining or supporting growth of the new venture
(Aldrich & Fiol, 1994). It can be a matter of life and death for the new organization, as
audiences are more likely to supply resources to organizations that appear desirable, proper,
or appropriate (Parsons, 1956) and less likely to do so if they are not (Suchman, 1995).
B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48 35
Institutional theorists often use survival as a dependent variable that, when correlated with
conformity, indicates that conformity legitimates (Meyer & Rowan, 1977;Oliver, 1991;
Parsons, 1956). Further, survival is a variable commonly used as a dependent variable when
measuring performance in nascent organizations.
Hypothesis 4: Producing business plans will increase the probability of a nascent organi-
Business plans are based on the premise of the rational economic actor. From this
perspective, the business plan is a rational activity that assists the owners of new ﬁrms
(entrepreneurs) to earn larger proﬁts through efﬁciency gains and/or increased sales. The
apparent success of the business plan paradigm is seen as proof that most ﬁrms receive
considerable value from producing business plans. Testing this variable relates our study to
previous studies conducted about business planning and performance (Boyd, 1991; Bracker
et al., 1998; Rhyne, 1986; Schwenk & Shraeder, 1993).
From an institutional perspective, there are two ways of looking at the antecedents of iso-
morphism; institutional isomorphism and competitive isomorphism (DiMaggio & Powell,
1983). Institutional theory holds that organizational conformity to institutional pressures
is a result of a willingness to conform to institutionally prescribed expectations (Meyer &
Rowan, 1977). Non-conformity is unwanted, and seen as an awkward or deviant behavior.
Such behavior may be shunned, and damages the organization’s legitimacy and long-term
possibilities for survival. However, institutional isomorphism occurs even though the actual
behavior is not competitive and proﬁtable. Believers in competitive isomorphism argue that
isomorphism occurs because competitive forces weed out non-competitive forms, or that
certain environments have different sets of technologies that must be dealt with in speciﬁc
ways (Slack & Hinings, 1994). Thus, arguments from a competitive isomorphic standpoint
resemble those from an economic rationality standpoint.
Hypothesis 5: Producing business plans is positively correlated with the probability of
a nascent organizations’s reaching proﬁtability.
In this research, we examine the role of business planning for 396 nascent entrepreneurs
during four consecutive six-month periods. The study was preceded by interviews with four
The study of emerging organizations is important, but is currently in its infancy (Carter,
Gartner & Reynolds, 1996;Katz & Gartner, 1988). A major reason is that nascent organiza-
tions are inherently difﬁcult to study. Most of them do not show up in ﬁrm databases, as they
36 B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48
have not yet registered their ﬁrms. Neither are they captured in databases because of tax
payments or the like. Consequently, data about them are not are not readily obtainable from
traditional sources. This research was therefore uniquely designed to provide population
estimates for business start-up efforts, and to follow a random sample of nascent activities
leading to the possible start of new businesses by studying so called gestation activities. As
such, it is one of the ﬁrst of its kind, studying a representative sample of genuinely new
Data are based on two samples of randomly selected individuals living in Sweden, indi-
viduals aged between 16 and 70 years and individuals aged between 25 and 44 years. The
purposeof the ﬁrstsample was toget a representativesampleof the adult population in Swe-
den, and the second to increase the yield of nascent entrepreneurs, as indicated by previous
research (Reynolds, 1997). An enriched 25- to 44-year-old cohort biases our population.
constitute a small group in society, every respondent went through a screening interview
with the objective of selecting out the nascent entrepreneurs. We randomly selected 35,971
individuals for telephone interviews. Of those contacted by telephone, 30,427 individuals
(84.6%) agreed to participate. Only a few of them were currently starting a business. A ﬁnal
sample of 396 veriﬁed and accessible nascent entrepreneurs were identiﬁed, who form the
basis for our analyses.
We believed that six-month periods would provide adequate time for changes in the ges-
tation or formulation of the ﬁrm to take place, as well as a useful balance between research
resource constraints and respondent cooperation. Successive surveys were conducted on
the nascent entrepreneurs after 6, 12, 18 and 24 months. A range of supplemental longitu-
dinal questions were asked, including changes in the proﬁtability or survival of the nascent
venture. We were thus able to identify nascent entrepreneurs that failed to survive, or expe-
rienced at least one period of proﬁtability, by periodically sampling a 24-month period of
Dependent variables. We examined two outcomes of writing a business plan to test
Hypotheses 4 and 5.Survival was deﬁned as continuance of a project throughout the time
horizon of the study. A dummy variable was coded as 1 if the project survived throughout
the time horizon and zero if it was abandoned at any point during that time horizon. This
was done to better understand the relationship between business planning and longevity
during the nascent stage. Those ﬁrms, whose owners indicated that they were proﬁtable at
any of the survey interviews, during the 6-, 12-, 18-, or 24-month intervals, were identiﬁed
as proﬁtable. As proﬁtability is both nominally essential and a primary goal of SME’s, we
consider this to be a particularly good indicator of successful nascent activity.
We examine those that indicated they wrote a formal business plan for external use.
nascents were asked “Have you prepared a business plan?” We found that some individuals
who provided an afﬁrmative response were referring to non-written plans they held in their
minds. We thus followed afﬁrmative replies to the following question: “What is the current
formofyourplan? Is it unwritten (inyourhead),informally written for internal use, formally
B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48 37
prepared for external use, or something else?” Because we were unable to verify measures
of quality or completeness of the written business plans (e.g., something scribbled on a
napkin), we analyzed only those who identiﬁed they had formally written plans for external
use as having completed a business plan. We used this as the dependent variable in the ﬁrst
three hypotheses, and as an independent variable to test Hypotheses 4 and 5.
Independentvariables. AsindependentvariablesforEquations1 and 2, we used thevari-
ables deducted from institutional theory. Contact with a business support agency indicated
coercive pressure. Interviews with both agencies and respondents showed that completing
a business plan was frequently a required conditional activity in order to obtain further ﬁ-
nancial and/or training assistance. A dummy variable was created identifying those nascent
entrepreneurs who indicated they had contact with a business support agency. Our indicator
of normative pressure measured if a nascent entrepreneur had completed a business class.
During our interviews, individuals who experienced business education cited this experi-
ence in support of the importance of writing a business plan, whether or not they themselves
did so. Business education is well known to follow particular trends and fads (Abrahamson,
1991), and we predicted that nascents who experienced business education would demon-
strate their exposure to normative planning forces. A dummy variable indicated those who
completed a business class. We used industry measures to identify mimetic isomorphism by
identifying the completion rates of nascents by industrial sector. We initially coded dummy
variables for industry by service, trading, manufacturing, and undeclared, examining the
outcomes. Manufacturing ﬁrms represented the highest percentage of ﬁrms that completed
business plans. As the previous research and theory discussed earlier supported this ﬁnding,
We use the same control variables in all equations. Human capital, such as University
education, work experience, and non-formal education, such as adult education, are in-
vestments that may produce labor productivity increases (Becker, 1964; Schultz, 1959). In
theory, human capital should provide the entrepreneur with the ability to be more effective
intheir organizational activities, administrative systems and routines(Preisendorfer & Voss,
1990; Svelby, 1997). Previous research has demonstrated a range of results regarding the
relationship between education, entrepreneurship and success, with education frequently
producing non-linear effects in supporting the probability of becoming an entrepreneur, or
in achieving success (Evans & Leighton, 1989; Honig, 2001; Reynolds, 1997).
We controlled for human capital in several ways. Owners indicated the highest level of
education they had completed, and this was coded into number of years. Respondents were
also asked their total years of full time paid work experience in any ﬁeld, with an additional
variable for years of supervisory or managerial experience. Individuals who had previously
attempted a start-up were also noted, indicated by a dummy variable.
Social capital refers to the ability of actors to extract beneﬁts from their social structures,
networks, and memberships (Lin, Ensel & Vaughn, 1981;Portes, 1998). Social networks
provided by extended family, community-based, or organizational relationships may en-
hance the effects of education, experience, and ﬁnancial capital (Bourdieu, 1983; Coleman,
38 B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48
1988, 1990; Loury, 1987). Social networks may assist entrepreneurs in creating ﬁrms, as
theyoftenstartbusinessesrelatedtotheir former occupations (Cooper & Dunkelberg, 1986).
Most of our social capital control variables were designed to examine individual networks.
Parental networks were coded from if either parent had ever owned a business before. A
variable was also constructed for those individuals who indicated that their family, relatives,
and close friends were encouraging of their starting a business. We included two factors that
control for family structure in our analyses: whether or not the entrepreneur is living with
a spouse or partner, and if they have children living in their home. An additional personal
network variable controlled for if and when the nascent entrepreneurs indicated they were
a member of a start-up team. We asked respondents if they had received very strong or
strong encouragement from family or friends to start a business, and an additional variable
coded those with many close friends or neighbors who owned their own businesses. We also
measured the extended social capital of individuals in the business community by asking if
they had gotten involved in any business networks, such as trade associations, chambers of
commerce, or service clubs such as the Lions or Rotary. Afﬁrmative responses were coded
in a dummy variable. Note that there may be some level of institutional forces manifesting
themselves in our measures of social capital. Thus, threat of social censure (coercion) has
been cited as one factor that enhances the role of trust exhibited in environments of high
social capital (Coleman, 1990). However, because our unit of analysis is the individual
entrepreneur, and not one speciﬁc group or community of associated entrepreneurs, we
believe the role of community coercion is a limited factor in our population.
In many countries, gender has been found to be a signiﬁcant factor in the probability
of establishing a business (Bates, 1995; Brush & Hisrich, 1991). Age has also been an
associated factor—as individuals approach retirement age, they are less likely to invest in
the activities necessary to start a new enterprise (Bates, 1995; Evans & Leighton, 1989).
Otherstudieshaveshownageto be positivelyrelated to success and start-uprate, although in
a non-linear way (Preisendorfer & Voss, 1990). Human capital consists not only of formal
education, but tacit experience accumulated as life-experience. Older entrepreneurs, by
virtue of their age, will have a higher probability of exposure to institutional phenomenon
than younger entrepreneurs. Thus, demographic variables such as age and gender, as well
as initial educational attainment, are important factors when considering lifelong learning
(Tuijnman & Bostrom, 2002). We thus included gender and age as controls.
We used hierarchical multiple logistic regressions to determine the inﬂuence of predic-
tor and control variables on the dichotomous outcomes speciﬁed by our hypotheses. This
gave two equations testing the ﬁrst three hypotheses (Equations 1 and 2 in Table 2), and
an additional two to test the remaining two hypothesis (Equations 3 and 4 in Table 3). We
followed the method developed by Hosmer and Lemeshow (1989) using maximum likeli-
hood estimators to give logistic probabilities, where the computed matrix of covariates and
dependent variables are assigned logistic probabilities.
Table 1 provides descriptive statistics for all variables. The correlation between those
nascents who took a business class and those who wrote a formal plan was .16, not as strong
B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48 39
Means, standard deviations, and correlations of all variables
1. Years education 12.640 2.634
5.412 6.988 .010
3. Years work
experience 14.261 10.178 −.138∗∗ .655∗∗
.412 .982 .077 .254∗∗ .105∗
5. Parent in
business .485 .500 −.020 .085 .008 .152∗∗
6. Encouragement .760 .428 −.030 −.007 −.007 −.027 .006
7. Friends in
business .324 .468 .095 .074 .083 .094 .115∗.131∗∗
8. Team start-up .574 .495 .020 .020 −.075 .311∗∗ .024 .037 .035
network .275 .447 .040 .071 .026 .005 .051 −.066 .068 −.091
customer .400 .490 .037 .020 .017 −.001 .029 −.010 .088 −.086 .171∗∗
11. Age 37.897 9.839 .107∗.621∗∗ .841∗∗ .130∗∗ .026 −.072 .074 −.089 .019 .050
12. Gender .289 .454 .048 −.082 −.110∗−.157∗∗ −.003 −.021 −.014 −.084 .080 −.035 .030
13. Married .748 .435 .033 .106 .123∗.013 −.016 .011 −.003 .094 .063 .056 .112∗.059
14. Children .567 .496 −.137∗∗ −.007 .091 −.036 −.006 −.019 .072 .056 .079 .023 .033 .078 .318∗∗
15. Contact with
agency .404 .491 .078 −.031 .021 −.071 −.021 .042 .007 −.077 .120∗−.050 .087 .102∗−.002 .017
16. Manufacturing .120 .325 .019 .048 .013 .096 .058 .021 .024 .113∗.027 .020 .006 −.074 .025 .013 .066
17. Business class .446 .498 .032 −.063 −.013 −.166∗∗ −.013 .031 .043 −.173∗∗ .199∗∗ .083 .045 .134∗∗ −.019 −.075 .366∗∗ .102∗
18. Proﬁt .571 .496 .062 .041 .056 .096 .079 .000 .155∗∗ .004 .278∗∗ .575∗∗ .084 .072 .094 .042 .028 .049 .100∗
19. Survival −.375 −.485 .048 .077 .077 .052 .104∗−.033 .081 .018 .272∗∗ .270∗∗ .118∗−.008 .091 −.034 −.063 .162∗∗ .084 .413∗∗
20. Formal plan .225 .418 .043 .128∗∗ .137∗∗ .043 .075 .097∗−.010 .038 .141∗∗ .039 .195∗∗ −.008 .078 .060 .237∗∗ .145∗∗ .165∗∗ .112∗−.139∗∗
∗Correlation is signiﬁcant at the .05 level (2-tailed).
∗∗ Correlation is signiﬁcant at the .01 level (2-tailed).
40 B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48
Hierarchical logistic regression, nascent entrepreneurs: most likely to plan
Dependent variable Equation 1 Equation 2
Written formal business
plan (controls only) Written formal
Years education −.002 (.05) −.002 (.05)
Years experience as manager −.001 (.02) .007 (.02)
Years work experience −.02 (.02) −.01 (.02)
Previous start-up experience .01 (.14) .01 (.15)
Parents in business .34 (.26) .36 (.27)
Encouraged by friends or family 1.07∗∗ (.36) 1.06∗∗ (.37)
Close friends or neighbors in business −.33 (.28) −.40 (.29)
Member of a start-up team .32 (.28) .39 (.29)
Member of a business network .79∗∗ (.28) .60 (.29)
Knew customer before starting .05 (.26) .16 (.27)
Age .07∗∗ (.02) .06∗∗ (.02)
Gender (f=1) −.20 (.30) −.25 (.31)
Married .34 (.34) .33 (.36)
Children .27 (.28) .37 (.29)
Contact with assistance agency .99∗∗∗ (.29)
Business classes taken .43 (.30)
−2 log likelihood 380.1 354.4
Model X236.8∗∗∗ 62.5∗∗∗
df 14 17
Overall hit rate (%) 79.3 80.1
Standard errors are in parentheses.
as we anticipated. We also found those individuals who had contact with an assistance
agency were more likely to have completed a business class, with a correlation of .36.
Table 2 shows a hierarchical logistic regression, examining who wrote a formal plan as
the dependent variable.
writing a formal written business plan. The goodness of ﬁt chi-square of 36.8 tests the null
hypothesis that the coefﬁcients for all of the terms in this model, except the constant, are
zero (like an “ftest” in regression).
Encouragement by friends and family produced the strongest statistically signiﬁcant co-
efﬁcient, 1.07. The logistic regression uses maximum likelihood estimators to calculate the
logit, or log odds of an event occurring. For example, the logit probability (log odds) of
people who have encouragement from friends and family writing a formal business plan is
1.07, and is statistically signiﬁcant, indicating that generally, individuals with encourage-
ment are more likely to produce plans than those who are not, controlling for the remaining
B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48 41
variables in the equation. Computing from log odds to probability, more commonly referred
to as “odds,” is simply a matter of taking the coefﬁcient to the ex, and these probabilities
are calculated and discussed for the reader’s beneﬁt when relevant, in this section (Hosmer
& Lemeshow, 1989). For the encouragement variable, this means that those individuals
with encouragement were almost three times more likely to have produced a business plan,
than those who did not (1.07ex=2.91). Our supplemental analysis showed that the Wald
statistic(coefﬁcient/standarderror,squared)wasquite strong (Hosmer & Lemeshow,1989).
Those nascents that were members of a business network had increased odds of complet-
ing a business plan by twice. Each additional year of the entrepreneur’s age increased the
probability of writing a business plan very slightly (1.07).
The ﬁrst three hypotheses were tested in Equation 2, where contact with agencies, man-
ufacturing ﬁrms, and business classes were added to the model. Hypothesis 1 indicated that
nascentshavingcontactwith a public assistanceagencywouldbemore likely to write abusi-
to produce a written formal plan than the referent groups, and Hypothesis 3 predicted that a
business education would exert normative pressure on writing a business plan. The results
show that Hypotheses 1 and 2 were upheld, while 3 was rejected. The model chi-squared
was statistically signiﬁcant, and the percentage explained (80.1%) slightly greater than the
former model. Because of the additional degree of freedom, the Cox R2has increased, sug-
gesting that this model is improved. Agency contact was even more inﬂuential in producing
a written formal business plan than encouragement from family and friends, increasing the
odds of doing a plan by a factor of 2.69. Thus, Hypothesis 1 was strongly upheld. Manu-
facturing ﬁrms were more likely to produce a written formal business plan than the referent
groups (service, trading, and not stated). The coefﬁcient was signiﬁcant at the .05 level, in-
creasing the probability of completing a formal written plan by 2.2, upholding Hypothesis
2. Nascents who had a business class did not appear to statistically inﬂuence the probability
of writing a formal business plan, although the coefﬁcients are in the anticipated directions.
Hypothesis 3 was thus rejected.
Table 3 shows two logistic regressions for each of the two dependent variables—i.e.,
survival and proﬁtable, respectively.
Equation3 tested Hypothesis4, stating that ﬁrms with businessplans would have a higher
probability of survival, by examining those ﬁrms that survived during the 24-month period
of study, as well as those that wrote a formal plan. The model chi-square is statistically
signiﬁcant, and the CoxR2shows .19 of explained variance. Writing a formal business
plan had a moderate coefﬁcient increasing survival by 1.8, but failed to pass the p<.05
signiﬁcance level. Thus, Hypothesis 4 was not supported. Being a member of a business
network was shown to be the strongest control variable in predicting survival, increasing the
probability by a factor of 4.4 (1.50ex). Knowing the customer before starting the business
wasalso a goodindicator of survival, increasing the probability by 2.7.Manufacturing ﬁrms
increased survival by a factor of 4.0, but this may be on account of the longer development
cycles necessary for manufacturing ﬁrms.
Equation 4 tested Hypothesis 5, stating those ﬁrms writing business plans would be more
likely to reach proﬁtability, by examining ﬁrms reporting proﬁts at any time during the
24-month period of study. The model chi-square is statistically signiﬁcant, and the variables
have an important inﬂuence on proﬁtability, with a CoxR2explaining .37 of the variance.
42 B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48
Hierarchical logistic regression, nascent entrepreneurs: planning and performance
Dependent variable Equation 3 Equation 4
Years education −.01 (.05) .01 (.05)
Years experience as manager −.02 (.02) −.02 (.02)
Years work experience −.01 (.02) .02 (.02)
Previous start-up experience −.007 (.13) .28†(.16)
Parents in business .34 (.23) .29 (.27)
Encouraged by friends or family −.11 (.28) .008 (.32)
Close friends or neighbors in business .25 (.26) .64∗(.29)
Member of a start-up team .18 (.25) .26 (.30)
Member of a business network 1.50∗∗∗ (.32) 1.16∗∗∗ (.33)
Knew customer before starting 1.0∗∗∗ (.25) 3.24∗∗∗ (.34)
Age .04†(.02) −.008 (.02)
Gender (f=1) −.09 (.26) .64∗(.30)
Married .38 (.28) .35 (.33)
Children −.49†(.26) −.05 (.29)
Contact with assistance agency −.69∗∗ (.27) .17 (.30)
Manufacturing 1.41∗∗ (.50) .24 (.45)
Business classes taken .19 (.26) .06 (.31)
Formal Business Plan .59†(.32) .19 (.35)
−2 log likelihood 436.15 352.1
Model X286.2∗∗∗ 88∗∗∗
df 18 18
Overall hit rate (%) 71.5 80.6
Standard errors are in parentheses.
Writing a formal business plan has no statistically signiﬁcant effects in the equation. Thus,
Hypothesis 5 is rejected. Knowing the customer before starting the business provided the
strongest coefﬁcient in the model, increasing the probability of proﬁtable by 25 (3.24ex).
This was followed by being in a business network increasing the probability by 3.1, close
friends or neighbors increasing by 1.8.
In this research we examined the commonly accepted practice of writing business plans
from an institutional perspective. Our study shows that new organizations are subject to in-
stitutional isomorphic pressures to produce written business plans. We empirically veriﬁed
that they conformed to coercive and mimetic isomorphic pressures. Contact with assistance
agencies, where plans were a conditional factor in obtaining governmental monetary assis-
B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48 43
tance, was used to demonstrate coercive pressures. To demonstrate mimetic processes, we
adoptedmeasures examining speciﬁcpractices embedded in a particular industry,following
a tradition used in other empirical studies (Burdos, 2001; Mezias, 1990).
We also examined normative force, as studied by Mezias (1990), represented in this
study as having a business education. Our normative measure was not found to signiﬁcantly
inﬂuence the new organization’s propensity to write business plans. Contrary to our ex-
pectations, nascent entrepreneurs seem to disregard the normative advice provided them
in business classes. Perhaps this is because many business schools are preoccupied with
management in large organizations, and that business educated entrepreneurs recognize that
new organizations require different practices. Alternatively, this may be an artifact of the
type of business education provided in Sweden, or due to the relative newness of Swedish
business education compared to the USA. It may also reﬂect the market conditions and type
of nascent entrepreneurship existing in Sweden. Future research, using business education
as a proxy for normative pressure, may beneﬁt by devoting more attention to the actual
content of business education.
Surprisingly,ourresultsindicate that performance is not necessarily an outcome of organi-
zational isomorphism. We suspect that new organizations conform to institutional pressures
spective, the writing of business plans in new organizations can be questioned. Our study
also examines isomorphism regarding the survival of nascent activity. We found that those
who wrote business plans were no more likely to persist in nascent activity as compared to
non-planners. This study’s failure to ﬁnd support for Hypothesis 4 at p<.05 is consistent
with Castrogiovanni’s (1996) contention that planning does not directly effect survival, but
instead inﬂuences survival only indirectly through its (direct) symbolism, learning, and ef-
ﬁciency outcomes. Our study suggests that conformity to the business-planning paradigm
is not the result of competitive processes weeding out companies who do not write plans.
Rather, survival seems to be unrelated to business planning.
the empirical relationship between plans and performance (e.g., Barrow, Barrow & Brown,
1998) and has largely avoided proposing theoretical foundations for such a relationship.
Perhaps as a result, this stream of research has been largely unsuccessful, unable to ﬁnd
any consistent relationships (Lumpkin, Schrader & Hills, 1998;Rhyne, 1986; Schwenk &
Shraeder, 1993). We found that writing a business plan has no statistically signiﬁcant effect
on the proﬁtability of the nascent organization, and rejected Hypothesis 5. Because we uti-
lized a theoretical perspective based on institutional theory, we believe we are better able to
explain our ﬁndings regarding organizational conformity. It appears that new organizations
do not write business plans to improve performance, rather, they do so in order to conform
to institutionalized rules and to mimic the behavior of others.
In sum, we propose that new organizations plan because they are reacting to how they
are expected to plan, because they imitate other successful organizations in their ﬁelds
that plan, or because they are told to plan. This research shares conclusions with several
previous studies examining the spread of management tools and management education,
suchas the adoption of the multi-divisionalform (Fliegstein, 1985), TQM (Westphal,Gulati
& Shortell, 1997), ﬁnancial reporting (Mezias, 1990), high-involvement work practices (Pil
& Macdufﬁe, 1996) and entrepreneurship education (Alvarez, 1993).
44 B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48
Of course, this study is not without limitations. Firstly, although we suspect that our
ﬁndings might also hold for other environments, we have no way to ascertain this. The
phenomenon of pre-startup business planning is only about a decade old in Sweden, and
many organizations do not formally write business plans. There are reasons to suspect that
the business planning phenomena may be more institutionalized elsewhere, for example
in the USA, where business planning as a concept is older (approximately 50 years cf.
Drucker, 1959). Secondly, while Haverman (1993) suggests that mimetic isomorphism
occurs between successful ﬁrms in a similar industry or ﬁeld, Haunschild (1994) points
out that mimetic isomorphism is moderated by uncertainty. This study was not designed
to capture the role of success for the imitated organization, nor to examine the levels of
uncertainty in the ﬁrm’s environment.
From a cross-cultural perspective, planning may be seen as a way of taming uncertainty,
as well as providing meaning (Brunsson & Olsen, 1993). The need to reduce uncertainty
has been shown to vary culturally (Hofstede, 1980). In terms of Hofstede’s (1980) well
known measures of uncertainty avoidance, both Sweden and the USA rate scores well
below the mean (29 in the former, 46 for the latter, mean of 65). Thus, both cultures
appear to have a higher tolerance for unplanned behavior. We suspect that similar out-
comes regarding pre-startup planning may be found in the USA and other cultures with
similarly low uncertainty avoidance, despite variations in the diffusion of the paradigm.
Cultures high in uncertainty avoidance, however, may demand more attention to detail,
less ﬂexibility, and so reward the producers of more exacting plans (Andreas, Frese &
This study raises several questions for further study. Future research might devote more
attention to the possible implications of writing a business plan on the actual behavior of the
new organization. For instance, the activity of writing plans may hamper the organization’s
ability to act on new opportunities, something often seen as crucial for the success of new
organizations. In general, our ﬁndings regarding business plans and performance suggest
that if any relationships exist, they are either weak or more complicated than the business
planning literature implies (e.g., Boyd, 1991;Robinson, Logan & Salem, 1986). Economic
outcomes may be contingent upon the level of uncertainty the nascent organization expe-
riences (McGrath & MacMillan, 1995), or perhaps the complexity involved in the market
or product technology employed. We encourage further study to test other explanations
regarding the relationship between planning and proﬁtability and survivability of nascent
Lastly,weremainparticularlyinterested in therole of assistance agencies.In our analyses
wefound that contactwith assistance agencieswas positivelycorrelated with writingformal
plans, while unrelated to proﬁtability, suggesting that assistance may be inﬂuencing nascent
organizations in non-helpful ways. The relationship between planning and survival may be
another fruitful subject for future research. Note, that survival is not necessarily a socially
positive outcome. If the idea to start a business does not have sufﬁcient merit, it may
be a more beneﬁcial outcome for the economy, the community, and for the entrepreneur to
terminate at an earlier date. While this study examines the antecedents and effects of writing
a business plan, we encourage future research that addresses more ﬁne-grained deﬁnitions
of plans and planning. Do certain types of planning activities outperform others? What role
do related topics play, such as ﬁnancial planning, unwritten, or informal plans, in nascent
B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48 45
organizational development and performance? Is there an optimum time in the life-cycle of
a ﬁrm to write a business plan? Careful longitudinal research is necessary to answer these
questions, critical to a range of actors, including scholars, teachers, and agents attempting
to promote entrepreneurship.
We are indebted to The Entrepreneurial Research Consortium (ERC), a temporary asso-
ciation of 30+university centers and 100+scholars who are carrying out the U.S. Panel
Study of Entrepreneurial Dynamics (PSED). This Swedish study has been made possible
through ﬁnancing from the Swedish Foundation for Small Business Research, the Knut
and Alice Wallenberg’s Foundation, and the Swedish National Board for Industrial and
Technical Development (NUTEK). We also thank our three anonymous reviewers for the
extensive and unprecedented assistance in developing this manuscript.
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BensonHonig:Graduate School of Business, University of Haifa. Ph.D. (Stanford Univer-
sity). Benson Honig has studied microenterprise and entrepreneurship worldwide. Current
research interests include business planning, nascent entrepreneurship, social capital, and
entrepreneurship in environments of transition. Previous work appears primarily in leading
journals in the entrepreneurship ﬁeld.
48 B. Honig, T. Karlsson/ Journal of Management 2004 30(1) 29–48
TomasKarlsson:Ph.D. candidate, Jönköping International Business School (JIBS). Tomas
Karlsson ﬁnished his master’s degree in business and administration 1998. During 1999 he
was involved in the Program on Entrepreneurship and Growth (PEG), mainly responsible
for qualitative data gathering. Currently a doctoral student at JIBS, his primary interests
include research methodology, business planning in new organizations and opportunity
development processes in high growth ventures.