Category Archives: Business Planning

What? Me do a Business Plan? But I’m Not a Start-up!

Are you a business owner? Do you have a business plan? Is your answer to that question: “Business plan? but I’m not a start-up. Why would I want a business plan?” business management

My answer is that you do want business planning. You want business planning as a way to set strategic focus, priorities, effective tactics, measurement, and task assignments. Make those clear and record them so you can revisit monthly. Then track progress and performance as you do a monthly review. Add in plan vs. actual accounting to compare projected sales and spending and use that process to kep a close eye on cash flow. Anticipate problems. Accommodate rapid change. Give yourself a process to optimize your management.

Maybe you don’t want a traditional business plan

The disconnect is the problem of what is a business plan. I agree that you don’t want a business plan if you think of that as a formal traditional business plan document. The traditional static document, that you do once and then forget, is not useful to real businesses.

The shame, though, is what gets lost in the shuffle. The real business planning process is such a great tool for growing a business, but so many people dismiss it as a one-time plan used only to start a company or raise financing. That myth of the business plan for start-ups only gets in the way far too often. If you own or run a company, you probably want to grow it.  And if you want to grow a company, then you want to plan that growth. And the planning is only the beginning; you want to use the full planning process to manage growth.

The real benefits of business planning

Think for just a minute about how many different reasons there are for an existing company to plan (and manage) it’s growth. There’s the need first of all to control your company’s destiny, to set long-term vision and objectives and calculate steps to take to achieve vision. Without planning the company is reacting to events, following reality as it emerges. With planning, there’s the chance to pro actively lead the company towards its future.

For an existing company that wants to grow, planning process is essential. Everybody wants to control their own destiny.  The planning process is the best way to review and refresh the market and marketing, to prioritize and channel growth into the optimal areas, to allocate resources, to set priorities and manage tasks. Bring a team of managers together and develop strategy that the team can implement. Work on dealing with reality, the possible instead of just the desirable, and make strategic choices. Then follow up with regular plan review that becomes, in the end, management.

This normally starts with a plan.  The plan, however, is just the beginning.  It takes the full cycle to make a plan into a planning process.

Planning Principle: It’s Business Planning, Not Accounting

It’s business planning not accounting.  Your projections, although they look like accounting statements, are just projections. They are always going to be off one way or another, and their purpose isn’t guessing the future exactly right, but rather setting down expectations and connecting the links between spending and revenue. Then when you do your monthly reviews, having made the original projection makes adjustments easier.

This is the fifth of five principles of business planning. Others include do only what you use; it’s a process not a plan; it’s for managing change; and it develops accountability.

Planning and accounting are two different dimensions

Accounting goes from today backwards in time in ever-increasing detail. Planning, on the other hand, goes forward into the future in ever-increasing summary and aggregation.

Understanding this difference helps you with the educated guessing involved in making projections. The reports that come out of accounting, called statements, must accurately summarize the actual transactions that happened in the past. For example, a proper and correct Profit and Loss statement in accounting is a report summarizing all the actual transactions recorded as sales, costs, and expenses for a specified period of time (month, quarter, or year).

But projections, unlike financial statements, are just educated guesses. They aren’t reports of a database of actual transactions. Where accounting reports on records in a database, for projections there is no database. We guess what the totals might be. So you don’t try to imagine all the separate transactions in your head, for the future, and then report on them. You estimate the totals. That’s not only easier, but better. It’s a better match to how the projections help you manage, and how we humans deal with numbers.

You estimate and aggregate

So you don’t try to imagine all the separate transactions in your head, for the future, and then report on them. You estimate the totals. That’s not only easier, but better. It’s a better match to how the projections help you manage, and how we humans deal with numbers.

In the example below, the reported sales of $36,945.00 for services in the month of April of 2014 is a database report. Every transaction recorded in that month is included in the database. The number shown is the calculated total of all the transactions that included sales of a service item. It’s not a guess or an estimate. It’s a calculated total. On the other hand, the projected sales of $30,000 for some future month is the business owner’s guess – an educated guess, or an estimate – of what the total will be for that future month. Nobody imagines or guesses all of the individual transactions that will happen in that month in the future, and then totals them. We guess the total. The database report showing $36.950 is accounting. The projected sales of $30,000 is planning.

Planning not Accounting

Planning Principle: Good Business Planning Empowers Accountability

It’s easier to be friends with your coworkers than to manage them well. Every small-business owner suffers the problem of management and accountability. Good business planning empowers accountability.

gears

Good business planning sets clear expectations and then follows up on results. It compares results with expectations. People on a team are held accountable only if management actually does the work of tracking results and communicating them, after the fact, to those responsible.

This is the fourth of my five principles of business planning. The first is do only what you’ll use. The second is that planning is continuous process, not just a plan. The third is that planning helps manage change and is not voided by change.

Good business planning develops metrics

Metrics are part of the problem. As a rule, we don’t develop the right metrics for people. Metrics aren’t right unless the people responsible understand them and believe in them. Will the measurement scheme show good and bad performances?

Remember, people need metrics. People want metrics. You and your business need metrics.

Then you have to track. That’s where the lean business plan creates a management advantage, because tracking and following up is part of its most important pieces. Set the review schedules in advance, make sure you have the right participants for the review, and then do it.

Good business planning develops expectations and feedback

In good teams, the negative feedback is in the metric. Nobody has to scold or lecture, because the team participated in generating the plan and the team reviews it, and good performances make people proud and happy, and bad performances make people embarrassed. It happens automatically. It’s part of the planning process. Besides, guilt and fear tactics are the worst kind of fake management.

And you must avoid the crystal ball and chain. Sometimes — actually, often — metrics go sour because assumptions have changed. Unforeseen events happen. You manage these times collaboratively, separating the effort from the results. Your team members see that and they believe in the process, and they’ll continue to contribute.

Planning Principles: Business Plan in Constant Change

One of the strongest and most pervasive myths about planning is dead wrong: planning doesn’t reduce flexibility. It builds flexibility. Lean business planning manages change. It is not threatened by change.

This is the third of my five main principles of business planning. The first was do only what you’ll use. The second is that planning is continuous process, not just a plan.

Why plan when things change so quickly?

Regarding this third principle, people say, “Why would I do a business plan? That just locks me in. It’s a straitjacket.”

business planning is like dribbling
business planning is like dribbling

And I say: wrong. Never do something just because it’s in the plan. There is no merit whatsoever in sticking to a plan just for the plan’s sake. You never plan to run yourself into a brick wall over and over.

Instead, understand that the plan relates long term to short term, sales to costs and expenses and cash flow, marketing to sales, and lots of other interdependencies in the business. When things change — and they always do — the plan helps you keep track of what affects what else, so you can adjust accordingly.

Change does not undermine planning; actually, planning is the best way to manage change.

So running a business right requires minding the details but also watching the horizon. It’s a matter of keeping eyes up, looking at what’s happening on the field around you; and eyes down, dealing with the ball – both at the same time.

Business planning manages constant change

Which reminds me that dribbling is one of my favorite analogies for business planning. In soccer or basketball, dribbling means managing the hand-eye or foot-eye coordination of the immediate detail while simultaneously looking up and watching opponents and teammates, and developing plays. When I was coaching kids in soccer, I’d try to help them remember to look up and not just down at the ball. The best players did this naturally. Change does not undermine planning; actually, planning is the best way to manage change.

Here are a couple of additional ways dribbling is like planning:

  1. Dribbling is a means to an end—not the goal. Planning is like that too. It’s about results, running a business—not at all about the plan itself. Good planning is measured by the decisions it causes. It’s about managing, allocating resources, and being accountable. I’ve written this in several places: “You measure a business plan by the decisions it causes.” And this: “Good business planning is nine parts execution for every one part strategy.”
  2. Think of the moment when the player gets the ball in the wrong end of the court or field. That’s either a defensive rebound in basketball, or a missed shot on goal in soccer. The tall player gets the basketball and gives it to the one who normally dribbles up court. Or the goalie gets the ball and gives it to a defender. At that moment, in a well-coached team: 1) there is a plan in place  and 2) the player knows the plan but is completely empowered to change it instantly, depending on how the play develops. Business planning done right is very much like that. The existence of a plan—take the ball up the side, pass to the center—helps the team know what ought to happen. But changes— the opponents doing something unexpected—are also foreseen. The game plan doesn’t lock the players in to doing the wrong thing or failing to respond to developments. It helps them make instant choices, changing the plan correctly…and when they do, the other players can guess the next step better because of the plan.

Planning Principle: Continuous Process, Not Just a Plan

Plan Run Review ReviseDon’t think of planning as just a plan that you do once. Planning done right is a process of continuous improvement. Keep your business plan always fresh and current. Never finish a business plan, heave a sigh of relief, and congratulate yourself that you’ll never have to do that again. Don’t use it once and throw it away. You don’t store it in a drawer to gather dust.

This is the second of my give main planning principles. I posted the first a few weeks ago as planning principle: do only what you’ll use.

With good planning process the plan is always up to date

This kind of regularly updated planning is clearly more useful for real business than a more static elaborate business plan. I refer to it as lean planning because with this kind of planning for management, the plan is smaller and streamlined so that you can update it easily and often, at least once a month. Your lean plan is always current, always being tracked and reviewed, frequently revised, and is a valuable tool for managing.

You run your business according to priorities. Your tactics match your strategy. Your specific business activities match your tactics. And accountability is part of the process. People on the team are aware of the performance metrics, milestones, and progress or lack of it. Things get done.

Furthermore, even back in the old days of the elaborate business plan, it was always true that a good business plan was never done. I’ve been pointing that out since the 1980s, in published books, magazine articles, and blog posts. That’s not new with lean business planning. It’s just more important, and more obvious, than ever before.

A business plan is not a single thing.

Don’t think you can find, or buy, a pre-written business plan. You don’t do it and forget it, and you don’t find a business plan or have one written for you. If you work with an expert, consultant, coach, or business plan writer, realize that in real use a business plan lasts only a few weeks before it needs to be reviewed and revised. So your value added from the expert has to help you in the long term. If you don’t know your plan intimately, then you don’t have a plan.

True Story: My Worst-Ever Business Plan Consulting Engagement

In more than 30 years with business planning, my worst-ever business plan consulting engagement was for a startup that should have been funded but wasn’t. It was a good business plan. But the business plan process became the fatal flaw.

A good plan, excellent team, good startup

Unhappy GuyI learned this lesson while sitting in a series of meetings, sitting in venture capital offices at 300 Sand Hill Drive, Menlo Park, CA. That office complex has been the epicenter of venture capital for four decades. It’s a rangy maze of stylish and expensive two-story office complexes. I was the business plan writer for a startup looking for funding. It was a long time ago, in Silicon Valley, in the early 1980s.

The three startup founders formed an excellent startup team. All three were Silicon Valley veterans. One was a marketing guy, another a technical guy, and the third a deal-maker salesman.  They had about 40 years of computer company experience between them. They had a good idea and, much more important, a market window, differentiation, and experience to make it happen.

I had done the plan, built the financial model, written the text, shepherded the document through the painful coil binding and the whole thing, but I wasn’t part of the team. I didn’t want to be. I was still at grad school, getting my MBA, and my part of this venture was writing the plan, period. I needed the money to pay tuition.

My three clients had good connections and managed to get meetings with several leading venture capital (VC) firms in the Sand Hill Drive offices in Menlo Park, just outside of Stanford.  in the heart of Silicon Valley.

But there was a problem with business plan consulting

In meeting after meeting, at key moments, as the venture capital partners asked critical questions, all heads turned to me. I would answer.  I knew the plan, backwards, forwards, and inside out; but I was the only one who did. It was my plan. And the meetings made that obvious.

The three of them never really got into the plan. They thought of the business plan as a hurdle; and they paid me to jump that hurdle. Every meeting generated new changes, so I would go back to the basement computer at the business school, and re-run the financial model. The team of three didn’t include a financial person to learn and manage the model, so I did the financial projections alone, tweaking. Which meant I was the only one who knew the plan. I’d re-run my financial model, edit the text, and publish a new version of the plan. They read paragraphs here and there, glanced at the numbers, but they stayed with the big picture, and left the details to me.

Details that, in fact, they didn’t read. They trusted my faithful recording of their ideas, and my financial modeling. They assumed, I guessed at the time, that these were functions that could always be delegated to somebody with special skills, while they generated high-level strategy.

And time after time, when questions came, I was the only one with answers. It was my plan, not their plan.

They never got funded

They did not get financed. I was disappointed. When you develop the plan and revise it dozens of times and support it and defend it through the long series of meetings with supposedly interested investors, you want it to take flight.

All these years later, memory of that disappointment is still fresh. I did learn my lesson, though, and I changed my strategy as a business plan consultant. From then on I made sure that any plan I worked on belonged — and I’m talking about intellectual ownership here, conceptual ownership — to the real plan owners, not the consultant.

How to work with a business plan consultant

If you have the luxury of a budget to pay an outside expert, consultant, or business plan writer, then maybe you should use them. This might be a good use of division of labor, and perhaps you can lever off somebody else’s experience and expertise. However, that will not work for you unless you always remember that it has to be your plan, not the consultant’s plan. Know everything in it, backwards and forwards, and inside out.

It’s not for nothing that I always say a business plan has to be your plan and nobody else’s. It can’t be your consultant’s plan. You must know it backwards and forwards and inside out, or it won’t work.

(Note: this is rewritten from a post I wrote in 2007)

 

 

 

 

Involvement vs. Commitment and Planning as Management

In a bacon and egg breakfast, the chicken is involved, the pig is committed. That old joke goes a long way towards illustrating the difference between involvement and commitment. And that’s where you get the benefit of proper business planning.

Good business planning develops commitment

Baconandeggsistock_000001083916smal

In the business planning process, commitment is essential. ChickenPlans need to be implemented, and implementation means commitment.  There has to be accountability, and peer pressure.  You have to follow up on what was planned to make sure that it was actually carried out. Here are some ways to develop commitment within your team:

  • Use the SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats) to start discussion. SWOT brings team members into the  strategic discussion. It makes strategy understandable. Your managers have to be part of the team that discusses strategy.
  • Make the budgeting elements of the planning process visible. Managers should see what their peers are spending and should hear why. One of the best things I ever watched, as a consultant, was a management group that argued over the activity budgets during the planning process. Each manager had to defend his or her budget, showing what sales and marketing budgets would come out of it. There was a lot of peer pressure.
  • Make sure people know that actual results will be compared to plan.  With time, in a company that uses the planning process, this becomes second nature.  In the beginning, however, it is extremely important that the main company owners and operators set the standards by scheduling plan review meetings each month and attending them. This has to be important.

Planning process is essential management

Pigistock_000000873019smallThe bottom line here is that planning process, for a growing company, is about the people more than the plan. Not only does everything have to be measurable, but it also has to be measured, after the fact, and tracked, and managed. Your people must be committed to your plan.

 

Understand The Essential ‘Why They Buy’

Close your eyes. Step away from the daily routine. Answer the essential ‘why they buy’ questions. Why does anybody buy what you’re selling? What do they get out of it? What need does it fill? Do you offer identifiable benefits? What are they?

Drills vs. holes

Some 30 years ago Harvard marketing professor Theodore Levitt said: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!” That illustrates the ‘why they buy’ that we all need to understand and remember. iStock_000000331264Small

For examplle, one thing I’ve learned from 30-some years in business plan software is that people want the plan, not the software.

It seems obvious but we quickly forget. You think about features, not benefits.

Benefits not features

For example, think about affordable luxuries like the latte at Starbucks, the lobster dinner, the fancy mustard. Starbucks sells a lot more than a cup of coffee, and Gray Poupon mustard is a lot more than just mustard.  iStock_000000370316Small

Look at hamburgers. McDonald’s and Burger King sell fast and easy and reliable. On Saturdays they’re full of parents with kids between soccer games. It’s not a hamburger, it’s a quick solution to a lunch problem. Then there are the gourmet hamburgers. You can pay 4-5 times what the cheapest hamburgers cost. That’s another affordable luxury.

With high-tech products we’re lured into thinking of features, details, bells and whistles. This is okay for a lot of the market. Some of the market, however, doesn’t buy for features but rather status or prestige or peace of mind or some other intangible. iStock_000001206970Small

This kind of thinking is essential for better planning. It helps you build your strategic positioning. Some people buy for price, some for location, some for ease of use, fast delivery, or because their annoying neighbor said they should.

Why do people buy expensive beautifully-packaged sweet-smelling bath soaps? Most of the time they don’t, but imagine it’s February 14. You plan better when you really dig into the buyers’ real motivation.

Whether you’re planning for a start-up or to grow an existing business, start with buyer motivation. Why do they buy from you? What do you do better, or at least different, from your competition? How can you build that difference into strategy?

Video: 5 Fundamental Principles of Business Planning

I’ve been doing business planning professionally since the 1980s. It’s change a lot. These days I very much advocate the lean business plan for managing all businesses, for all business owners, regardless of whether or not you need the full formal traditional business plan used for seeking investment or business loans.  Through the decades, what I recommend for real business planning has changed a lot; but these five fundamental principles of business planning remain constant, from then straight through until today.

This Friday video is an excerpt from the online course I’ve developed for Learning.ly, hosted by The Economist Group. The course itself focuses on lean business planning, not traditional business planning.

For the Lean Business Planning online course on Learning.ly

Five Principles of Business Planning

Do Only What You’ll Use

Lean business means avoiding waste, doing only what has value. Therefore the right form for your business plan is the form that best serves your business purpose. Furthermore, for the vast majority of business owners, the business purpose of planning is getting what you want from the business – setting strategy and tactics, executing, reviewing results, and revising as needed. And that purpose is best served with lean planning that starts with a lean plan and continues with a planning process involving regular review and revision. You keep it lean because that’s easier, better, and really all you’re going to use.

It’s a Continuous Process, not Just a Plan

With lean planning, your business plan is always a fresh, current version. You never finish a business plan, heave a sigh of relief, and congratulate yourself that you’ll never have to do that again. You don’t use it once and throw it away. You don’t store it in a drawer to gather dust.The PRRR cycle in lean business planning

However, this kind of regularly updated planning is clearly better for business than a more static elaborate business plan. With lean planning, the plan is smaller and streamlined so you can update it easily and often, at least once a month. Your lean plan is much more useful than a static plan because it is always current, always being tracked and reviewed, frequently revised, and is a valuable tool for managing. You run your business according to priorities. Your tactics match your strategy. Your specific business activities match your tactics. And accountability is part of the process. People on the team are aware of the performance metrics, milestones, and progress or lack of it. Things get done.

Furthermore, even back in the old days of the elaborate business plan, it was always true that a good business plan was never done. I’ve been pointing that out since the 1980s, in published books, magazine articles, and blog posts. That’s not new with lean business planning. It’s just more important, and more obvious, than ever before.

It Assumes Constant Change

One of the strongest and most pervasive myths about planning is dead wrong: planning doesn’t reduce flexibility. It builds flexibility. Lean business planning manages change. It is not threatened by change.

People say, “Why would I do a business plan? That just locks me in. It’s a straitjacket.”

And I say: wrong. Never do something just because it’s in the plan. There is no merit whatsoever in sticking to a plan just for the plan’s sake. You never plan to run yourself into a brick wall over and over.

Instead, understand that the plan relates long term to short term, sales to costs and expenses and cash flow, marketing to sales, and lots of other interdependencies in the business. When things change — and they always do — the plan helps you keep track of what affects what else, so you can adjust accordingly.

It Empowers Accountability

It is easier to be friends with your coworkers than to manage them well. Every small-business owner suffers the problem of management and accountability.

Lean business planning sets clear expectations and then follows up on results. It compares results with expectations. People on a team are held accountable only if management actually does the work of tracking results and communicating them, after the fact, to those responsible.

It’s Planning, Not Accounting

One of the most common errors in business planning is confusing planning with accounting. This is true for lean planning too. Your projections, although they look like accounting statements, are just projections. They are always going to be off one way or another, and their purpose isn’t guessing the future exactly right, but rather setting down expectations and connecting the links between spending and revenue. Then when you do your monthly reviews, having made the original projection makes adjustments easier.

They are two different dimensions.

Accounting goes from today backwards in time in ever-increasing detail. Planning, on the other hand, goes forward into the future in ever-increasing summary and aggregation.

On Lean Business Planning

All five of these principles apply to all business planning, not just lean business planning. However, it’s important to note that lean business planning emphasizes all five. It’s a reflection of the best in business planning.

 

 

10 Myths vs. Reality on Business Plans and Startup Investment

I gather from a stream of emails I’ve received that there are a lot of misconceptions on the relationship between a business plan and getting seed money and/or angel investment. So here’s a list of reality checks to apply to all those lists.

  1. business managementBusiness plans are necessary but not sufficient. Even a great business plan won’t get any investment for any startup. Investors invest in the team, the market, the product-market fit, the differentiators, and so forth. And they evaluate the risk-return relationship based on progress made, traction achieved, and market validations. The plan gets information the investors need; it doesn’t sell anything. One of the most serious misconceptions is the idea that the quality of the writing and presentation of a business plan is going to influence its ability to land investment. Sure, if you consider the extremes, a poorly written plan is evidence of sloppy work. If it’s hard to find the important information, that’s a problem. But barring extremely bad plans, what ends up being good or bad is the content – the market, product, team, differentiators, technology, progress made, milestones met, and so forth – not the document.
  2. All businesses should be using business planning regularly. They should have a plan to set strategy and tactics, milestones, metrics, and responsibilities, and to project and manage essential numbers including sales, spending, and cash; and they should keep that plan alive with regular (at least monthly) review and revisions. Business plans are for business planning, and management; not just for investors.
  3. Nobody has ever invested in a business plan, unless you count what they pay business plan writers and consultants. People invest in the business, not the plan. Just like people buy the airplane or car, not the specifications sheet. The plan is a collection of messages about past, present, and future of the business. It’s past facts and future commitments. People invest in milestones met.
  4. The normal process goes from idea, to gathering a team, doing a plan, and executing on the early steps to develop prototype, wireframes, designs, and ideally traction and market validation. And the plan is constantly rewritten as progress is made.
  5. Investors come in only after a lot of initial work is already done. 
  6. The startup process does not – repeat, NOT – go from idea to plan to funding and only then, execution. You don’t go for funding with just a plan. That’s way too early.
  7. Investors do read business plans. Regarding the myth that investors don’t read business plans, I’m in a regional group of angel investors, we’ve had maybe 80 people as members during the eight years since it started, and the vast majority of us would never even consider investing in a company without seeing the business plan.
  8. But investors don’t read all the business plans they get; and they often reject deals without reading the plan. To reconcile this point with the previous, note that investors read the plans during due diligence, as a way to dive into the details of a startup they are interested in. They don’t read them as a screening mechanism. So a lot of startup founders who don’t get investment are telling the truth when they say investors didn’t read their plan. Investors rejected them based on summary information or pitch.
  9. On that same point, the process with angel investment today starts with an introduction or submission through proper channels (gust.com, angellist.co, incubators, 500 startups, and so forth). Investors screen deals based on summary information in the profile or a summary memo. The deals that get through that filter will be invited to do a pitch in person. Those that still look interesting, after the pitch, will go into due diligence, with is a lot of further study of the business, customers, market, legal documentation, and the business plan.
  10. Business plans are never good for more than a few weeks. They need constant revision. Things are always changing. People don’t expect the big full formal plan document anymore, not even investors. Keep a plan lean, review it often, revise it as necessary, and use it to run your business. Use it to steer the business and keep making course corrections. That’s what a plan is supposed to be these days.