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Business Plan Market Research and the Fresh Look

The Artist
The artist takes a fresh look at the scene every time paints it. How many times as this man seen the banks of the Seine? It doesn’t matter, because he takes the fresh look every time.  The business needs to take a fresh look at its market and its strategic situation at least once a year.

Back in the 1970s when I was a foreign correspondent living in Mexico City, I dealt frequently with an American diplomat who provided information about Mexico’s increasing oil exports, which were a big story back then. We had lunch about once a month. He became a friend.

The Fresh Look

Then one day he told me he was being transferred to another post because he had been in Mexico too long. “What? but you’ve only been here for three years,” I said. I was disappointed for two reasons. “You’ve barely learned the good restaurants!” He explained to me that the U.S. foreign service moved people about every three years on purpose. “Otherwise we think we know everything and we stop questioning assumptions,” he said, “that’s dangerous.”

I remember that day still because I’ve seen the same phenomenon so many times in the years since, in business. We — business owners and operators — are so obviously likely to fall into the same trap. Our business landscape is constantly changing, no matter what business we’re in, but we keep forgetting the fresh look. “We tried that and it didn’t work” is a terrible answer to a suggestion when a few years have gone by.  What didn’t work in 2000 might be just what your business needs right now. But you think you don’t have to try again what didn’t work five years ago.

Not Necessarily Business Plan Market Research

For the record, I disagree with so many experts who insist on detailed and thorough business plan market research for every plan. I vote for a lean business plan that includes only what you are going to use. And a lot of us know the market already, so we don’t have time, resources, or budget to do market research for our normal planning process. I make this point here in my latest book on Lean Business Planning.

However, I do also suggest taking the “fresh look” at the market at least once a year.  Existing businesses that want to grow too often skip the part of business planning that requires looking well at your market, why people buy, who competes against you, what else you might do, what your customers think about you. Think of the artist squinting to get a better view of the landscape. Step back from the business and take a new look.  Use the standard Know Your Market techniques and content, just applying it to your business, not a new opportunity.

It’s about your now and future customers

Talking to customers — well, listening to customers, actually — is particularly important. Don’t ever assume you know what your customers think about your company. Things change. If you don’t poll your customers regularly, do it at least once a year as part of the fresh look.  As an owner, you should listen to at least a few of your customers at least once a year. It’s a good exercise.

For creativity’s sake, think about revising your market segmentation, creating a new segmentation. If for example you’ve divided by size of business, divide by region or type of business or type of decision process. Aim for strategic segmentation.

Remember to stress benefits. Review what benefits your customers receive when they buy with your, and follow those benefits into a new view of your market.

Question all your assumptions. What has always been true may not be true anymore. That’s what I call the fresh look.

 

 

When So-called Experts Say Don’t Do a Business Plan…

… don’t be confused. What they really mean is … experts speak half truths

  1. Don’t do a long static formal business plan. Do a lean, just-big-enough business plan. Deal with it as a constantly-renewing latest version, with a shelf life of a few weeks at most. Don’t fill it with excess supporting information.
  2. They won’t even look at a business plan until after they’ve understood the main points from a summary memo, and — in most cases — been through the pitch and met the people. The idea that potential investors would read a business plan as a first step, from somebody they’ve never met, without going through preliminary materials … is laughable.

Understand where the business plan fits in the process of securing investment.

  1. It’s not the calling card, not the sales brochure, not something you ever send to somebody who doesn’t already know you, your business, and the basic story.
  2. It’s likely to come up for deals that have gotten through some filters first. Investors will ask for it as part of the due diligence that starts after they understand the deal and are interested in pursuing it further.
  3. It explains a deal: problem, solution, product-market fit, potential market, potential growth, scalability, defensibility, traction, major milestones, management team, and essential projections of financial progress and, in cases where this applies, trackable progress in traffic, visits, downloads, users, and so forth.
  4. It’s the screenplay for the summary memo and the pitch. Even though investors won’t want the plan immediately, you’ll need it, when you pitch, to refer to later to answer questions like “can you grow faster with more money” or “how would it look with double the sales force?”

And you don’t have to call it a business plan. The lean startup advocates, for example, like to call it anything but a business plan, but ask them about it, and they’ll confirm you need to cover the same ground as I have in my point 3 above.

My suggestion: call it a lean business plan.

Truth is a Believable Story

I grew up believing that facts, like research, numbers and percentages, told the truth. I believed in objective, verifiable truth, based on fact. I distinguished that from mystical religious truth, based on faith.

http://www.flickr.com/photos/h-k-d/8268159192/

I was a mainstream journalist for almost 10 years in the 1970s. Every professional journalist believed in objective verifiable truth based on fact. That was the goal of reporting. We separated subjective opinion from objective truth. Truth was hard to find, yes. It often had to be dug up and uncovered. But it was there.

Now I know better.

Truth is not research and data. Although my generation grew up believing hard numbers were truth, it just isn’t so.  Nowadays there is data to prove anything, regardless of how absurd. And people routinely hide their opinions as data. Eggs are good? There’s data to prove it. No, eggs are bad? There’s data to prove that too. The same for coffee, sugar, exercise, structure, discipline, whatever.  The truth is not in the data.

Truth is not just a believable lie, either. It’s more like a matter of angles and reflections and angles of light, like a gas, not a solid. It’s something like what William Blake implied about  300 years ago, in Proverbs of Hell:

Every thing possible to be believ’d is an image of truth.

Truth is a believable story. And much of human truth is better told in stories than a facts, and much less numbers.

And in business, Seth Godin says marketing is stories. I say planning is stories. Truth isn’t what the research says, or the focus group, or the latest survey.

Take a step back from it and ask, always: Does this make sense? Is this credible?

Truth as told in stories is still truth. I love how Harvey Cox says truth is in stories. This is from his book When Jesus Came to Harvard:

All human beings have an innate need to hear and tell stories and to have a story to live by…religion, whatever else it has done, has provided one of the main ways of meeting this abiding need.

I don’t mean it as disrespectful to see the “story” to religious doctrine. On the contrary: The right stories, real stories, the best stories communicate truth better than so-called facts. And it’s almost a proof of God how themes and meanings overlaps between the different stories of the different religions. Maybe there is a good gene, in our species DNA. And the stories are an expression of how humans all struggle to understand God, or creation, or whatever that immensity is, in their own way. With their own background and culture.

My summary: truth is a believable story.

(photo credit: h.koppdelaney via photopin cc)

Planning: It’s About Management and Accountability

(Note: this is an excerpt from my book The Plan-As-You-Go Business Plan, which is posted as a web site where you can read it online.)

Every small-business owner suffers the problem of management and accountability. It’s much easier to be friends with the people you work with than to manage them well.

Correct management means setting expectations well and then following up on results. Compare results with expectations. People on a team are held accountable only if management actually does the work of tracking results and communicating results, after the fact, to the people responsible.

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 performances and bad performances?

The metrics should be built into the plan. Remember, people need metrics. People want metrics.

Then you have to track. That’s where the plan-as-you-go 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.

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.

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

Crystal Ball and Chain

This is an answer to a question I get way too often. I call it the “Crystal Ball and Chain” problem. I’ve run into it several times as I’ve introduced the planning process into a new company or organization.

People in the organization sometimes fear business planning. In the background, the fear is related to accountability and commitment. Usually they don’t realize it. They state their objection as:

“But how can I possibly know today what’s going to happen six months from now? Isn’t that just a waste of time? Can’t it actually be counter-productive, because it distracts us, and we spend time trying to figure out things in the future?’

I’ve heard this from some people who really did seem to be worried about accountability and commitment, and I’ve heard it from some who were stars on the team, not worried at all about their own position, but legitimately worried about the best thing for management and getting work done.

The answer is that projecting future business activities isn’t a ball and chain at all, because in the right planning process the existence of the plan helps you manage effectively.

Here’s a concrete example: it’s September and you are developing your plan for next year, which includes an important trade show in April. You plan on that trade show and set up a budget for expenses related to that trade show. Even though it’s September, you have a pretty good idea that this will happen in April.

When January rolls around, though, it turns out that the trade show that normally takes place in April will be in June this year. Does that mean the plan was wasted time? Absolutely not! It is precisely because you have a plan running that you catch the change in January, move the expense to June, and adjust some other activities accordingly.

In this example, the plan isn’t a brick wall you run into or a ball and chain that drags you down; no, it’s a helpful tool, like a map or even a GPS device, because it helps you keep track of priorities and manage and adjust the details as they roll into view.

It’s normal for the crystal ball and chain to appear as an objection when a planning process is introduced. The solution is simply good management. The people involved in implementing the plan learn with time how regular plan review sessions help them stay on top of things, and when assumptions change, how the plan changes. Changes are discussed, nobody gets fired, and you have better management.

The underlying idea here is directly related to the paradox in yesterday’s post: business plans are always wrong, but still vital to good management.

(Image: my mashup of two shutterstock.com images)

Business Plans are Always Wrong, But Still Vital

(Note: It feels like business planning season to me. Fall, or almost fall, time to think about next year. So I’m reviewing business planning fundamentals, this week and next, refreshing some of my older posts.) 

Business plans are always wrong. That’s because we’re human. Business plans predict the future. We humans suck at predicting the future.

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Paradox: nonetheless, planning is vital. Planning means starting with the plan and then tracking, reviewing progress, watching plan vs. actual results, correcting the course without losing sight of the long-term destination.

Planning is a process, like walking or steering, that involves constant corrections.

  • The plan sets a marker. Without it we can’t track how we were wrong, in what direction, and when, and with what assumptions.
  • Use this marker to manage the constant conflict between short-term problems and long-term goals. You don’t just implement a plan, no matter what. You work that plan. Use it to maintain your vision of progress towards the horizon, while dealing with the everyday problems, putting out fires.
  • So the plan may be wrong, but the planning process is vital.

The truth is that forecasting is hard. Nobody likes forecasting. But Istock_000000408066smallone thing harder than forecasting is trying to run a business without a forecast. Plan, connect dots, identify interdependencies, set numerical goals. Then track results, review, and revise. 

A business plan is normally full of holes, but you fill them, after the fact, with the management that follows. That’s what turns planning into management. 

Good planning is nine parts implementation for every one part strategy.

(Images: shutterstock.com)

Isn’t it Creepy to Walk Into a Startup with Fancy Offices?

Funded or not, ambitious or not, I just don’t see the sense of startups having fancy offices. In the old days, as a consultant to startups and investors both, I hated walking into an interview with a startup when it was a nice office, beautiful windows, carpets, and lots of space. In the middle days, building my own company, I didn’t want to be spending on appearances when there was never enough for product development and marketing for growth. And nowadays, as an angel investor, I don’t want a company that has nice offices. 

There are exceptions: some kinds of businesses need fancy offices as part of their strategy; accountant, lawyers, and some high-end consultants. Those are rare special cases. I was a successful and expensive consultant for years, out on my own, without a fancy office. I never met a client who wouldn’t work with me because my office space wasn’t nice enough. I did have at least one who selected me because (among other factors, obviously) he didn’t want to pay high-end-consulting overhead. 

Another exception I always make is powerful tools. As consultant, entrepreneur, or investor, I don’t respect a company that has people working on slow computers, outdated software, or slow network bandwidth. That’s a dumb way to save money. 

I just read 7 Frugal Startup Tips from Millionaire Entrepreneurs on Entrepreneur.com. It includes some great tips, like avoiding expensive office furniture, reusing supplies, being careful about space, and so forth. That reminded me. 

A bootstrapped company doesn’t overspend because it can’t. By definition. It doesn’t have other people’s money. But a funded startup should spent the money on the product and the marketing. Not the offices. 

I don’t respect obvious overspending. It doesn’t mean smart founders or smart investors. The best example are those absurdly expensive SuperBowl ads in 1999 and 2000. But a fancy office is right up there. 

(image: bigstockphoto.com)

Q&A: Are There Business Classes That Busy Smallbiz Owners Can’t Afford Not to Take?

Over this weekend I was in email with a college student who asked me to answer some questions about business education, as part of a class project. I found this one interesting, and one that comes up a lot, so I decided to post the question and my answer here today. 

The question: 

On your blog, you strongly recommend getting an education for the purpose of living your life better. However, I know many people who have sadly passed that opportunity — they are parents and are overtaxed by their own small businesses. Is there a minimum curriculum you recommend to help these people deal with their own businesses — classes that busy owners can’t afford NOT to take?

My answer: 

I like your question and I think that’s a very useful idea. I would recommend basic courses in accounting, finance, and marketing. Most of business is learnable outside of a classroom but understanding cash flow and the principles of marketing is a very real advantage. Debits and credits, the difference between sales, costs, profit, assets, liabilities, and capital, and the difference between cash and profits are essential, in my opinion. Also, the fundamentals of marketing including market segmentation, target marketing, and market focus are every bit as important in the new world of social media as they were 50 years ago in the old world of advertising. Although you can learn those outside of a classroom, it’s the kind of knowledge base you can pick up quicker in a class.

For the record, I practiced what I preach. I did the Stanford MBA while married with 3 kids with no economic help from family, from savings my wife and I had managed from a Journalist’s salary while raising our kids, and working part time. The meager savings lasted just the first quarter of the first year and the rest was financed with my own part-time income and debts. So I know that’s hard to do because I did it, and I don’t want people to think that when I recommend it that I’m being unrealistic about what it takes. And I want to add, also, that when I have recommended it, I’ve always been respectful of the fact that it may be a luxury that not everybody can afford. 

Thanks for asking. 

(Image: istockphoto.com)

Go Ahead: Disagree. I dare you.

This one had me from the moment I saw the title: Dare to Disagree. I clicked, watched, and I love it.

Good disagreement is central to progress. She illustrates (sometimes counterintuitively) how the best partners aren’t echo chambers — and how great research teams, relationships and businesses allow people to deeply disagree.

I’ve seen this for years in starting, growing and running a business. It’s vital. Do yourself a favor. Take 12 minutes to watch Margaret Heffernan in this TED talk. She starts with a real story, and gets into the nuts and bolts of making disagreement work for you.

If you don’t see this video here, you can click here to link to the original on TED.com

What is the most important thing to have when you are just starting your company?

Entrepreneur.com asked What is the most important thing to have when you are just starting your company?  on LinkedIn and here are the results:

While I really like the answer business plan — I’m a business planner — I don’t completely agree. If I weren’t biased down to my bones, I’d answer “something else” and clarify that what you really need, more than anything else, is customers. You can have money, idea, business plan, and the guts to go for it and still fail miserably if nobody wants to buy what you’re selling.

However, realistically, not all startups have the luxury of early customers. While ideally you find some early customers, or promises, or prepaid sales, sometimes you need to create something first (such as a product, website, app,etc.) before people can buy it. And in those cases, the business plan is the next best thing because — if it’s done well — it focuses on real indications, real information, and reasonable estimates of believable sales prospects.  So that makes business plan is a good compromise.

And business plan alone isn’t enough; it has to be a realistic, practical, concrete business plan that you can execute on.

The guts to go for it isn’t enough. It’s what we call a necessary but not sufficient condition. You’re nowhere without it, but you might be even worse than nowhere with it. Courage without customers, for example, is a terrible combination.

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