Category Archives: Business Planning

Lean Business Plan: Form Follows Function

Business Planning, Lean Business Plan, , ,

Your lean business plan is no more than what you need to run your business. In the beginning, it might be as simple as an elevator speech. Be able to talk through those key points: the customer story, what makes you unique, how you’re focusing and on what you’re focusing, and, if it comes to that, your close — what you want from whoever is listening. Form Follows Function

 

Or it might be a simple sales forecast, and perhaps, a burn rate in the very beginning because you know what you’re doing — maybe you’ve been doing it for years already and you don’t need to verbalize it right at this moment — and you’ll set those figures down and start tracking them.

Lean planning comes in many forms. Think of it as analogous to motion in athletics. In so many different sports, the winners practice economy of motion, repeated muscle memory. Another way to look at it: in design and mechanics, the fewer moving parts, the better. If you have to squint conceptually to see the key points, squint down on the elements you’ll be able to track and then revisit.

It’s not about the text, or the form of the thing, until that becomes related to the function. When you’re doing a business plan as part of a graduate business school class, then yes, it has to be complete and look good and read well; editing and format matter. When you’re doing a plan for an investment group that is going to pass it around among the partners, then it matters. But you don’t want to get bogged down in format when it’s just you and your spouse and you simply want to think through what’s required.

So the plan is a collection of concepts in the middle, surrounded by specifics that have to be done. The core of the plan is strategy and tactics, as simply as you can put them, just bullet points as reminders. Around the core you put a collection of milestones; numbers to be measured and tracked (lots of them are sales, expenses, and the like, but not all); task assignments and responsibilities for different people, dates and deadlines, budgets, and so on. That’s your plan.

From that core lean business plan, you spin off various outputs. You take the highest highlights of the plan and 60 seconds or so to explain it in an elevator speech. That’s one output. Or you write it all out carefully, and add supporting information about the market and the industry and the backgrounds of the management team, and it’s a plan document. Or you create a 20-minute 10-slide summary with PowerPoint or Keynote slides, and that’s a pitch presentation for potential investors. Or you create a cover letter or cover e-mail, about a page or so, along with a 5- to 10-page written summary, and that’s a summary memo. Or you do none of these, you simply keep that plan as a collection of bullet points, of picture financial projections, and a list of things to be done by whom and when and for how much money, and share it with your team. In that last case you don’t ever edit or polish it, or sweat the page headers and page footers or font size. You just use it to manage your company,

Notice that none of these outputs stands as something you do instead of the plan. And none of these outputs is really the plan. The plan exists at the core, and you create the outputs as needed.

With all of these various iterations and outputs, always keep assumptions on top, where you can see them for every review meeting. Minding the changing assumptions is one of the significant advantages of the plan-as-you-go approach over the more traditional methods.

I ran a business for years during which the plan was shared only between me and my wife, mostly, enhanced by sales forecasts and burn rate. During those formative years there was no need for anything else. When it was time for an elevator speech, either one of us could do it. When there was need for a written business plan — it came up first when we first set up the merchant account to be able to accept credit cards, in 1988 — then we settled down for a while and wrote it out as it was, conceptually, at that time. We always knew what we wanted to do, but we also knew our key assumptions, and we tracked them as they changed, and revised the plan. A lot of that was verbal, between two people.

As the business grew, the verbal plan with the forecast stopped working. Things became more complicated. Employees needed to know about the plan and join in its formation and then its implementation. So we moved it into bullet points on the computer, and tied those to forecasts, and began tracking in a group, in more detail.

We then began to do annual plans more formally, writing out chapters, and conducting review meetings every month. With each annual plan we’d go out and take a new fresh look at the market. We had people doing nothing but marketing, and they developed segmentations and forecasts and supporting information. It was part of their job.

Are you recognizing yourself somewhere along this line?

Eventually we wanted to bring in outside investment. That was during the dotcom boom when valuations were very high, so we thought it would be a good time to lock in the value with some cash out. We produced very formal plans every three months during that period.

The speech isn’t instead of the plan, and the pitch isn’t instead of the plan, but that doesn’t mean you plan or don’t plan if nobody outside your company is going to read about it. Your plan should always be there as the source of these outputs, so you’re ready to produce them when you need to.

Which Comes First: Plan or Pitch?

Business Pitch, Business Planning, Lean Business Plan

It’s not exactly the same as the chicken or the egg, but it has some similarities.

I get this question a lot lately, so I decided to take it here to my blog.

Don’t pitch a business without planning it first. That’s a lot like trying to film a movie without having a screenplay. You have to know what’s going to happen before you start.

And I do see people, websites, even some smart people and good websites, confusing the issue by presenting a pitch as if it were something you could do without having a plan. Sorry, bad idea.

Yes, you can summarize a business idea without detail. You can summarize a strategy. Maybe you can put up a picture of a business model, and focus on a target market, and narrow the business offering. And that’s certainly a useful exercise. But it’s just a concept piece, a rough sketch.

Before you have a pitch you simply must have a rough idea of estimated startup costs, sales, expenses, and cash flow. Without that you can’t possibly talk about scale, financial vital statistics, and feasibility. It’ s not that you accurately predict the future. It’s that without those basic numbers you really don’t know what the business is. They’re wrong, but they’re vital. They pull apart the relationship between sales, spending, profits, investment, and strategy. How many employees are needed? How much space? What kind of space? Does the marketing strategy match the target market and the focused business offering?

You should never, ever put a pitch in front of investors or bankers or bosses without having a plan behind it. Just ask yourself the questions your target audience will ask. Do you want to say “I don’t know” or “we haven’t figured that out yet?” Or would you rather say what your plan says.

And of course your plan will be a living, constantly changing plan. But don’t confuse flexibility with not having a plan. Flexibility is having a plan so you know how changing one assumption or variable effects all the others.

Special reminder: maybe a lot of the confusion is caused by people who think you don’t have a plan unless you have a full formal business plan document, coil bound, edited, printed, and mounted on a pedestal. Not so. Having a plan means milestones, basic numbers, task responsibilities, review schedules, and listed assumptions.

Final thought: my favorite process is having the plan — the real plan, not the formal output document plan — and working it interactively with the pitch. It has to do with the way we humans think. Summarizing something (the pitch) often sharpens the focus, and generates new ideas. Plan and pitch, interactively, working them both. And expect them to change almost daily. That’s life in the real world.

Which, by the way, is dead center in line with the idea of lean business planning.

(Image credits: Veranis, Archman/Shutterstock)

Planning Builds Metrics and Accountability for Business Management

Lean Business Plan, Management

business managementGood business management boils down to managing expectations and results. Define expectations clearly, with objective numbers you can track. Track results with the same metrics. Deal with the difference between expectations and results, positive or negative. There’s nothing better than that for developing accountability in a business. And good planning process is the best way to do that.

That’s easy to say, or write, but hard to do. What I’ve seen, in real life, is that every small business owner, or startup founder, has a built-in problem to deal with related to management and accountability. What happens is that in these small groups, co-workers are friends. You roll up your sleeves and work together. And that close collegial relationship, the team mentality, makes it harder to manage well.

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.

Business management is about what gets measured

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.

Measurement 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.

Revising the Root Canal Theory of Business Planning

Business Planning, Lean Business Plan, , ,

For years I’ve lived with my own “root canal theory of business planning.” Do the Google search for that phrase and you’ll see that my previous writing about this comes up first. Like root canals, business plans were something people dreaded, but needed. Happily, things have changed.

For today: lean business planning

Unlike a root canal, modern-day business planning should not be painful, is not something you do all at once, and ought not to be a cure for anything like a toothache. Instead, it should be fun and interesting, and a regular process. It’s preventative, not curative. I call it lean business planning. The plan stays alive. It’s not painful to do, you like doing it because you’re running your own business and the planning part of it is fascinating. It’s your future, your life, and controlling your destiny.

When experts advise against doing a business plan, they refer to that obsolete full formal business plan that likens the business plan to the root canal. They don’t advise against setting goals, priorities, milestones, metrics, and projected cash flow.

root canalI had the worst kind of reminder yesterday: a root canal. This one repaired one done 20 years ago. Root canals have changed. Technology has improved. But they’re still bad.

It was just after having that first root canal that long ago that I developed the root canal theory of business planning. I’d had a horrible toothache back then, a sleepless night, and by the time I got to the dentist chair the next morning I really, really wanted that root canal. I wanted the pain to end.

Back then — late 1980s — I thought about how people only did business plans when they absolutely had to, for investment or business loans; and about how when they did have to, they wanted that business plan fast, and they wanted it badly. But it seemed like nobody who didn’t have the urgent need wanted to do a business plan. Our fulfillment house noted that our business plan software orders had the highest ratio of overnight shipping of all their clients.

Do your lean business plan. Set strategy, tactics, milestones, and metrics. Then review it often and revise as necessary.

Really, once you understand lean business planning, if you still dread planning, then maybe you should keep your day job.

(Photo credit: cc license by radiant guy, on Flickr.)

Business Planning for the ‘Lean Startup’

Business Planning, Lean Business Plan, Starting a Business, ,

Nothing related to startups should be carved in stone. Best practices can be useful but are best taken as suggestions, not rules. So I’m troubled to see some of the “lean startup” advocates get into the codification business.

Plan Run Review ReviseI very much respect lean startup thought leaders Eric Ries and Steve Blank and the methodology they popularized at the end of the last decade. The way I see it,  a lean startup is one developed along a build-test-revise-build-more-test-more strategy. It’s against long painful planning process that delays a startup for the diminishing returns of waiting too long for too much analysis. It’s a cycle of build, test, correct, then build, test and correct. It’s a get-going attitude that doesn’t wait for all the traffic lights to be green before leaving the driveway.

I don’t see the real thought leaders getting bogged down in codification. But I do see some of their followers turning a set of refreshing new ideas into a set of rules. For example, some say lean business planning must necessarily adopt the lean business canvas methodology, or it doesn’t follow the “right” method.

I say – and if you’re curious, you’ll see it in the post here lean plan and business model canvas, that the lean business canvas is often useful not absolutely necessary. It’s a summary of business model, strategy, and tactics. There are other ways to focus that same core content.

I also say that the core idea of the cycle, the test and revise, the small correction, and the quick pace, is ideal for a next-generation style of business planning. So I’d like to explore here what kind of planning might be related to the lean startup. And I hope, as you read this, that it sounds like a better planning process for a lot of organizations, not just the lean startups.

  1. Keep the planning simple and practical.
    The plan should live online, not on a document printed out somewhere. It could be in the cloud, on an online application, or a local area network. The key players can grab it from where it is, work on it and put it back.
    It doesn’t need any extra frills of editing for the sake of appearances. It doesn’t include an executive summary or a description of company background or management team. It’s a plan, not a sales brochure. If you need that document later on, you can start with the plan and add the extra descriptions, summaries and editing required for showing it to outsiders.
    Your plan should include strategy, tactics, milestones metrics, accountability, and basic projections, plus a review schedule. The review schedule is critical: When will we review and revise? This keeps the plan alive.
  2. Grow it organically.
    The worst thing you could do is develop a plan before you take any action. Start with the heart of it–what’s most important–and build it like an avocado grows, from the heart outward. Don’t put anything off for planning; plan as you develop your business.
    What comes first? Probably strategy, but not necessarily. Some people build their plan all around a sales forecast. It’s all modules, like blocks, and you do it in whatever order fits your personality.
  3. Think it, plan it, test it.
    It’s not like you’re not going to plan, manage and steer your company just because it’s a lean startup. On the contrary, you need to stay on top of the quickly changing plan, managing your assumptions as the reality emerges. As assumptions withstand tests–or don’t–you can quickly make adjustments.
    That agile development website took off even faster than hoped? Cool. Your plan tells you how those dots were connected so you can adjust everything else. Did it take longer than expected? Same thing: Go back to the plan; look at how everything related.
  4. Get started. Get going. 
    I love all the similarities between lean management, lean startups, and lean business planning. So let’s bring the vocabulary together. Real-world business planning, particularly in this rapidly changing real world we live in, should also be lean.
    Plan it, build it, revise it, plan it again. That’s called the planning process, and without it you don’t control your destiny. You can’t move quickly enough. You’re always reactive and you’re not optimizing.
  5. Lather, rinse, repeat.
    Planning has to be like steering, a matter of constant small corrections within a broad navigational plan. The details change, but all within context of the long-term direction. A good planning process is cyclical. You’re always reviewing and revising.

To me, all five points seem to be a pretty good way to build planning into your business, whether you’re a “lean startup” or not.

Planning Principle: Do Only What You’ll Use

Back to Fundamentals, Lean Business Plan,

Efficient business in general 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 business 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.

Form follows function

Consider the illustration that follows. I call the central image the lean plan because the lean business plan is about what is supposed to happen, when, who does what, how much it costs, and how much money it generates. It’s a collection of decisions, lists, and forecasts. It doesn’t necessarily exist as a single document somewhere. You use it to track performance against plan, review results, and revise regularly, so the plan is always up to date. I hope it’s gathered into a single place, as if it were a document, but it doesn’t have to be. And it’s only as big as you need for its business function.

Form Follows Function

The main output, and therefore the main purpose, of the lean business plan is better business, which means getting what you want from your business. That’s what your lean plan is for and that function determines what’s there. Forget the additional descriptions for outsiders until you need them. Wait for that until you have a business reason for it. But don’t let not having to show a plan keep you from using planning to help your business.

The lean business plan is the bones of other business planning outputs, including a summary, a pitch slide deck, and a full business plan document, if you need one. Do the lean business plan, keep it up to date, and to the rest as the need arises. Maybe you’ll never need to do the formal document. But you’ll always need strategy, tactics, milestones, metrics, and essential business projections.

Know your market, yes; describe, analyze, prove – not necessarily

You have to know your market extremely well to run your business. Know your market like you know the back of your hand. Know your customers, what they need, what they want, how they find you, what messages work for them, what they read, what they do, and all of that.

What you don’t have to do, however, is include any of that in your lean business plan. A lean plan doesn’t need rigorous market analysis. It doesn’t normally include supporting information — at least, not until later, with the business plan event, when it is actually required.

However, your lean plan is about what’s going to happen, what you are going to do. It’s about business strategy, specific milestones, dates, deadlines, and forecasts of sales and expenses and so forth. It’s not a term paper. Yes, you should know your market. But you don’t have to prove it until you’re trying to find outside investors.

Form follows function: The function of the lean business plan is management, not selling something to outsiders.

You don’t need supporting information. It’s still a business plan without it. It still serves its business purposes. You don’t have to do a rigorous market analysis as part of your plan if you know exactly what you’re offering, and to whom. So what about market analysis? Think about the business purpose. Do you need the market analysis to help determine your strategy? Then do it. Are you ready to go with that strategy regardless? Then don’t sweat the market analysis.

This is ultimately your responsibility. You don’t gather all the supporting information and do a rigorous market analysis just because somebody said you should. You do it if you’re actually going to use it to make decisions, or if your business purpose requires proving that there is an attractive market opportunity. You do need to know; but proving your knowledge isn’t necessarily part of the plan.

Stick to your business purpose

Planning is about managing. It’s a tool to set priorities, milestones, metrics; to track results, compare results to expectations, and steer the business.

 

About Things Not Going According to Plan

Business Planning, Lean Business Plan

So things don’t go according to plan. Big deal; change happens. Does that mean your plans failed? No. Not if you understand planning and work it correctly; at least, not with lean business planning. I don’t know about diets and life plans, but business plans are always wrong, but still vital. It’s the fact that things don’t go according to plan that makes planning so important.

I refer to a thoughtful post at Lifehack, from some years ago, titled at Why Your Plans Fail, written by Scott Young.  It is a few years old, but it’s useful because it hits a common note. Here’s his lead:

Business plans, diet plans, plans to get a degree and your plan to get rich. Life is full of planning. You’d think that all your practice planning would make you at least somewhat good at it. Then why do so few things go “according to plan?”

You want business planning not because things will go according to plan, but because they won’t. If that seems ironic or contradictory, consider walking or steering; both are constant corrections, falling in and out of balance, and revising. Good planning isn’t guessing right, it’s managing the process of revising and reviewing.Business_plan_istock_000000240797sm

Scott suggests what he calls “the planning fallacy,” which he suggests is about how people are wrong and “fail to recognize it. People make wildly overconfident projections but fail to notice their abysmal track record in predicting.”

The answer? Not a different technology, according to Scott.

The problem isn’t a better planning method. We’ve all had a great deal of practice planning. Different planning styles can help, but they can’t solve the core problem of uncertainty. That is, you have no idea what the future holds.

The planning fallacy creates two major problems – the inability to plan and being blind to that incompetence. The real solution is to keep a careful eye on your track record and learn to stomach uncertainty.

Ironically, though,  the answer is in fact a new kind of planning, although not a new planning technique, or technology. It’s what I call lean business planning. Which is in fact very close to learning to stomach uncertainty. And, although I’m using the term lean business planning lately, it’s very much fundamental to all planning.

  • [Your plan] is going to change. You want to know afterwards how it changed, when it changed, and why it changed.
  • It doesn’t have to be “right.” You’re not going to implement it blindly, like running into a brick wall. It leaves tracks you can look back on to trace changing assumptions. You’re going to use it to steer. Steering involves constant corrections.
  • It’s concrete and specific about what is supposed to happen, when, who is responsible, and how much it costs. Otherwise you won’t be able to follow changes.

That is, in my opinion, a better planning method. We don’t measure planning by whether or not things go according to plan, but rather by whether or not planning helps us build the business, develop and implement strategy, and — a critical factor — manage rapid change.

Scott’s doing the “straw man” trick, defining what he calls “traditional planning” as something I’ve never seen work (in 30+ years as a planner) and I’ve never seen anybody who understands business planning advocate. Traditional according to whom? Scott wrote:

Traditional planning starts with your objective and works backwards from that. Let’s say you were planning out what career choice you wanted. A traditional approach would be to work out your career choice, possible firms to work with, education you’ll need, classes you’ll need to take and how to fund your education. Each step determining the one before it.

The problem with this method is it cleanly erases uncertainty along the way. What if changes happen in the industry and firms you want to work for start downsizing? What if your school of choice doesn’t accept you? What if you don’t like the classes or eventual career? What if you can’t fund tuition? Flexible planning starts where you are and works forward. So your current position might be limited post-secondary schooling and funds.

I strongly disagree. That’s not good planning and it’s not traditional planning either. How far back do we have to go? It was before I was born that Dwight Eisenhower, military leader and U.S. president, said “the plan is useless. Planning is essential.” Following a plan through changed assumptions is just dumb. The answer is recognizing that planning is a process, it continues, and it is a powerful tool for managing change.

  • Set up schedules for frequent review. Your plan will change. Your assumptions will be wrong. Your plan will be wrong. You’re going to use it like a steering wheel, to make corrections, track changes, etc.
  • Identify important assumptions. How will you track them? How will you know when they’ve changed?
  • Admit it: you’re always planning. You’re always thinking about this stuff. Now you’re writing it down – not printing, necessarily, not even sharing until there’s a benefit to that, but planning and tracking, always.

To me that’s the only way to plan. Scott actually gets pretty much to the same place, with his conclusion:

Flexible planning suggests that many outcomes are favorable and that the paths to get there are almost infinite. Instead your job becomes to put yourself in increasingly more favorable positions.

In a business context this would mean planning your business so that it would have the largest amount of opportunities available. This way if one of your original plans fails, you can easily switch to another.

I think he’s getting close here, but  we can  still do that better. Staying flexible might be nice for some contexts (to be fair, he’s writing a lot about career planning and education planning and such), but I’m skipping that and focusing in on business planning.  You have to assume change, build for it, plan for it (nice phrase, no?) and manage change. I mean explicitly manage change as I suggest in that other post, scheduling and establishing the review process, tracking assumptions, and leading change without losing track of your course. My conclusion:

Keep your head up. Keep your eyes forward, scanning the horizon, watching for what’s coming up ahead. If you’re an athlete you’ve heard this from coaches as you dribble or catch or run. If you hate sports metaphors, then think about walking a busy city sidewalk. Don’t look down, you’ll bump into somebody. Look up.

Your Lean Business Plan Might Not Need That Market Analysis

Business Planning, Lean Business Plan

Here’s a suggestion for startup founders and business owners. Understand the difference between your core business plan – a lean business plan – and the information and analysis and presentation additions that are really dressing, not plan. Too many people assume, wrongly, that a business plan necessarily includes background and supporting information such as market analysis, proof of concept, summaries, and descriptions. In fact, the plan itself is your strategy, tactics, the concrete steps and specifics you need to run the business, and of course projections of sales and spending. Market analysis, descriptions, and summaries are all extra.

This is one of the core concepts of lean business planning.

Lean Business Planning

Consider this: every business needs to plan strategy and who does what, when, how much it costs, how much it brings in, and how much money is in the bank. That’s absolutely essential for everybody. That’s also what a plan has to include.

Lean Business Plan

The plan should meet the business needs. Not all businesses need to do research and analysis on markets, the industry, the competition, and related topics as they develop their plan. Those that do know who they are. Also, perhaps more important, those that don’t want or need to do this extensive analysis shouldn’t confuse that with the plan itself.

You might be running or growing or starting your own one-person business. You feel very comfortable about knowing your customers and your market and you’ve got a strategy. Why are you writing all this down, formalizing it, making a big project that you don’t really need?  No good reason. Planning is about the decisions it causes, it’s not about showing off your knowledge.

Example: you’re doing a new coffee roasting business. It’s just you and your spouse, and a close family friend who is also investing. You want to develop your strategy and cash flow projections and who does what, and you want to track progress against goals, so you do need a plan. But it’s not going to be a formal business plan document with a heavy market analysis and competitive analysis. It’s going to stay on your computer. You may or may not do a special research and analysis project for this plan, but either way, you’re comfortable with your sense of the market and the strategy you’re developing.

So if you don’t have to do the formal plan, because you’re not required to by the investor or the bank, then don’t. And when you do want to do the plan, because things are changing (maybe you’re entering a contest, or looking for an investor, or the bank asks for it), then you take the next step of developing the document with all the supporting information.

Form Follows Function

Some businesses need to explain and present the background information to investors, bankers, directors, members of the management team, or others.  In that case, by all means, put it into your business plan document, and/or your presentation, summary, elevator speech, or whatever. But keep in mind that it’s dressing.

The heart of the plan is its strategy, and no matter which kind of plan output you’re using you still need to understand who you’re selling to, what you’re selling, why they buy, how they know about you, and how you’re different from other offerings. You can write that down, put it in slides, talk it through with others, or keep it in your head, but you really have to understand where and how you fit. It’s a combination of your identity, your market, and your business offering.

The flesh and bones of the plan are its review schedule, metrics, responsibility assignments, dates, deadlines, budgets, and financial forecasts. You need those as much as you need anything. It isn’t necessarily a document, or a presentation, or a speech, or a summary; it’s what you’re doing and what’s supposed to happen.

The output of that might vary. Its actual physical existence might be as simple as thoughts in your head, at the beginning, and — I really hope — quickly becomes a collection of words and pictures and numbers you keep on your computer.

You do what the business needs: no more, no less.

And you never run a business without a plan, and you never think you have a plan unless you have a plan review schedule of meetings set up and you follow through with it, plus realistic metrics, a cash flow plan, and accountability.

Startups and Business Owners Will Thank Me for Posting This Debits and Credits Video

Back to Fundamentals, Business Plan Financials, Videos,

Business owners, startup founders: Do you know debits and credits? If so, cool, you know why I’ve posting this here as my Friday video. And if not, do yourself a favor and stick with this post and this video for a few minutes. You’ll be glad you did. It’s 13 minutes. If you go through this, then, for the rest of your life, for all your business dealings, you’ll know what the hell they are talking about when the financials get serious. Really, I’ve been through this, and it makes so much difference just understanding these basics.

I’ll always remember one of my favorite “this is how I did my startup” talks from a woman who’d made a scaled-up home cleaning service a business success, in Portland, OR. She made a big deal of how “knowing my numbers” became, for her, the secret to living with uncertainty, growing a business, and not obsessing day and night over the business. Once she learned her numbers, she was able to dampen the stress and get things done.

And that starts with debits and credits. Take the time to watch this video. You don’t have to memorize it; you don’t need to know it in detail; you just have to have an idea of how this works.

I run into entrepreneurs and business owners who’ve lived in fear of the phrase “debits and credits” for decades. Don’t do that. Take 13 minutes and watch this video. And then, for the rest of your life, you’ll get it. It’s actually a very easy concept.

 

For the record, I don’t know Mandi Conley and I have no relationship with this video except that I found it in the public domain and I like it.

Transaction analysis with T-accounts from Mandi Conley on Vimeo.

Business Plans are Always Wrong

Back to Fundamentals, business plan, Planning Process

Yes, I admit; I’ve used “business plans are always wrong” a few times in slides, blog posts, and even in both of my two latest books. It’s an important concept. Way too many people misunderstand the point of business planning and assume that because we can’t predict the future, we shouldn’t plan.

Which prompts me to ask: does the fact that flights are often delayed and sometimes cancelled suggest you shouldn’t make reservations to fly? Does the fact that weather or traffic jams might change the optimal route mean you don’t want to plan a driving trip? How can you justify not planning your business with the fact that things change?

I say take that a step further: business plans are always wrong.

That’s because we’re human. Business plans predict the future. We humans suck at predicting the future.an important warning

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 line chart tracking plan v actual one thing harder than forecasting is trying to run a business without a forecast.

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. And you heard that one from me first.