Category Archives: Business Planning

10 Marketing Plan Essentials for 2016

Marketing, Planning Fundamentals,

(Note: I posted this last week on the SBA Industry Word blog as 10 Essentials of A Marketing Plan in 2016.)

10 Marketing Plan EssentialsClearly, technology has changed marketing a lot. We fast forward through ads on television and block them on our devices. We have amplified word of mouth in social media. We pour over analytics and metrics. But what about the marketing plan? Has technology changed marketing planning?

One thing for sure: The fundamentals still apply. As much as ever, marketing is still getting people to know, like, and trust your business. As much as ever, marketing still needs defining target markets, knowing those market segments, reaching the right people with the right message. Pricing is still the most important message, and the lowest price is – as always – not necessarily the best price.

Another thing for sure: the marketing mix, the tactics, are changing rapidly. Goodbye to the yellow pages, hello Facebook. Goodbye public relations, hello social media. Goodbye advertising, hello content marketing.

And where is the marketing plan, in all this? Let me suggest 10 marketing plan essentials for 2016. The fundamentals still apply, but the specifics are changing.

  1. Target Market. The better you define it, the better for the marketing. Experts recommend describing an ideal target customer in detail. Don’t try to please everybody. Instead, please some specific kinds of buyers who have the right set of needs, habits, locations, etc.
  2. Messaging. A summary of the main tag lines, key selling points, value proposition and so forth (we could call this messaging).  There are a lot of different jargon words for this, so be flexible.
  3. Media. Discussion of media, which almost has to be social media and content marketing these days, but used to be advertising budgets, placement, and so on. I’m growing more interested in taking steps beyond just content marketing, to distributed marketing, and real engagement. That means something more than “post and pray.’ As you think about this topic, think about where your potential customers will see your message. What else do you do to help the right people find your message? To track what they say about it?
  4. Pricing. You have to make pricing match product or service, market, or messaging. Don’t assume that the lowest price wins. Pricing is your most important marketing message. Would you buy day-old sushi because it’s cheap? Your price needs to synchronize with your product offering and your target market. If you discount excellence, it becomes less credible in the eyes of your potential customers. And if your strategy is selling an undifferentiated lowest price product or service, make sure that matches the rest of your marketing
  5. Channels. For product businesses you have the classic question of channels of distribution, either direct (usually web and mobile these days) or via distributors and retail, or direct to retail. Information and service businesses need to consider channels too, even though the channels are marketing channels, such as web and mobile. We all need traffic of one sort or another
  6. Promotion. These days promotion might be as simple as consistent presence in the main social media platforms. It might be email marketing, advertising, affiliate sites, public relations, price promotion, and events.
  7. Tasks and major milestones. Every good plan requires some specific tasks and major milestones to make it concrete. Otherwise it’s just theory. You need to be able to track progress against the plan. Milestones help us get things done. We work towards goals.
  8. Important metrics. It takes real numbers to actually work a plan. That might be sales, web traffic or store traffic, leads, presentations, seminars, conversions, tweets, posts, likes, follows, or whatever. Make it measurable.
  9. Review schedule. Keep your plan as short as possible, just lists and tables, because it’s only good for a few weeks before it needs revision. The real world keeps intervening. You need to plan ahead for a monthly meeting to review results and revise that plan.
  10. Budgets. You have to manage the money. A good marketing plan needs to include budgets for expenses, and the sales that result from the different activities.

The Only Startup Metrics that Matter

Business Planning, Management, Planning Fundamentals, , ,

Data AnalysisI like this a lot. In The only startup metrics that matter — Medium, Josh Elman, who has had upper echelon stints with Facebook, Twitter, and LinkedIn, writes:

“One of the things that I felt working on each of these is that we never looked at numbers or metrics in the abstract — total page views, logged in accounts, etc, but we always talked about users. More specifically, what they were doing and why they were doing it.”

That strikes me as very good advice. Get past the startup metrics for their own sake, and back into why. He continues:

How many people are really using your product? You need a metric that specifically answers this. It can be “x people did 3 searches in the past week”. Or “y people visited my site 9 times in the past month”. Or “z people made at least one purchase in the last 90 days.” But whatever it is, it should be a signal that they are using their product in the way you expected and that they use it enough so that you believe they will come back to use it more and more.

I confess that as I was growing Palo Alto Software I would occasionally, for some presentation or other, browse through available metrics as if reading a menu, and choose the one that made us look best. I liked steep curves in line charts, and inflection charts. And if page views didn’t show it, I’d look at users, or downloads, or conversions, or hits … until I found one that showed a curve I wanted to show.

I bet I’m not the only one. Josh’s suggestion makes a lot more sense.

How To Forecast Sales and Profits Without Just Guessing

Business Planning, ,

Yes, it’s – my title here – a real question, and I get it a lot: how to forecast sales and profits without just guessing. It’s a good question too, because it leads to a better understanding of how and why we use forecasting to help manage a business, and to predict starting costs and the numbers for the first few months of a startup.

It’s a corollary to the question “but how can I forecast sales for a new product, when I have no data.”

And the key is that of course you guess. We’re people, we don’t know the future, so we are always guessing. But we’re not just guessing. We’re developing sets of assumptions. We’re looking at drivers for sales, realistic assumptions for expenses. We draw from experience as much as we can, and from research in addition. It’s a forecast, not a guess. And if it’s hard to forecast, sure; but it’s even harder to run a business well without a forecast.

Forecast Sales Based on Assumptions about Drivers

For example:

  • To forecast a web-based business you should probably consider traffic, drivers of traffic, plus conversion rates, and average unit sales per order. Drivers of traffic would include search engine optimization (SEO) for organic traffic, and pay-per-click (PPC) online marketing budget for paid traffic. Here is a simple example …
    i
  • If your marketing includes email marketing, you can break the sales down according to emails sent, percentage opened, clicks to the web from email, conversion rates, etc. The illustration here is a simplified example.
  • If you are forecasting sales of an actual physical product, going through retail stores, then you should take into account reasonable expectations for distributors, retail chain stores, number of stores carrying it over time, unit sales per store, etc. And you’d want to have a good understanding of how margins work as you sell your product to distributors and they sell to retail stores. And you should be able to estimate the related expenses, such as stocking fees, co-promotion fees, and administration costs.
  • If you are forecasting sales of a mobile app, you’d want to look at sales through each of the mobile app stores, and develop assumptions based on history of similar apps, adjusted for your promotion strategies, marketing expenses, etc.
  • If you are forecasting sales with a direct sales organization selling to larger companies, you should understand a direct sales sales force, reasonable expectations of leads, presentations, and closes per month per sales person, pipeline dynamics related to decision time, etc.

Forecast Expenses Based on Reasonable Expectations and Estimates

  • Estimates for expenses should include reasonable expectations on headcount, compensations per person, office space and logistics based on how many people and expected costs per square foot, infrastructure costs, and especially realistic marketing expenses.
  • Estimates of costs should take into account unit economics, economies of scale, production costs, etc.

These are just a few examples. Yes, it is guessing, but it’s also looking at drivers and assumptions and pulling the granular assumptions together so they are visible. And, furthermore, it’s supposed to be followed by regular plan vs. actual analysis, so the forecasts get steadily more accurate over time.

Update on History of Business Plans

Business Planning,

Four years ago I posted A Short History of Business Plans including my experience plus data from a Google search of usage of phrases in books. The search is interesting because it transcends the web and online data by digging into books.

Usage in Books

I tried a similar search yesterday and was disappointed to discover that it hasn’t been updated past 2008, which was the same most recent date available in 2011. It turns out the Google book search I used then still runs only through 2008, as it did then. Bummer. That’s disappointing. So here’s that data:

google-ngram-business-plan-etc

I find it kind of cool – obviously meaningless, but still cool – how neatly that blue line parallels my personal experience with business planning. I first heard about it in the middle 1970s, started to really like it – and do a consulting business around it – in the middle 1980s, and then developed Palo Alto Software and business planning software for business plans in the middle 1990s. No wonder it seemed important to me. Look at the blue line.

However, still curious about how usage has fared since 2008, I decided to turn to web searches for a better update. So I did a  a Google Trends search for “business plan” and “entrepreneurship.” The conclusion is that the searches for business plan and for entrepreneurship are stable, and seem to correlate very closely.

google-trends-business-plan-etc

I’m not sure what to make of that visual correlation, and much less what to make of the appearance of both of these lines turning flat over the last four years. What do you think?

Displacement Principle in Startups and Small Business

Business Mistakes, Business Strategy, Planning Fundamentals

It’s really pretty simple. Intuitive. I didn’t learn about it in business school; I learned about it while building and running a real business. I decided to call it the displacement principle.

Displacement Principle: In the real world of small business, everything you do rules out something else you can’t do.

Displacement

My favorite metaphor is dropping a brick into a full bucket of water. What happens? Displacement happens. Water splashes out of the bucket.

I’ve seen the same thing happen as people try to grow their businesses. It’s easy to add lots of new items to the lists of what else ought to be done. As you do, ask yourself:

Do we have the resources? Will this idea generate those resources? And, if not, what are we not doing when we start doing this.

Everything you do displaces something else that you can’t do. Learn to live with this and you’ll do better planning your business, and, particularly, growing your business.

The Lean Business Plan for Small Business Owners

Lean Business Plan, Planning Fundamentals, Planning Process, ,

“What? No, I don’t have a business plan. I’m not a startup.”

Too bad so many small business owners think that way. A good lean business plan for small business owners ought to be a great tool for running a business. Set strategy, tactics to match, major milestones, metrics, tasks, responsibilities, and essential business numbers. Keep it lean, review and revise it every month, and you’re way better off. Whether you’re a startup or an ongoing business. Just like planning a trip makes the trip better, so too, planning a business makes the business better.

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.

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. Here’s my view of the business plan for small business owners:

Core plan-900W

Interested? Download my new book on the Lean Business Plan: Lean Business Planning with LivePlan

11 Key Elements of a Good Business Plan

Business Planning, ,

bar-charts-37107002_600WSomebody asked me what the key elements of a good business plan were, and I’m glad they did—it’s one of my favorite topics.

It gives me a chance to review and revise another of the lists that I’ve done off and on for years (such as the one from yesterday, on common business plan mistakes).

1. Measure a business plan by the decisions it causes.

I’ve written about this one in several places. Like everything else in business, business plans have business objectives.

Whether the purpose of the plan is better management, accountability, setting stepping stones to the future, convincing somebody to invest, or something else, does it accomplish that? Does it achieve its objective?

Realistically, it doesn’t matter whether your business plan is well-written, complete, well-formatted, creative, or intelligent. It only matters that it does the job it’s supposed to do. It’s a bad plan if it doesn’t.

2. Concrete specifics. 

Dates, deadlines, major milestones, task responsibilities, sales forecasts, spending budgets, cash flow projections.

Ask yourself how executable it is. Ask yourself how you’ll know, on a regular basis, how much progress you’ve made, and whether or not you’re on track.

3. Cash flow.

Cash flow is the single most important concept in business. A business plan without cash flow is a marketing plan, strategic plan, summary, or something else—and those can be useful, but get your vocabulary right.

There’s a useful role for a business model, lean canvas, pitch deck and so on in some contexts, like raising investment. But those aren’t business plans.

4. Realistic.

While it is a fact that all business plans are wrong, assumptions, drivers, deadlines, milestones, and such should be realistic, not crazy.

The plan is to be executed. Impossible goals and crazy forecasts make the whole thing a waste of time.

5. Short, sweet, easy-to-read summaries of strategy and tactics.

Not all business plans need a lot of text.

Text and explanations are for outsiders, such as investors and bankers; however, a lot of companies ought to be using business planning to just run the business better. If you don’t need the extra information, leave it out.

Define strategy and tactics in short bullet point lists. And tactics, by the way, are related to the marketing plan, product plan, financial plan, and so on. Strategy without tactics is just fluff.

6. Alignment of strategy and tactics.

It’s surprising how often they don’t match.

Strategy is focus, key target markets, key product/service features, important differentiators, and so forth. Tactics are like pricing, social media, channels, financials—and the two should match.

A gourmet restaurant (strategy) should not have a drive-through option (tactics.)

7. Covers the event-specific, objective-specific bases.

A lot of components of a business plan depend on the usage.

Internal plans have no need for descriptions of company teams. Market analysis hits one level for an internal plan, but often has to be proof of market, or validation, for a plan associated with investment. Investment plans need to know something about exits; internal plans don’t.

8. Easy in, easy out.

Don’t make anybody work to find what information is where in the plan. Keep it simple.

Use bullets as much as possible, and be careful with naked bullets for people who don’t really know the background. Don’t show off.

9. As lean as possible.

Just big enough to do the job. It has to be reviewed and revised regularly to be useful. Nothing should be included that isn’t going to be used.

10. Geared for change.

A good business plan is the opposite of written in stone. It’s going to change in a few weeks.

List assumptions, because reviewing assumptions is the best way to figure out when to change the plan, and when to stick with the plan.

11. The right level of aggregation and summary.

It’s not accounting. It’s planning.

Projections look like accounting statements, but they aren’t. They are summarized. They aren’t built on elaborate financial models. They are just detailed enough to generate good information.

(This started as my answer to a Quora question: What are the key elements of a good business plan?)

10 Most Common Business Plan Mistakes, Updated for 2016

Business Planning, , , ,

top10planningmistakesOver the weekend, a Quora user asked me to list common mistakes that people make when developing a business plan.

I’ve done that post from time to time, and it seemed like a good time to do it again.

Here’s my list of most common business plan mistakes for 2016:

1. Misunderstanding the business objective.

All businesses need plans to set strategy, tactics, milestones, tasks, and essential numbers.

Not all businesses need plans to show to investors or bankers. They don’t have to be traditional formal plans for most businesses, but they do have to be lean business plans that are about managing change.

Plans themselves are useless, but planning is essential. Plans should be made to fit business objectives.

2. Not doing the plan at all, because it’s supposedly too hard.

That stems from #1 above.

3. Doing (and including) too much.

Real business plans are to run business, not just to communicate to outsiders.

They last only a few weeks. They are lean. They don’t have any descriptions or summaries that won’t be used. They take hours, not weeks or months, to do. They are never finished because they are revised every month or so.

And a plan for internal use has no need to describe in text what everybody in the organization already knows, such as backgrounds of the management team. Plans for businesses that already know their market, and make decisions without additional market research, don’t need to include, much less prove, their markets.

4. Overestimating profits.

It’s amazing how often this happens.

In a world where healthy normal businesses make six percent, eight percent, 10 percent or so profits on sales, half the business plans I see in angel investment mode project profits of 40 percent or more.

Really, half. Crazy.

People think we (angel investors) are supposed to be impressed, when what that really means is not understanding the business very well, and underestimating expenses.

5. Naked numbers.

Numbers mean very little without the stories that give them reality.

Don’t bother putting numbers to markets or potential markets without going bottoms up through the assumptions. Numbers always change. Work with the assumptions.

6. Percent-of-total-market forecasts.

Useless. Nobody gets a tiny percent of a huge market.

Successes get meaningful percentages or nothing. Huge markets are almost always poorly defined. The only sales forecasts that count are those based on assumptions, like traffic, PPC, conversions, channels, sales cycles, something real.

Bottoms up only, never top down.

7. Startups trying to compete on price.

You’ll fail. Don’t be the low-price spread. That takes big-branding capital.

Find a lucrative small market segment that appreciates value, and differentiate. Build a story that sizzles.

8. Showing off your knowledge.

I hate the plans that try to show how much founders know.

If your technology takes that much explaining I’m going to just skip to your resumé to decide whether (or not) you know what you’re doing.

This is business. Get to the business of it.

9. Vague, hand-waving at big concepts.

Plans need specifics, when and what, how much, and who.

If it doesn’t have major milestones, tasks, and metrics, it’s just cotton candy.

10. Stupid trite claims.

Half the plans I saw last year (about a hundred or so) claimed to be game changing or disruptive.

Don’t say it. Show it. Let the readers lay the labels on you. That’s way better.

The source on this, the original question and answer, are on Quora here:

What are some common mistakes that people make when developing a business plan?

What Is so Great about Developing a Business Plan for a Business?

Business Planning, , ,

I couldn’t resist.

The question was, “What’s so great about developing a business plan for a business?”

Here’s my answer:

What’s great about a business plan starts with something similar to how we feel about having a collection of flight, hotel, and rental car reservations before we take a trip.

The business plan, done right, breaks the uncertainty into manageable pieces.

  • It sets the most important elements of strategy, including business offering, target market, and differentiators.
  • It sets the most important tactics for execution, and matches them to strategic focus.
  • It sets up and defines the important steps for the future.
  • It defines the key assumptions and resulting projections for sales, direct costs, operating expenses, and cash flow.

It’s a great tool for moving forward, figuring out what’s important, managing the important flow of tasks responsibilities, and money, and then—on a regular basis—checking results with review and revision.

It’s not the plan that really matters; it’s the planning. But you can’t have planning without a plan.

And here’s where that question and answer took place, on Quora: What is so great about developing a business plan for a business?

What ‘Accurate’ Means in a Business Plan

Business Plan Contest, Business Planning, Venture Contests, ,

Questions_iStock_000011860969_modified (1)I just answered this questionon Quora. I think it’s an interesting question, one that comes up often enough, and one whose answer is worth considering.

How can I write a very accurate business plan. I’m hoping to win a grant in a business plan competition?

The rest of this post is my answer on Quora, reposted here with Quora’s (implied) permission:

This is an important question, but also a big one, hard to answer in a few hundred words. And I’m going to stick with the subset of business plans that apply to business plan competitions. These are more traditional and formal business plans, written to communicate with outsiders, and therefore significantly bigger than the lean plan (see below) you need to just run a business.

What Accuracy Means in a Business Plan

It starts with this: in your summary and descriptions of the business model, company formation, market, business offering, and management team, your readers take accuracy for granted and so should you. Tell the truth about your business and what you plan to do. Period. Accuracy isn’t a variable.

I have to guess that you bring up accuracy in the context of projections, specifically your market forecast, sales forecast, projected profit and loss, projected balance sheet, and projected cash flow.

Accuracy in market information

With market information, make sure you distinguish between the statistics, demographics, and descriptions you present as facts – external available information, with sources cites – and estimates and projections.

Approach this with the understanding that there are no facts about the future, just guesses; and there is no guarantee that the information you’d like to have will be publicly available. So therefore you have to develop reasonable estimates, based on assumptions, for which accuracy is mainly a matter of making your assumptions logical, and transparent.

Here’s a real example from a plan I was involved in recently for a social media consulting firm (Have Presence):

  1. The target market is small business owners who want social media presence, don’t want to do it themselves (or don’t have time), and have the budget to pay for a service.
  2. To develop an estimate for the U.S. portion of the market, I start with known statistics on small businesses in the U.S. and cite the source (in this case, the U.S. Small Business Administration), to arrive at some number, say 5.5 million (I’m not taking the time, while answering, to go check the actual number; but it’s a real number, publicly available, with a reliable source).
  3. From there I have to make an estimate of how many of those 5.5 million business owners meet the criteria of wanting presence, not doing it themselves, and having budget. There is no way to get the actual number with any accuracy. I have to estimate. And whether I end up saying it’s 2%, 5%, 10% or 20%, the quality of accuracy in this specific case is a combination of going from known statistics to estimates, and keeping the estimates clarified.
  4. If I really cared – perhaps because I was entering a business plan contest with my plan – I could probably figure out how to educate my guess in point #3 by looking at Facebook statistics, Twitter statistics, businesses by number of employees, and so forth – that would still leave me with estimates, but better estimates. In fact, I’m fine with what I did in point #3 because that tells me there is enough market to go for … whether it’s half a million to two million potential clients is irrelevant for business decisions, because it’s enough.

So this is just one example. Accurate in market description is a matter of combining what can be known with what can’t be an has to be estimated.

 Accuracy in Financial Projections

Financial projections are always wrong, by definition, but they’d better be laid out correctly, reasonable, transparent, in line with industry standards, and, above all, credible.

  1. The goal is to connect the dots in the financials so that spending is in proper proportion to sales and capital resources, and cash flow is sensitive to factors such as sales on account and inventory that make it different from profit and loss. Show that you understand how the financials are going to work in the real world. What drives what.
  2. The sales forecast has to be credible. Make sure you lay it out from the details up, not from top down. That means transparent assumptions about drivers, so for a product in retail channels it’s something like monthly sales per store, and stores carrying the product; and for a web business is traffic via organic, traffic via PPC, and conversion rates; and so on. Definitely not a top-down forecast, meaning show a huge market and a small percent of market.
  3. Profitability has to be credible. One of the most common flaws I see in business plans for competitions is absurd profitability, 30%, 40%, and more as profits to sales, in an industry in which the major players make 5% or 10% on sales.  That’s a huge negative. Accuracy in P&L means having realistic percent of sales for marketing expenses, general and admin expenses, and development expenses.
  4. Cash flow has to be credible. Another common flaw is failing to understand how sales on account and accounts receivable affect cash flow for business-to-business businesses; and yet another is failing to see the cash flow implications of having to buy product inventory and carry it before selling it.

Accuracy in the main body, descriptions, etc.

For the rest of the plan, industry information, competitive information, and so on, what’s really important is that you clearly distinguish between factual information from valid sources and guesses and estimates.

One of the worst things you can do in a business plan competition or pitching investors is to get caught presenting as fact something that one of the judges or investors knows is inaccurate. If you aren’t sure, clarify, disclose, call your guesses guesses. And it’s particularly bad to fudge the facts regarding your personal history, your business history, or those of your team members. Don’t cross the lines of accuracy related to degrees, job positions, and past jobs. You need to protect your integrity. And if you blur the truth on purpose, such as saying you studied business at Harvard or Stanford when you were just there for a few weeks in a special course, or when you failed to graduate, that can kill a deal.