Category Archives: Planning Fundamentals

Planning and Paradox

Business Planning, Plan-as-you-go Planning, Planning Fundamentals, , ,

Business planning is full of paradox. It’s a matter of balance. Here are some interesting examples.

  • Business plans are always wrong, but nonetheless vital. Wrong because they’re predicting the future and we’re human, we’re fallible, so we don’t get it right. Vital because we need the plan in order to track where, how, and what direction it was wrong, which becomes planning process, which becomes management. I deal with this a lot.
  • You have to focus to survive, but you need new markets to grow. So which is it? Have you heard of the corridor principal? It says business strategy is like walking down a long corridor full of doors. Open every door to investigate and you never get anywhere. Ignore all the doors to just keep going and you never get any new opportunities.
  • I’ve written before: “it’s better to have a mediocre strategy consistently applied over three or more years than a series of brilliant strategies, each applied for six months or so.” So do you stick to the plan regardless, like running into a brick wall? Or do you revise? When do you revise? How do you know? There’s paradox, where the human judgment comes in to override the formulaic.

The solution to that paradox is the frequent plan vs. actual review, tracking results and assumptions, to put changing the plan into a real context. Set the plan, review it, and revise it, frequently, based on needs. It’s still a tough decision, at times, because of the consistency vs. pivot problem; but keeping on top of it makes it easier. For more on that, check out Lean Business Plan as Business Dashboard and GPS.

(Image: shutterstock.com)

Business Plan Software Then and Now

Lean Business Plan, Planning Fundamentals, Planning Process

I was shocked, over the weekend, to discover that it’s been more than 10 years since I posted The Future of Business Planning Software here on this blog. I wrote then:

As time goes on, more people are going to use planning as process to manage their businesses better. More will see the power of regular plan review, regular plan-vs.-actual analysis, regular milestones management, and using it all to manage teams and priorities. As this happens it will improve the quality of business planning software as well as of business planning. We’ll all start to look at built-in plan-vs.-actual analysis, regular plan reviews, and software that makes that happen.

Future of Business Planning 2006Okay, so I’m an optimist. Instead of what I predicted (yeah, rose-colored glasses, I suppose), business planning is still, 10 years later, obscured by myth and misunderstanding. Experts who should know better are still advising people against business planning when what they mean is the wrong kind of business planning, the use-once-and-throw-away formal business plan full of painfully-perfected summaries and descriptions.

And what I said would happen was, definitely, what should have happened; and what should happen still. Better late than never. These things seem self evident to me:

  1. All business owners and startups have enormous benefits to gain from proper planning. Lately I’ve been writing about it as lean business planning, but it’s basically still today what has been fundamentally good planning for all of my lifetime. Short, concrete, specific, trackable, used for regular review and revision, part of a process that is heavy on plan vs. actual analysis.
  2. The ideal business plan, today, is smaller and more concentrated than the formal business plan we did in the Silicon Valley heydays of the 1980s. It’s a lot more lean.
  3. If those experts who say don’t do a business plan would say don’t do an old-fashioned formal complete business plan, just a lean plan, then they’d be right.
  4. Apply the general business rule of form follows function to business planning. Do only what you need. Do only what you’ll use. For business owners, you rarely a real business reason to do a full formal plan, but having a lean plan is golden, as long as you track it and use it to steer the business. Sometimes a bank will require a business plan, but usually a lean plan is good enough for that use too. Startups may need a business plan for investors who want to do due diligence on them before investing; that may or may not require more than a lean plan.

My most recent post on this, in the blog, is The Lean Business Plan as Dashboard and GPS. And there’s a category here called Lean Business Plan.

Will businesses finally pick up on this idea? I hope so. If you want to improve management and steer your business better, the right kind of business planning develops focus, priorities, accountability, and execution. And business plan software is going there already.

In regards to software, I’m happy to report that Palo Alto Software has made my 2006 predictions self-fulfilling prophecy. LivePlan connects to your QuickBooks or Xero accounting software and does plan vs. actual analysis automatically; plus this year vs. last year too.

Business Planning is not Accounting

Business Planning, Planning Fundamentals

Stargateverysmall_1 The picture here represents the legendary Stargate, a science fictional gateway between two dimensions. There was a 1994 film starring James Spader and Kurt Russell.

I often use it to illustrate the difference between business planning and accounting. Business planning begins today and goes forward into the future. Accounting ends today and goes backward into the past. Planning is for making decisions, setting priorities, and management. Accounting is also for information and management, of course, but there are legal obligations related to taxes. Accounting must necessarily go very deep into detail. Planning requires a balance between detail and concept, because there are times when too much detail is not productive.

The catch that causes many misunderstandings is that the statements look very similar.  Your accounting system produces an Income statement (alias Profit or Loss), a Balance Sheet, and a Cash Flow statement.  A good business plan has at least the same three statements as “pro-forma” (meaning projected) statements. The form, presentation, and order of appearance of these financial statements are almost identical, but their information content is quite different.

Accounting should zoom into ever-increasing detail.  Business planning should summarize and aggregate.

Accounting can never be wrong.  Business plans are always wrong (not that they aren’t useful — it’s like walking or steering, the value is in the correction and the management of where and why they’re wrong, but that’s a different post.)

A Simple Cash Flow Spreadsheet Anybody Can Use

Back to Fundamentals, Lean Business Plan, Planning Fundamentals

If there’s just one formal business skill every business owner should have, it’s understanding and forecasting cash flow. It’s not intuitive because it’s not the same as profits; but it’s vital. We spend cash, not profits. It’s one of the most important pieces of every lean business plan.

Here’s my recommendation for a relatively simple way to lay out cash flow in a spreadsheet, so you can see it. It doesn’t take a CPA or an MBA to do it … just knowing your own business. (Note: you can click on the image to see it full size, and you can find more variations with this search on the lean business plan site.)

Simple Cash Flow Spreadsheet

Do Your Numbers

Making Your Estimates

  1. In lines 3 and 4, you forecast the revenue from sales. Yours might be just cash sales, a single line. If you have sales on account, you know it. If you’re not sure (maybe you’re looking at a startup so you don’t have the experience yet), assume you do have sales on account if you sell to other businesses; and probably not if you sell to consumers. Line 4 is your prediction for when the business customers will pay invoices.
  2. The ‘Start’ column reflects the starting balances and starting funding for a startup. With an ongoing business, you might have that balance labeled ‘Dec’ for the ending month of the previous year. In this example, the startup owner borrows $55,000 and gets $25,000 as new investment.
  3. Lines 5 and 6 are important because new money from loans and investments doesn’t show up in your profits, but it’s there.
  4. That whole block of rows 3-6 is a simplification. You know your business. Where else does money come in? Maybe you’re selling assets too? Stay flexible. Take this simple example as just that, an example. Make yours specific to your business.
  5. Rows 9-10 are also simplified. Use as many rows as you want to estimate operating expenses, focusing mainly on fixed costs, rent, utilities, and payroll.
  6. Row 11 is there to make the point that cash flow counts what you spend for inventory and other direct costs of sales, when you spend it – not when it shows up in profit and loss. When a bookstore spends $10,000 in November to buy books to sell, those books might not show up in profits (as cost of goods sold) until December, January, or beyond … but that money leaves your bank in November. So you put it into your cash flow in November. If you don’t sell products, and don’t deal with inventory, then you might have a row for direct costs such as hosting, or customer service.
  7. Row 12 is there because most businesses pay a lot of expenses at the end of the month, or 30-45 days after received. For example, the ad you place might come through as an invoice that you’ll pay later. Row 12 is for all those things you pay later. And, just in case you’re keeping track, these are expenses, including tax and interest. The projected interest on that $55,000 loan is included there.
  8. Rows 13 and 14 show two items that are often forgotten in cash flow planning. Principal payments on debts, and buying new assets, don’t show up in profit and loss. But they cost money that goes out of your bank account.

Simple Calculations

As you can see in the illustration, row 7 sums the money coming in, row 15 sums the money going out, row 16 shows the cash flow for the month, and row 17 shows the projected cash balance. You can see from the illustration how the cash flow is the change in the cash balance, and the cash balance is the equivalent of checking account balance; it’s how much money you have.

They Key is Using it Right

First, tailor your cash plan to match the actual details of your business. This is a very simple example. Be flexible about adjusting it so it matches your business, and your bookkeeping,

Second, using it correctly requires keeping it up to date. Review it every month. Calculate the differences between what you expected and what actually happened, and make adjustments.

You never guess right. And this is all guessing. What matters is watching carefully and updating so you can react to changes in time.

Like all business planning, the value is in the decision. The business value of cash planning is the decisions it causes.

(Ed note: I’m reposting here from my post yesterday on the SBA.gov Industry Word blog: A Simple Cash Flow Spreadsheet Anybody Can Use)

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.

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

Planning and Paradox

Business Planning, Plan-as-you-go Planning, Planning Fundamentals, , ,

Business planning is full of paradox. It’s a matter of balance. Here are some interesting examples.

  • Business plans are always wrong, but nonetheless vital. Wrong because they’re predicting the future and we’re human, we’re fallible, so we don’t get it right. Vital because we need the plan in order to track where, how, and what direction it was wrong, which becomes planning process, which becomes management. I deal with this a lot. 
  • You have to focus to survive, but you need new markets to grow. So which is it? Have you heard of the corridor principal? It says business strategy is like walking down a long corridor full of doors. Open every door to investigate and you never get anywhere. Ignore all the doors to just keep going and you never get any new opportunities.
  • I’ve wrote in my Plan as you Go Business Plan book: “it’s better to have a mediocre strategy consistently applied over three or more years than a series of brilliant strategies, each applied for six months or so.” So do you stick to the plan regardless, like running into a brick wall? Or do you revise? When do you revise? How do you know? There’s paradox, where the human judgment comes in to override the formulaic.

(Image: shutterstock.com)

10 Lies About Business Planning (Video)

Business Planning, Planning Fundamentals, Planning Process,

Business plans are a waste of time? That’s a dangerous lie. Don’t bother, because nobody’s going to read it anyhow? That’s another lie, because it’s about running your company, not whether somebody else reads your document. The lies matter because they interfere with business planning, which ought to be part of your management. Planning is supposed to be a tool to help you control your own destiny. Instead, many of us don’t plan right because we let some of these lies get in the way.

The list of 10 is included in the video here, a recording of the webinar I gave as part of Global Entrepreneurship Week, earlier this week. And what’s more important is that I talk about what you should do, instead of believing the lies, to make business planning part of your business management. The goal isn’t just listing lies: it’s steering your company, managing better, and having a better business. Control your destiny.

http://www.youtube.com/p/AE90BC08FB7DB700?hl=en_US&fs=1

Would you take a trip without planning it? Would the plan be a big honking document? Would it matter to you whether anybody else read it? Would having a plan mean you couldn’t change it when a flight got cancelled?

This webinar was sponsored by bplans.com (an entirely free site, which you are on as you read this) and Palo Alto Software, publisher of Business Plan Pro.

(If you don’t see the video, you can click here for the original on YouTube)