Category Archives: Planning Fundamentals

Is Your Business Either Growing or Dying?

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True story: there were six of us at lunch together on a beautiful late spring day in 1996. We sat on an outside table in the shade and discussed the next big growth spurt. Would we take this marketing-on-steroids proposal, at a high cost? Would it work? Could we afford not to?

I’m not sure any more which of us said it:

The status quo is great. This company is fun. The team works well together. Do we really have to grow?

I liked the idea, but didn’t fully buy it. My answer:

Yes. We’re a software company. We shrink or grow. There’s no alternative.

We did take the growth pill. Sales doubled in the following three years. Today, 14 years later, I still think that basic idea, growth or die, is true. Technologies change quickly. Trends and fashions change. Operating systems and the tools in software change. You don’t stop moving. Settle in, and you’re in trouble.

But is it that simple? I’m less certain than I used to be. And not just because of this recent piece, but still, I’m fascinated by Karen Klein’s Your Perception of Business Growth Is Wrong a few days ago on the businessweek.com site. She interviews Edward Hess, entrepreneur, author, and academic, who says, point blank:

What most business people think about growth, like “grow or die” or “growth is always good,” is not supported by research.

I do have to say that I am not as influenced by the “supported by research” phrase as I’m supposed to be. I’ve seen a lot of foolish notions supported by research. So I’m not that impressed by the results of a team of interviewers talking to CEOs of 54 companies, with average revenue of $60 million. Companies with revenues of $60 million are enormous to me. They have very little to do with the 95+% of businesses that have no employees, or just a few.

What does impress me, though, are the arguments Hess makes in the Business Week interview:

growth that’s not managed properly can lead to dilution of your customer value proposition and risks to your reputation and brand. I think you should approach growth not as an assumption but as a well-thought-out decision. Understand the difficulty involved and go into it with eyes wide open, knowing that you can stop at any time.

companies don’t necessarily have to grow or die, but they must improve or die, meaning they have to continuously improve their customer value proposition or risk going out of business.

if you take on too much growth, it can overwhelm your processes, people, and controls. What we recommend is managing the pace of growth with something like a gas-pedal approach.

Smaller, privately held companies usually don’t have the financial safety net to withstand quality control issues or negative publicity or a legal downside.

All of these arguments, taken from the interview, make sense to me. So I don’t know. What do you think: grow or die? Grow or shrink? Is it different in software, the web, and other high-tech businesses?

(Illustration: 3DProfi/Shutterstock)

Business Plan, Marketing Plan, or Both?

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“if I have a marketing plan, do I need (or want) a business plan too?” Good question. And so is its opposite question too, “if I have a business plan, do I also need (or want) a marketing plan?”

As for a lot of these planning questions, you’re going to get different answers from different people. There’s no consensus on this.  But here’s my answer:

  1. Marketing is critical to business, and every business plan has a lot of marketing plan in it. There’s no need to keep the marketing separate from the rest of the planning. The marketing plan is an extremely important part of the business plan. No need to do it separately.
  2. That is, however, unless you are one of those people who are responsible for marketing, but not for the whole company. You don’t manage cash or financial strategy or ownership of the business. Then your job is marketing and related functions like sales and customer service and branding and social media and SEO, and so forth. You ask for the resource, and somebody else reviews, prioritizes, and gives you that resource or a reason why not. You probably have to manage expenses and show how they relate to sales and the health of the company. You probably have to show how those expenses make good business sense. You should probably be doing marketing planning, not the whole business planning; just your subset.

So to me, at least, the marketing planning is different from the business planning because it’s a subset. It doesn’t deal with financial health or financial strategy. It should have projections for sales, cost of sales, and sales and marketing expenses. It doesn’t project overall cash flow or the projected balance sheet. It probably deals with personnel, but just the related personnel, not the whole company personnel or larger personnel strategies.

Somebody just asked me that in email.

Seth Godin on Rethinking Business Plans

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It’s about time that business writers, assorted experts, entrepreneurs, academic and the rest start focusing on the huge damaging and wasteful misunderstanding that most of us have contributed to: that completely out-of-date idea that a business plan is a document, done once, related to raising money.

Seth's blogSo I’m delighted to see Seth Godin jumping onto this issue with a good restatement of the problem and an infusion of new ideas to shake us up. His modern business plan post on his blog Monday starts with a quick but very real problem:

It’s not clear to me why business plans are the way they are, but they’re often misused to obfuscate, bore and show an ability to comply with expectations.

The most important word there is “misused.” Because that’s the myth of the business plan. Case in point: last week a journalist asked me if we had “an official business plan” for Palo Alto Software. That was his phrase, not mine: “official.” As in formal. Static. Left somewhere in the drawer.

Somebody on Twitter asked me what I thought of Seth’s post, thinking, I’m only guessing, that I’m in favor of the more traditional business plan. No way. I love the new thinking. It’s right in line with what I’ve been posting for several years now.

There’s no such thing as an official business plan, but the idea highlights the misuse. People spending months developing documents instead of businesses. That’s waste.

It should be business planning, a process, reviewed and revised regularly, a tool for managing and steering a real business.

Seth’s recommendation is excellent. Let’s shake the old expectations up, change the expectations, change the arrangement… and what he recommends doesn’t do anything but enhance the real business purpose of business planning.

His recommendation? A new standard order of plan documents:

I’d divide the modern business plan into five sections:

* Truth
* Assertions
* Alternatives
* People
* Money

He goes on, in the post, to talk about each of those sections. Excellent suggestions. His new order would make a great business plan.

From my point of view, this suggested reordering is nothing but positive. The business plan is just step one of planning; it’s about managing change. It’s not a sales brochure. It’s not a pitch to investors. It’s not even a plan; it’s planning. It’s about managing change. It’s about optimizing, prioritizing, setting long-term goals and short-term steps, with metrics and tracking. Why not put it in this order?

If nothing else, at least it shakes up that mythological business plan that so many people are tempted to misunderstand and misuse. And there’s no downside to it.

Read his post. See what you think. And if you read my stuff on business planning, I think you’ll find I’ve always been in favor of flexible one-of-a-kind business plans, as part of planning process. It fits perfectly with my work on business planning, including the two highlights of my recent work:  Plan-As-You-Go Business Plan and Business Plan Pro.

Business Plans, Plan A vs Plan B. Real or Fiction

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Very interesting talk from earlier this month on Stanford’s Ecorner. This is Randy Komisar, of Kleiner Perkins Caufield & Byers, as part of a one-hour talk built around his book Getting to Plan B.

http://ecorner.stanford.edu/swf/player-ec.swf

That’s a two-minute piece. Interestingly enough, it was followed immediately by an additional one-minute piece, called the Benefits of Mapping Plan A. That’s also important.

http://ecorner.stanford.edu/swf/player-ec.swf

Planning Fundamentals 5: Planning Is To Manage Change

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(This is the fifth in a series of posts reviewing the fundamentals of planning, with an eye for how they’re changing over time. Part one was Form Follows Function. Part two was All Business Plans are Wrong. Part three was Cash Not Profits. Part four was Planning as Accountability)

brick wallSome of the strongest and most pervasive myths about planning are dead wrong: planning doesn’t reduce flexibility. It builds flexibility.

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

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

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

It’s not like change undermines planning; actually, planning is the best way to manage change.

Planning Fundamentals 4: Its About Accountability

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(This is the fourth in a series of posts reviewing the fundamentals of planning, with an eye for how they’re changing over time. Part one was Form Follows Function. Part 2 was All Business Plans are Wrong. Part 3 was Cash Not Profits.)

I predict accountability is going to be an increasingly important issue as we head into this new decade. The old-fashioned tools of accountability, mainly physical presence, as in hours in the office, or days on the road, are fading. If for no other reasons, it’s because the world can’t continue to support needless commuting, an average of 51 minutes per day in the United States, and way worse in some of the larger cities in the developing world.

So what’s going to happen? We’re going to look increasingly for accountability as part of our real-world business planning process. The plan establishes the metric, and the regular plan review and tracking establish progress towards the metric.

It’s not just sales, costs, and expenses. It’s more metrics for more people, including lines of code, calls, blog posts, tweets, unique visitors, page views, minutes per call, presentations, proposals, emails processed, and so on.

Our tools will give us ever increasing metrics to use. I’m very biased about Email Center Pro, I admit, but if you’re curious you should look into the wealth of metrics it provides on team-managed emails and email addresses, like the [email protected] or [email protected]. And everybody knows about Google and Web analytics, paid search, etc. And telephones and miles are completely trackable.

All of this becomes the concrete specific portion of the business plan, and it is then managed as part of the business planning process. That means that the plan lasts barely a month before results are reviewed. Managing the metrics is a multiple win when there’s regular review, because all the members of the team can easily look on together and see where things have to change. And why.

And that’s the future of planning: management.

Planning Fundamentals 3: You Think in Profits, but You Live on Cash

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(Note: This is part 3 of my planning fundamentals review. Here are the links to Part 1: Form Follows Function and Part 2: All Business Plans are Wrong.)

Cash flow is the most important mystery you have to solve. Cash flow is the real heartbeat of business. And unfortunately, cash flow isn’t intuitive. It’s tricky.

We think in profits. It’s part of our culture. Take the sales and subtract the costs and expenses, and if the result is positive, then hooray, we’re okay.

Unfortunately, it doesn’t always work out that way. Because of  accounting rules, sales are sales we made for this month, and costs are what it cost us to produce what we sold this month, and expenses are what we incurred this month. But — and here’s the brutal mystery and trickery of it — we might have paid those costs and expenses months ago; and we might not get paid for those sales until months from now.

So we can easily be profitable and broke. Not intuitive, but it happens a lot. Most product businesses need to spend on building or buying the product, plus packaging, assembly, and distribution, long before they can sell it. And most business-to-business sales involve waiting months to get paid.

If we could only get the research to prove it, we’d find that a surprising percentage of businesses that go under are profitable when they do.

Managing the cash flow, planning on cash flow ups and downs, is one of the fundamental purposes of good business planning. You lay things out in order: how long you wait to get paid, how early you have to build, debt repayments and capital purchases that don’t show up in profit and loss. And good planning helps you anticipate problems in time to deal with them. Go to a bank with a good history and a plan showing cash flow hills and valleys, weeks or months in advance, and the bank loves you. Try it on Tuesday because you’re going to miss payroll on Friday, and you’re out of luck.

For a good visual on the mysteries of cash flow, go to the free cash flow calculator at bplans.com (shown in the illustration above) and use the sliders to watch what happens as you vary the wait to get paid and inventory assumptions, even without changing profitability. Watch how much faster the cash deficit grows when your sales grow fast and you don’t have an all-cash business.

You might also want to read my 10 critical rules for cash flow post. And just a could of weeks ago I saw a good collection of 6 Tips for Improving Your Cash Flow on the American Express OPEN Forum.

Planning Fundamentals 2: All Business Plans are Wrong, But Vital

Business Planning, Planning Fundamentals,

(I posted most of this in 2007, but it’s even more important now)

Business plans are always wrong. That’s because we’re human. Business plans predict the future. We humans are dismally inaccurate when predicting the future. Istock_000000549056small_2

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. 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.

(Photo credits: istockphoto.com)

Planning Fundamentals 1: Form Follows Function

Back to Fundamentals, Business Planning, Planning Fundamentals,

(Author note: I’ve been asked to go over some business planning fundamentals, and maybe collect those into a series. Consider this a first installment.)

Your business plan isn’t necessarily a document; it’s what you want to do in your business or organization, what’s supposed to happen, and why. It’s a combination of goals, directions, long-term strategy, and, more important, dates, deadlines, steps, tasks, responsibilities, and basic numbers.

Don’t confuse output with plan. That business plan document is just output. So too are the elevator speech, the summary presentation, the pitch, and the summary memo. They’re just the latest output.

So how long is a business plan? Long enough to serve your business needs. How well edited, formatted, and presented? Enough to serve your business’ needs.

Think about the difference between the business plan document requested by a potential investor and the business plan document requested by a banker, and the business plan you create because you want to manage your company better. Who’s the audience? What’s the business purpose?

I like this (and you can quote me on this, because if I heard it from somebody else, or read it somewhere, I’m sorry; I’ve forgotten. I think it’s original) because it is important:

You don’t measure a business plan in pages. You measure it in business results.

I don’t believe in the business plan in your head, or the one-page business plan, because neither of these serves the management purpose of setting things down as specifics which you can then track and follow up with course corrections.

Keeping it in your head won’t work as soon as you have someone else you need to share it with. And it won’t work for management purposes because you won’t be able to track results and manage the difference between what you planned and what actually happened. You lose the value.

So forget your preconceived notions about a business plan. Think of it as a first step in a process. Ask yourself what you need, in your unique situation, to be able to organize and prioritize and look at the steps and the metrics, and follow up on a regular basis. Is your strategy clear? Can you set it down so others can join it? Are dates and deadlines and steps along the way set down clearly? Have you done basic numbers, like sales, costs of sales, and expense budgets? Can you track those regularly and manage for course corrections? That then, is the right business plan for you.

Business Plan? Marketing Plan? Compensation Plan? Oh My!

Business Planning, Marketing, Planning Fundamentals

I like this post. Compensation Plan? Business Plan? Marketing Plan? Which is it? It makes sense. I don’t know the site — realnetworkmarketing.com — but I couldn’t resist reproducing the business plan and marketing plan art, with links back to the original post, of course, because this isn’t my work. Nice touch, though. This is the business plan:

businessplanfromrealnetworkmarketing

And, following that, this is the marketing plan:

marketingplanfromrealnetworkmarketing

The compensation plan, by the way, is completely different. Like a stock plan or retirement plan, it’s about how to pay people with a combination of wages and salaries, bonuses, and benefits. It’s a completely different animal.