Category Archives: Management

Top 10 Tips for Business Planning

I was asked once again for my 10 top tips on business planning. I can’t do that without noting the different uses of business plans in different situations. I ended up with more than 10 tips, but they are more specific to context.

5 Major tips for all business planning

  1. Form follows function. Like anything else in business, a business plan should be judged good or bad not in a vacuum but in its business context with its specific business objective. Most of the online discussion about business plans is focused on business plans related to seeking investment, and I’m going to make the assumption in this answer that you are asking about those. But in real life, the plan related to seeking investment is a subset, a special case. Most real business plans are about managing a business and need a lot less description and research than the business plan related to seeking investment. In most cases, a lean business plan fits the business purpose best.
  2. Projections are important not for their actual numbers as much as for their presentation of drivers, relationships between growth and spending, key spending priorities, sales aspirations, and assumptions related to cash flow. They have to be solid and integrated, but accuracy is much more a matter of transparent assumptions than accurately predicting the future.
  3. All business plans should establish strategy, tactics, milestones, tasks, assumptions, and essential numbers (projected sales, direct costs, expenses, and cash flow).
  4. All business plans should develop accountability and tracking.
  5. All business plans should be reviewed and revised at least monthly. The review should include looking for changed assumptions and analyzing plan vs actual results with management of the difference.

10 Tips on business plans for seeking investment

  1. Investors invest in businesses, not plans. The business plan is a necessary but not sufficient condition for finding outside investors. The plan describes the business and what it might become, and that’s all. A beautifully written, edited, and formatted business plan will not make a less investible business more investible. The investment decision is about the content – the team, the market, the differentiators, the scalability, traction so far, validators, growth potential – not the presentation or formatting of the plan. The best use of business plans starts with founders using plans to establish strategy, tactics, milestones, and (especially important) essential projections of sales, spending, headcount, startup costs, capital needs; it’s for the founders to know, first, what they plan to do. Later, as the investment process proceeds (if it does), the latest regularly-revised plan will serve as a companion piece to the pitch and a key document for due diligence.
  2. You need both pitch and plan. The pitch is a summary of the plan, organized according to highlights for investors, ideally a way to present your business in a structured way. The business plan is the bones of the pitch, like the screenplay, setting strategy, tactics, milestones, market, and essential numbers.
  3. The normal flow is from introduction, to pitch, to business plan in detail. It’s trendy to say investors don’t read business plans, but what actually happens is they only read business plans of the businesses they are interested in. They reject businesses from intro and pitch, without reading the business plan. The business plan is an essential component of normal due diligence. Never do a pitch without having a plan, because if investors like the pitch they will ask questions that you can’t answer without a real plan. Things like: Could you grow faster with more money? What are your headcount assumptions? How much are you spending on marketing expenses? What are you assuming for payments and collections lags?
  4. Cover the bases. No need to elaborate here. There are tons of good outlines available, plus books, blogs. Down below I have some specific resources related to my work; but not now. There is no single best outline to use, but investors will want to know about the market, potential growth, competition, differentiation (or secret sauce) strategy, tactics, key milestones, important assumptions, the management team, and financial projections including use of funds, projected sales, income, balance, and cash flow. Use your common sense to put first things first and organize it all well.
  5. A good summary is essential. Many investors will read only the summary.
  6. Keep it short. Consider doing just a lean business plan with key info and using your pitch to supplement with more summary and description. Cover the key points and move on.
  7. It’s about business, not science, not technology. Don’t show off your knowledge. Cover the business essentials including marketing, distribution, pricing, channels, etc.. Leave the science and technology for supplemental documents.
  8. Forget discounted cash flow, net presented value, IRR, etc. Investors don’t care about uncertainty compounded on uncertainty. They want to know real assumptions that matter. They’ll use their own knowledge and experience to decide about future values.
  9. Don’t hide anything. It’s not hard to find the key points that investors want you to cover. What’s most important, what order, and how much detail depends on your specifics. Make essential information easy to find. Don’t leave anything obvious out.
  10. Keep it fresh. That’s why you don’t write a long treatise. A business plan’s shelf life is about a month. Don’t think you can write it once and then live with it for months.

6 Common mistakes to avoid with plans for investors

  1. Big profits prove nothing but that you don’t know the business. The most common mistake by far is on profits. Startups that grow don’t produce profits. Investors make money on valuation increases, not profits. Real businesses rarely produce more than single-digit profits. Big profit projections are sophomoric. Take all those profits and dump them into marketing expenses and you’ll be better off.
  2. Prepare to defend hockey-stick projections with believable assumptions and back-up info on how this is realistic. Unsupported huge growth projections are a crock and everybody knows it.
  3. Being the low-cost provider is very last millennium. Markets split. The low-cost providers are the big dinosaurs with huge capital bases.
  4. Don’t give all the founders C-level titles. Settle down. Execute, grow, meet milestones, and then up the titles if you haven’t had to bring in some new people.
  5. Plan to pay your key people. To be honest, some investors like to see founders living on ramen and losing their families. Most don’t. Most investors want you to pay the key people enough to preserve their lives and work ethics, less than true market value, but enough to live on decently.
  6. Respect normal sales cycles, marketing benchmarks, and cash flow patterns for your industry. For example, if you sell to enterprise it’s going to take a lot of structure, patience, and waiting. If you’re B-to-B then you’re going to need working capital to support receivables. And if you’re industry spends 35% of revenue on marketing, then so do you. Or more, because you want to grow.

Video: Are We Living in a Postfactual Society?

I found this quote particularly telling. Notice the term “postfactual society.” I hadn’t heard it before, but it fits quite well:

It’s been suggested that we’ve moved to a postfactual society, where evidence and truth no longer matter, and lies have equal status to the clarity of evidence. So how can we rebuild respect for truth and evidence into our liberal democracies? It has to begin with education, but it has to start with the recognition that there are huge gaps.

This comes at about 10:50 into this TED talk by Alexander Betts, on Brexit. I recommend this one for anybody reading this, especially Americans. What he says about realities of class division and globalization applies equally to this country.  He offers fascinating data from the U.K. Applying it here, in the U.S. as well, is obvious.

He also offers a set of recommendations on what we do about it. A difficult path to follow, but a whole lot better than just cursing what is.

Do You Suffer from Distraction Sickness

Does this seem familiar to you: Distraction Sickness

I had sensed a personal crash coming. For a decade and a half, I’d been a web obsessive, publishing blog posts multiple times a day, seven days a week, and ultimately corralling a team that curated the web every 20 minutes during peak hours.

Andrew Sullivan

That’s from Andrew Sullivan: My Distraction Sickness — and Yours, in New York Magazine this week. I recognized the author’s name immediately because I’ve seen Sullivan on talk shows often. On TV he comes off as thoughtful and articulate, and he’s frequently introduced as a gay republican and prolific blogger. Here’s the first paragraph of his Wikipedia biography:

Andrew Michael Sullivan (born 10 August 1963) is an English author, editor, and blogger. Sullivan is a conservative political commentator, a former editor of The New Republic, and the author or editor of six books. He was a pioneer of the political blog, starting his in 2000. He eventually moved his blog to various publishing platforms, including Time, The Atlantic, The Daily Beast, and finally an independent subscription-based format. He announced his retirement from blogging in 2015.

The independent blog mentioned is The Dish, where the last post is dated June of 2015.

But that’s just background information. What’s notable about his background, in this context, is the sudden change, the lack of Andrew Sullivan writing and talking on TV in the last year. I read this piece and discovered why. And decided that what he’s calling distraction sickness might be an epidemic.

Distraction sickness

Sullivan describes a process that seemed alarmingly familiar to me – and, I bet, to you too:

Facebook soon gave everyone the equivalent of their own blog and their own audience. More and more people got a smartphone — connecting them instantly to a deluge of febrile content, forcing them to cull and absorb and assimilate the online torrent as relentlessly as I had once. Twitter emerged as a form of instant blogging of microthoughts. Users were as addicted to the feedback as I had long been — and even more prolific. Then the apps descended, like the rain, to inundate what was left of our free time. It was ubiquitous now, this virtual living, this never-stopping, this always-updating.

Is that not you? Ok. Nobody you know? C’mon, tell the truth.

He continued:

I tried reading books, but that skill now began to elude me. After a couple of pages, my fingers twitched for a keyboard. I tried meditation, but my mind bucked and bridled as I tried to still it. I got a steady workout routine, and it gave me the only relief I could measure for an hour or so a day. But over time in this pervasive virtual world, the online clamor grew louder and louder. Although I spent hours each day, alone and silent, attached to a laptop, it felt as if I were in a constant cacophonous crowd of words and images, sounds and ideas, emotions and tirades — a wind tunnel of deafening, deadening noise. So much of it was irresistible, as I fully understood. So much of the technology was irreversible, as I also knew. But I’d begun to fear that this new way of living was actually becoming a way of not-living.

Is this you?

I’m not attempting to duplicate Sullivan’s whole article here. I highly recommend you read it yourself and think about it. But here’s one more piece of it I want to add:

Our oldest human skills atrophy. GPS, for example, is a godsend for finding our way around places we don’t know. But, as Nicholas Carr has noted, it has led to our not even seeing, let alone remembering, the details of our environment, to our not developing the accumulated memories that give us a sense of place and control over what we once called ordinary life. The writer Matthew Crawford has examined how automation and online living have sharply eroded the number of people physically making things, using their own hands and eyes and bodies to craft, say, a wooden chair or a piece of clothing or, in one of Crawford’s more engrossing case studies, a pipe organ.

It certainly made me think about my level of the disease. For a split second. Before diving back into blogging.

 

 

Planning as Management

Planning, done right, is management. The best reason to adopt planning in your business – and I mean any business, from the one-person solopreneur on up – is because it will help you manage your business better.

Planning as management

NCR-Silver-mypost-2016-08-22-smaller

This is from my post How to Actually Use Your Business Plan to Run Your Business, posted over at the NCR Silver blog. The main point there is a critical point about the purpose of business plans for most business owners:

You may or may not have a business plan for sharing with banks or other lenders. If you do have a plan, are you really using it to manage your business better? And if you don’t, are you missing out? Either way, adopt a powerful business planning process that will turn planning into management.

Lean may be all you need

Good planning process doesn’t take a formal business plan document. You can get most of the benefits from a lean plan combined with good planning process, which means regular reviews and revision.

Contrary to the popular myth, real planning doesn’t require a formal business plan document. If you have that, fine. If you don’t, you don’t have to do a full formal plan to get the benefit of planning. You could do a lean plan, which is just bullet point lists and tables for strategy, tactics, metrics, milestones and essential projections.

Planning manages change.

I’ve posted here the essentials of the lean plan, most recently with the metaphor of lean business planning as dashboard and GPS for running your business. The rationale for that is fairly simple:

Planning isn’t voided by change; planning manages change. The plan is like a route, and the monthly meetings turn that route into something more like a complete navigation system, with GPS positioning and real-time information on weather and traffic.

The secret is plan vs. actual analysis. That’s looking at the difference, in numbers, between what you had planned and the actual results. You don’t have to be an accountant or financial analyst to do it. You just need common sense, knowing your business and tracking what actually happened and comparing that to was expected.

Two Paradoxical TED Talks Every Business Owner Should Watch

My thanks to Hubspot and post author Mike Whitney for today’s two Friday videos. Whitney included these two in his selection of 4 TED Talks Every Marketer Should Watch, from last year. I want to focus today on these two as not just for marketers, but also essential TED talks for business owners. They go beyond marketing into product and business definition. choice, and business data. Neither of these is new, but both are fundamental, and the contrast is important.

Malcolm Gladwell says trust the data

Whitney included this summary:

[Gladwell] tells the tale of Howard Moskowitz, a consultant who revolutionized the way companies align their product with their brand in the 1970’s and 80’s. There is much to be learned from Moskowitz’ example, especially as told by Gladwell, about how to use data driven buyer personas (sound familiar?) to provide the most possible value to your customer base.

Previous to Moskowitz’ research, companies were in the habit of seeing product development as a linear path towards one ideal item, as perfectly aligned with the desires of their customer base as possible. In order to develop an idea of what those desires were, traditional focus groups were used obsessively, rounding up endless groups of sample-consumers, and simply asking them what they prefer in a product.

Sheena Iyengar says put limits on choosing

Whitney followed that with this one, which he describes as “coming at the same problem from opposite sides of the ideological spectrum.” I like that. It fits my view of how much business is full of paradox and contradiction. Iyengar talks about the “choice overload problem”. The following is from his summary.

As a graduate student, Sheena executed a very interesting experiment with a local grocery store which was noteworthy for having a plethora of different options for all of their different product offerings (75 different olive oils, 348 flavors of jam etc.).

Sheena, though, was curious as to whether this actually promoted revenue or was a hindrance to it. To test this, she got permission from the store manager to set up a ‘Free Samples’ table in the store and do two trial runs: one with 6 options, and one with 24 options. She found that about 20% more people stopped when there were more options.

However, when tallying how many people actually bought a jar of jam as a result of stopping, she found that the table with fewer options was more effective as a marketing tool. Why might this be? This goes back to the choice overload problem. Sheena finds that if a consumer is bombarded with too many options, he/she will often ‘choose not to choose.’ For your business, that means lost revenue.

Paradox of Product Persistence

ParadoxParadox: On one hand, to keep a business healthy you have to be able to cut mediocre products. On the other hand, some successful products require sticking to them for a long time, stubbornly, to get either the product or the marketing right. Take a minute and think about it, and you’ll find examples of both cases.

Ruthlessly killing products

I vaguely remember a quote from a computer company chairman (I think it was Lou Gerstner, of IBM) talking about how success depends on being absolutely ruthless about deciding to kill products that weren’t working.

I also remember a chilling moment in my personal past when I listened to a guy who’d been running a sailboat company for 15 years tell me how he’d hated it the last 10 years. It was always borderline failing, but he couldn’t get out because he’d started it with friends and family money and he couldn’t tell his parents, sibling, and cousins that they’d lost their investment.

Sometimes persistence produces success

In my specific business history, with Palo Alto Software, I had trouble giving up on products that didn’t make it. I’m stubborn, and I’m optimistic. Still, for the record, especially during the early growth years we killed a bunch of products. The list includes Business Plan Toolkit to Financial Forecasting Toolkit to Business Budgeting Toolkit, Cash Plan Pro, Cash Compass, DecisionMaker, Incorporation Toolkit, and Systems Continuity Plan Pro. I’ve probably forgotten a few others. , and I’ve probably put others into repressed memory where I don’t have to think about them.

However, on the other hand, I first started productizing business plan financials in 1984, as templates; and did them again in 1988, as more advanced templates; and stuck to the idea of business plan software into the 1990s when we launched Business Plan Pro, which was successful. And Palo Alto Software is a market leader today, with LivePlan, which we introduced in 2011. So that story argues for sticking to it over the long term.

So it’s all case by case

That’s why it’s paradox. You can argue this one either way. General rules and best practices don’t always apply. And you can find experts advocating both sides of this question. And my business experience includes both killing some products and sticking to others.

I was at the pre-competition meeting of the judges of the University of Oregon intercollegiate venture contest a few years ago when we (the judges) were asked to introduce ourselves. One of them, Ty Pettit, said “I probably have the best qualifications for judging this contest because I recently oversaw a company going bankrupt.” That struck me as a very wise comment. Ty has had several successes since.

 

10 Clues That You Aren’t a Leader

LeadershipI really know what makes you a leader. I’ve seen dozens of quotes and hundreds of articles, and I took a course on leadership in business school. But leadership depends so much on context and style that it’s hard to make any universal statements that aren’t just empty clichés.

What I do know, though, is that just wielding authority doesn’t make you a leader. Just having responsibility, or a title on your business card, doesn’t automatically make you a leader, either.

And also, I have a pretty good idea of what isn’t leadership. I learned that the hard way. And yes, since you insist on asking, I learned some of them by realizing that they applied to me.

I’m going to list 10 clues that show that you aren’t really a good leader. This is for people in authority. I’m talking to you. You are not really a leader if …

  1. Everybody always agrees with you. If you think that, get a clue. They don’t always agree with you. They are lying to you. And if so, it’s your fault, because you made them decide to pay you lip service with fake agreement.
  2. You talk more than you listen.
  3. Nobody who works for you owns anything by themselves. Ownership means owning a task, having responsibility, being empowered to operate, make decisions, and — yes — make mistakes.
  4. You do all the work. Because you don’t, really. If you think you do, then you’re not giving others enough credit. Or, if your people are really that bad, then change your team. You hired them.
  5. You correct people more than you applaud people. In the real world, performance seeks balance, like water seeks its level. If you correct way more than you praise, something’s wrong. And it’s probably you, not them.
  6. You take more credit than you give. There again, balance.
  7. Achievement in your group is something you bestow on people, rather than something they achieve themselves. Don’t make people work for praise. That’s ugly. Make them work for objective numbers that they can see, their peers can see, and you can see, at the same time.
  8. People pause to think, or guess, what you believe in. When you stand for something, and have values, people know it. It’s not just what you say, it’s what you do .
  9. You criticize more than collaborate. Don’t call yourself collaborative if people don’t want your help. Do they come to you? If not, you may not be as open to new ideas, or other people’s ideas, as you think.
  10. You don’t get bad news quickly. That means people are worrying about how to tell you. If people hide bad news or — worse still — spin it to look like good news, then get a clue. You’re not a leader.

And I want to conclude by emphasizing that last point, which is a clear case of last but not least, and perhaps even the first coming last.

Think about your leadership style in context of the flow of information, particularly bad news. If people wait to tell you, then you’re in trouble.

A leader wants the bad news instantly. Good news can wait. Bad news can’t.

(Note: this post first appeared as my monthly column for the Eugene Register Guard.)

My 5 Top Tips for Business Owners

Roll the DiceWhat, you want my five favorite small business tips for business owners? That’s flattering, thanks for asking. I had to think about it, because, like all business owners, I get so busy with the details that I forget to take a step away and think about the larger picture. Looking back on decades of it, I survived, and supported my family, through more than a decade of self employment;  and then two decades of building this business, Palo Alto Software, (sponsor of this blog and the entire bplans.com site that it’s on), from zero to where it is now, without outside investment. So yes, I do have a few tips to offer.

1. Profits are not Equal to Cash

This is vital. Cash flow is not intuitive. Profits are accounting, depending on rigorous rules and fuzzy decisions, basically an opportunity for creativity and fiction. Cash is rock hard reality, what’s in the bank. I saw a study showing more than a third of the companies that went under were profitable as they died. You can be profitable without having cash in the bank. Sales on credit to business customers are sales for the Profit and Loss Statement, whether theyve been paid or not. Profits don’t care if they hang around forever in Accounts Receivable, not in your bank balance. But cash flow does. Repaying debts doesn’t count against profits, but eats up cash. Buying assets doesn’t count against profits, but eats up cash. Money spent on inventory doesn’t count against profits, but eats up cash. For more on this: you think in profits, but you live on cash.

2. Don’t Mistake Business for Life

Your business is supposed to make your life better, not your life make your business better. This is vital, but so easy to forget. Do not give up what’s important in life because you are building a business. Don’t spoil your relationships. Don’t miss the soccer games. It seems obvious, but most of us have fallen into obsession at one time or another, waving the hand, taking the attitude of “Don’t you see that I’m running a business? I don’t have time for that.” That can become habit forming. And your people start to assume it, and leave you out. For more on that, don’t mistake business for life, a previous post on this blog.

Take care of your health. And mind your priorities. Make it a mantra: business for life, not life for business.

3. Never Compromise on Ethics and Integrity

This isn’t just some touchy-feely cliché; it’s solid business advice. Every day our technology makes what we do more transparent. Every time we cut a corner, rationalize operating on anything but the high road, we risk having that come out and spoil our brand, our reputation, and our business. Pushing that sale you suspect your client doesn’t really need creates the risk of an unhappy client going public on you, maybe even viral. No business is so small that it can’t be embarrassed by something like the Youtube video of United Airlines breaking the passenger’s guitar. Angry and unhappy customers have instant amplified word of mouth, and I’ve seen research that shows that angry customers are way more likely to go public with complaints than happy customers with testimonials. Don’t risk it.

Along the same lines, don’t make enemies. For example, with contracts, maybe you can get away with screwing the business ally by misreading the contract, or negotiating cleverly to allow you a loophole; but that kid of business doesn’t work well on the long term. There’s a stock market adage: “sometimes the bulls win, sometimes the bears win, but, on the long term, the pigs don’t win.”

4. It’s Planning, not just Plan

The most undervalued tool in management is planning process done right. Just like steering is constant course corrections, so too is managing a business right. Let the plan set the course from long-term goals (the horizon) to specific steps along the way (milestones, metrics, responsibilities, etc.) and the essential numbers you need to keep cash flow.

It’s such a shame that people think of a business plan as a big daunting document that you use once and throw away. For business owners who don’t need the old-fashioned formal plan, lean business planning is a like having a destination, route, and real-time information with GPS to run your business right. It builds accountability. Instead of being voided by change, it manages change. For more on that, lean business planning as dashboard and GPS, a previous post on this blog.

5. Compete on Quality, Not Price

We are way too influenced by that first lesson in economics that suggests the lowest price gets the highest volume. That was always true only qualified for commodity products with no differentiation. Adam Smith wrote about lumps of coal. But in the real world, where real businesses compete, the lowest price strategy works only for very large, very well capitalized businesses. McDonald’s, Burger King, Costco and Sam’s Club can manage low price strategies; but they are a select few.

For most of us, it’s way better to aim for high quality and relatively high price. Price is your most powerful marketing message. Be better. Be exclusive. Charge more and make your customers glad they paid more. For small businesses, that’s much more likely to work than trying to be the lowest price offering.

(Postscript: My thanks to Eventbrite for suggesting small business tips as a topic for a blog post.)

Video: Don’t Just Ask for Feedback – Listen

My Friday video today, from Stanford ECorner, Mike Rothenberg talks about inviting honest feedback. How to ask for it, how to listen, and how people will go slowly at first. You have to reassure them that you really want the feedback.

I’ll add that in my decades in business, I’ve come to treasure the people who give me real feedback. And I’ve noticed that relatively few of us really ask for feedback and then listen to it, and use it. We all say we want it, but most of us want praise more than real opinions, much less constructive criticism. This is a short video, which I post as a reminder.

Or you can click here for the YouTube source video.