What explains this longevity? Stanford Graduate School of Business Professor Charles O’Reilly calls it ‘organizational ambidexterity’: the ability of a company to manage its current business while simultaneously preparing for changing conditions. ‘You often see successful organizations failing, and it’s not obvious why they should fail,’ O’Reilly says. The reason, he says, is that a strategy that had been successful within the context of a particular time and place may suddenly be all wrong once the world changes.
So running a business right requires minding the details but also watching the horizon. Eyes down, eyes up. At the same time.
Which reminds me that dribbling is one of my favorite analogies for business planning. In soccer or basketball, dribbling means managing the hand-eye or foot-eye coordination of the immediate detail while simultaneously looking up and watching opponents and teammates and plays developing. When I was coaching kids in soccer, I’d try to help them remember to also look up and not just down at the ball. The best players did this naturally.
It’s a cycle. Plan, with metrics and milestones. Review once a month. Revise. Do it again next month. That’s the way to last forever, according to O’Reilly. It’s the right way to manage the details and the long term simultaneously.
Think of basketball or soccer. In both of these popular sports, dribbling is what the players do to move the ball in the right direction. It’s not the point of the game, it doesn’t score baskets or goals, but it’s an important skill, right? I think of dribbling as a great analogy for business planning. And here are some reasons why—and some lessons I suggest we can take from that.
Dribbling is a means to an end—not the goal. Planning is like that too. It’s about results, running a business—not at all about the plan itself. Good planning is measured by the decisions it causes. It’s about managing, allocating resources and accountability. I’ve written this in several places: “You measure a business plan by the decisions it causes.” And this: “Good business planning is nine parts execution for every one part strategy.”
Think of the moment when the player gets the ball in the wrong end of the court or field. That’s either a defensive rebound in basketball or a missed shot on goal in soccer. The tall player gets the basketball and gives it to the one who normally dribbles up court. Or the goalie gets the ball and gives it to a defender. At that moment, in a well-coached team: 1) there is a plan in place and 2) the player knows the plan but is completely empowered to change the plan instantly depending on how the play develops. Business planning done right is very much like that. The existence of a plan—take the ball up the side, pass to the center—helps the team know what ought to happen. But changes—the opponents do something unexpected—are also expected. The game plan doesn’t lock the players in to doing the wrong thing or not responding to developments. It helps them make the instant choices, changing the plan correctly…and when they do, the other players can guess the next step better because of the plan.
Dribbling involves simultaneously looking up, at the field, and developments going on; and down, at the ball, hands, and feet, to manage the details. Proper business planning, in very much the same way, requires looking up at the figurative horizon—¬threats, opportunities, competition, market developments, etc.—and down at the details: tasks, deadlines, budgets, accountability, and of course cash flow and plan vs. actual.
I’ve always liked this analogy because it dispels the myth that having a plan reduces flexibility to react to developments. Planning isn’t voided by change; on the contrary, having a plan makes reactions easier. There is no virtue in following a plan just because it’s the plan. Proper planning means regular review and revision.
People often ask me how to start a business plan. Sometimes I’ll say it depends on you, your preference, and your style, so some people do a sales forecast first, some do a vision statement. But the right answer is that you start by scheduling your monthly review and revise meeting. That’s by far the most important first step. For everybody.
Each year, as you get ready to publish the next year’s plan, schedule the plan review meetings. Use some regular meeting schedule such as the third or fourth Thursday of every month. All the managers committed to the plan will know way ahead of time so there are few reasons to miss a meeting.
Some excuses will come up. There will be events like trade shows or client events that some managers have to attend. However, with a preplanned schedule for review meetings, these problems won’t happen that often.
If your planning process includes a good plan — with specific responsibilities assigned, managers committed, budgets, dates, and measurability — then the review meetings become easier to manage and easier to attend. The agenda of each meeting should be predetermined by the milestones coming due soon, and milestones recently due. Managers review and discuss plan vs. actual results, explain and analyze the differences.
At Palo Alto Software, we review coordinated milestones once a week, Tuesday mornings, in about 20 minutes. The monthly plan vs. actual review includes financial results and other measurables — product milestones, support calls, sales events, etc. — and takes just two hours a month.
It doesn’t take that much time, but there is very little in management more valuable. It makes your plan a planning process.
Keys to entrepreneurial success? We talk about passion, persistence, ideas, funding, planning, sales, product-market fit, and all of that. Do what you love, we say. My opinion changes according to recent events, experience, even mood. Which is fine, because it’s a reaction to events, and we don’t want to get static. But on the long term, most often, what I see making the most difference in business is value. Offer value to customers.
You can do what you love, and if nobody wants to pay you, you don’t have a business. Nobody’s going to pay me to play my guitar, or draw, or ski. I have to think of something I like to do that other people will pay for. So I ended up with business planning. Maybe they’ll pay you to play your guitar. And if you like skiing, maybe you end up as a ski teacher, or you own a resort, or you do ski movies. And maybe they will pay you to draw, if you’re a graphic artist.
And then you give value. It’s not about you and what you want. It’s about them, your customers, and what they want.
I realize it’s a bit out of date, a 1987 book, but Paul Hawken‘s Growing a Business is still my favorite business book. It’s the first one I recommend.
Hawken tells real stories of real businesses wrapped around people doing what they like because they like doing it, they think it should be done, and the doing of it flows simply into the logic of filling needs and offering value. Two guys in Vermont get involved with their ice cream. They start selling it. It ends up being Ben and Jerry’s Ice Cream. It’s a great story.
They aren’t all bearded ex hippies. The stories include a bank in Palo Alto, Patagonia (outdoor clothes), Apple computer, etc. What they have in common is a sense of organic, natural growth from the foundations of doing what you want to do, when that’s something that other people want to have done. And they offered value to their customers.
It helped for me that I was a customer of the bank in Palo Alto, and of Ben and Jerry’s, Patagonia, and Apple Computer, and my wife loved buying at Smith and Hawken. I believe in the underlying idea that businesses depend on value — value to the customer — and values — the people in the business have to believe in it.
The business in this book isn’t what you learn in business school. It’s what you want to do. It isn’t about building a business to make money, but rather building a business because it should be built and you want to do it. With that kind of foundation, it seems — and I’ve seen for years now, with hundreds of different business — it grows.
ps: I shared the podium with Paul Hawken in the late 1980s, at Apple, when I was speaking on business planning and he was speaking about the ideas behind this book. He seemed a man whose persona was based on ideas, on the underlying values. I’m not surprised at the way his career has gone since.
Ideas are a dime a dozen. Opportunities are much more important. An opportunity is an idea that’s passed the test of planning. It has potential. You can implement it. An opportunity has some of the following elements:
Industry and market potential: look at market structure, industry structure, growth rate, margins, costs, etc.
Economics: capital requirements, fixed costs, cash flow, return on investment, risk.
Competitive advantage: degree of control, barriers to entry, availability of sufficient resources.
Management team: people who know the industry, the market, the operations, the logistics, the road to market.
The business planning process is about filtering the opportunities — a precious few, requiring focus, and planning — from the ideas.
Whether you’re working on a new start-up business or growing an existing business, you need to encourage lots of ideas and then use your planning to filter them down into the real opportunities.
Remember displacement … recognize that you can’t do everything. You want your plan to help you focus in on the best opportunities among your longer list of ideas.
There is no external meter of good and bad opportunities. What you’re looking for is the right mix between business potential and your ability to reach that potential, given your position, core competence, strengths, weaknesses, and resources.
So you want to start a business, but don’t know what kind? Sure, you can get a list of franchises or ask the experts what are good businesses to start. That works for some people. Lists of businesses to start are easy to find. My advice, however, is don’t look for a list of good businesses. Don’t ask what the big opportunities are. Get a clue. Go look in the mirror. And as you look in that mirror, ask yourself these questions:
What do I like to do? How am I different? What is there about me that sets me apart? What excites me? What am I good at?
What do I like to do that other people (or companies) want to have done? What do I like to do that people will pay for? What do I like to do that I do better or differently from others who do it?
What value can I add? What’s missing? How can I do something better than what’s now available? What can I see about the future that others can’t see?
Where can I give value that isn’t there right now?
I’m down on lists because I don’t see the startup process as beginning with some idea that’s on a list, followed by research and putting together a team and developing a plan and starting a business. Instead, I see most good businesses starting with something that the founders believe in, something that they think ought to be done or ought to exist, something that excites them or intrigues them, all of that followed by planning and building a business to make it happen.
Here’s how it goes: you develop the original business plan to establish that your idea is an opportunity. Ideas are a dime a dozen, commonplace, and without any essential value. Opportunities are a subset of ideas. The planning process separates the opportunities from the ideas.
The heart of the business is that trio of identity, market, and focus. A lot of that is about you and what you want to do and what you can do better. And if building the business, I hope you fall in love with the business first. I hope you recognize the need and see how you can fill it. And, I hope you like the vision, know that you want to do it, and discover that you’re excited by it.
Do something you want to do and believe in. That restaurant you’ve always dreamed of, or skiing equipment, or a newsletter … success isn’t based on the idea, it is based on how hard you work at it, how much value you deliver. When somebody close to me wanted to start a graphic arts business, I didn’t say ‘no, don’t, there are a million of them.’ Instead, I said their success would depend on getting customers, providing value, and, in short, working hard.
In the Art of the Start, Guy Kawasaki offers a list of ways to generate new business ideas. If nothing else, read his first chapter. Just click, you can do that now; or later, if you want to keep reading me. Guy talks about getting going, about ideas being generated by impulses like “I want one” and “I can do this better” or “my employer wouldn’t (or couldn’t) do this.” There too, it doesn’t come out of the blue, it starts with you.
In Growing a Business, Paul Hawken shows how a business grows naturally out of the owners and founders doing something they want to do, filling a need they believe should be filled. I recommend it.
To be fair, there are exceptions. Franchise businesses, for example, when they work, are a business formula you pay for and implement, guided and taken by the hand every step of the way. Being a McDonald’s franchisee means you’re a millionaire, it doesn’t mean you like eating or preparing what McDonald’s restaurants serve. You buy a business to run. They tell you how to run it. If it isn’t a set formula and if they don’t give you all you need to know, then it’s a bad deal.
Thanks for asking.
(Note: I posted this on Up and Running several years ago. It’s as valid now as it ever was.)
While I really like the answer business plan — I’m a business planner —I don’t completely agree. If I weren’t biased down to my bones, I’d answer “something else” and clarify that what you really need, more than anything else, is customers. You can have money, idea, business plan, and the guts to go for it and still fail miserably if nobody wants to buy what you’re selling.
However, realistically, not all startups have the luxury of early customers. While ideally you find some early customers, or promises, or prepaid sales, sometimes you need to create something first (such as a product, website, app,etc.) before people can buy it. And in those cases, the business plan is the next best thing because — if it’s done well — it focuses on real indications, real information, and reasonable estimates of believable sales prospects. So that makes business plan is a good compromise.
And business plan alone isn’t enough; it has to be a realistic, practical, concrete business plan that you can execute on.
The guts to go for it isn’t enough. It’s what we call a necessary but not sufficient condition. You’re nowhere without it, but you might be even worse than nowhere with it. Courage without customers, for example, is a terrible combination.
What’s the difference between a marketing plan and a business plan? Doesn’t a business plan include a marketing plan? Why would anybody do one without the other?
Good questions, and since I get them a lot, I decided to answer them here:
A business plan covers the entire business, including overall strategy, financial plans, target markets, sales, products and services, operations, and how they all relate to each other. A marketing plan, in contrast, focuses on the marketing: marketing strategy, target markets, marketing mix, messaging, programs, etc. Cash flow is vital for a business plan, but not usually included in a marketing plan
Yes, a business plan almost always includes the marketing portion. Emphasis varies, and I’ve seen some plans that focus much more on product or service than on marketing. But those are unusual.
Lots of people do marketing plans rather than business plans because their job or their attention or their focus is on the marketing, not the whole business.
Create separate lists that identify your business’ strengths, weaknesses and goals. Put everything down and create big lists. Don’t edit or reject anything.
Then, find priorities among the bullet points. If you’ve done this right, you’ll have more than you can use, and some more important than others. Kick some of the less important bullets off the list and move the ones that are important to the top.
This sometimes requires input from your managers as well. For example, your management team thinks being conservative on spending is a weakness but you don’t. That might be something to drop off the list.
Step Two: Focus on markets.
The next list you’ll need to make outlines your business’ opportunities and threats. Think of both as external to your business — factors that you can’t control but can try to predict. Opportunities can include new markets, new products and trends that favor your business. Threats include competition and advances in technology that put you at a disadvantage.
Also make a list of invented people or organizations who serve as ideal buyers or your ideal target market. You can consider each one a persona, such as a grandmother discovering email or a college student getting his or her first credit card. These people are iconic and ideal, and stand for the best possible buyer.
Put yourself in the place of each of these ideal buyers and then think about what media he or she uses and what message would communicate your offering most effectively. Keep your identity in the back of your mind as you flesh out your target markets.
Step Three: Focus on strategy.
Now it’s time to pull your lists together. Look for the intersection of your unique identity and your target market. In terms of your business offerings, what could you drop off the list because it’s not strategic? Then think about dropping those who aren’t in your target market.
For example, a restaurant business focused on healthy, organic and fine dining would probably cater to people more in tune with green trends and with higher-than-average disposable income. So, it might rule out people who prefer eating fast-food like hamburgers and pizza, and who look for bargains.
The result of step three is strategy: Narrow your focus to what’s most in alignment with your identity and most attractive to your target market. In other words, focus on the area that is shared by all three lines in the diagram here.
Step Four: Set measurable steps.
Get down to the details that are concrete and measurable. Your marketing strategy should become a plan that includes monthly review, tracking and measurement, sales forecasts, expense budgets and non-monetary metrics for tracking progress. These can include leads, presentations, phone calls, links, blog posts, page views, conversion rates, proposals and trips, among others.
Match important tasks to people on your team and hold them accountable for their successes and failures.
Step Five: Review often and revise.
Just as with your business plan, your marketing plan should continue to evolve along with your business. Your assumptions will change, so adapt to the changing business landscape. Some parts of the plan also will work better than others, so review and revise to accommodate what you learn as you go.
(Note: I posted this yesterday as a guest post on Howard Lewinter’s Talk Business With Howard blog, part of getting ready for a radio chat with Howard on Blogtalkradio tomorrow morning. It starts at 8 am Pacific time. Please click here to listen or get more info on that.)
Is this you? When asked if you have a business plan, would you scoff slightly, roll your eyes maybe a bit, and dismiss the idea as something only startups do. Would you say “we’re not a startup,” or maybe, “we’re not seeking investment,” as if this makes it obvious that you don’t have a business plan.
If so, you’re not alone. And I say, emphatically in fact, that it’s a damn shame you’re not using planning, and planning process, to manage better. The myth of the business plan gets in the way of the benefits of real business planning.
What’s the myth? You already guessed it. They think of a business plan as a document, done once, surmounted like a hurdle, that some business need to produce to get a loan or get investment. They say it’s for startups. It’s hard to do. It’s about the text, and the editing, and the formatting. And nobody really uses it. And they think that rapid pace of change negates the value of planning.
And that myth gets in the way of the real benefits of business planning done right. By which I mean:
It’s not a document, it’s a plan. The plan lays out what’s going to happen, why, who’s responsible, what dates and deadlines, and how much money comes in, and how much goes out.
It lives on your computer, not on paper.
Format doesn’t matter. Keep it in a format that works for you. I like the software my company publishes, obviously (look at www.businessplanpro.com or www.liveplan.com) but if you prefer your spreadsheet, word processor, or slide decks, or — better yet — a combination of the above. That works too. Keep it on a network where you can get to it every month.
It’s a streamlined reminder of major priorities. Use it to keep you and your team mindful of what matters most.
It gets reviewed and revised every month.
It helps you manage change by connecting the relationships between tasks and costs and expenses and sales and people and goals.
It sets objectives that can be measured, and then, for the monthly meetings, metrics are tracked and reviewed.
Think of it as a way to manage change efficiently. As assumptions change, and results reveal reality, the plan adjusts.
Think of it as a way to establish accountability. Tasks are assigned with target values, and results are tracked, and results then become management points.
You don’t have to forecast correctly. We’re human. We don’t guess the future well. Just make sure the base your forecast on trackable assumptions, so you can deconstruct when actual results are different from plan. And they will be.
Myths are fine as stories that stand for something, windows into reality. Myths are bad when they interfere with optimizing your business.
What’s the difference between a business model and a business plan? It depends on who you ask. Business plan means a lot of different things to different people, and so does business model. I’ve complained occasionally about confusing terminology, but I guess it’s just the way things are. There are similar problems with strategic plan, annual plan, etc.
What I really don’t like is people saying “don’t do a business plan; do a business model instead.” My favorite definition of the business model is the excellent book Business Model Generation, by Alexander Osterwalder and Yves Pigneur. And that’s very compatible with business planning. I’ve already incorporated the business model canvas into three business plans I’m working on right now, as a good framework for thinking. To me, the difference between business model and business plan is just the semantics. They are different words for the same thing. It’s a lot like the difference between business plan, strategic plan, operations plan, annual plan, etc: depends on who’s talking at the time.
So, because of so much confusion around this subject, I did this quick (three-minute) video explaining how I see them working together:
And, in case you don’t know the business model idea, here’s an even quicker (two minutes) video explaining that:
And, just in case you don’t see the two videos here, this are the links back to the source:
