Tag Archives: business planning

Revising the Root Canal Theory of Business Planning

For years I’ve lived with my own “root canal theory of business planning.” Do the Google search for that phrase and you’ll see that my previous writing about this comes up first. Like root canals, business plans were something people dreaded, but needed. Happily, things have changed.

For today: lean business planning

Unlike a root canal, modern-day business planning should not be painful, is not something you do all at once, and ought not to be a cure for anything like a toothache. Instead, it should be fun and interesting, and a regular process. It’s preventative, not curative. I call it lean business planning. The plan stays alive. It’s not painful to do, you like doing it because you’re running your own business and the planning part of it is fascinating. It’s your future, your life, and controlling your destiny.

When experts advise against doing a business plan, they refer to that obsolete full formal business plan that likens the business plan to the root canal. They don’t advise against setting goals, priorities, milestones, metrics, and projected cash flow.

root canalI had the worst kind of reminder yesterday: a root canal. This one repaired one done 20 years ago. Root canals have changed. Technology has improved. But they’re still bad.

It was just after having that first root canal that long ago that I developed the root canal theory of business planning. I’d had a horrible toothache back then, a sleepless night, and by the time I got to the dentist chair the next morning I really, really wanted that root canal. I wanted the pain to end.

Back then — late 1980s — I thought about how people only did business plans when they absolutely had to, for investment or business loans; and about how when they did have to, they wanted that business plan fast, and they wanted it badly. But it seemed like nobody who didn’t have the urgent need wanted to do a business plan. Our fulfillment house noted that our business plan software orders had the highest ratio of overnight shipping of all their clients.

Do your lean business plan. Set strategy, tactics, milestones, and metrics. Then review it often and revise as necessary.

Really, once you understand lean business planning, if you still dread planning, then maybe you should keep your day job.

(Photo credit: cc license by radiant guy, on Flickr.)

The Lean Business Plan for Small Business Owners

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

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

That myth of the business plan for start-ups only gets in the way far too often. If you own or run a company, you probably want to grow it.  And if you want to grow a company, then you want to plan that growth. And the planning is only the beginning; you want to use the full planning process to manage growth.

Think for just a minute about how many different reasons there are for an existing company to plan (and manage) it’s growth. There’s the need first of all to control your company’s destiny, to set long-term vision and objectives and calculate steps to take to achieve vision. Without planning the company is reacting to events, following reality as it emerges. With planning, there’s the chance to pro actively lead the company towards its future.

For an existing company that wants to grow, planning process is essential. Everybody wants to control their own destiny.  The planning process is the best way to review and refresh the market and marketing, to prioritize and channel growth into the optimal areas, to allocate resources, to set priorities and manage tasks. Bring a team of managers together and develop strategy that the team can implement. Work on dealing with reality, the possible instead of just the desirable, and make strategic choices. Then follow up with regular plan review that becomes, in the end, management.

This normally starts with a plan.  The plan, however, is just the beginning.  It takes the full cycle to make a plan into a planning process. Here’s my view of the business plan for small business owners:

Core plan-900W

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

11 Key Elements of a Good Business Plan

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

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

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

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

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

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

2. Concrete specifics. 

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

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

3. Cash flow.

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

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

4. Realistic.

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

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

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

Not all business plans need a lot of text.

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

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

6. Alignment of strategy and tactics.

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

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

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

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

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

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

8. Easy in, easy out.

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

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

9. As lean as possible.

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

10. Geared for change.

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

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

11. The right level of aggregation and summary.

It’s not accounting. It’s planning.

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

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

10 Most Common Business Plan Mistakes, Updated for 2016

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

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

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

1. Misunderstanding the business objective.

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

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

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

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

That stems from #1 above.

3. Doing (and including) too much.

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

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

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

4. Overestimating profits.

It’s amazing how often this happens.

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

Really, half. Crazy.

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

5. Naked numbers.

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

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

6. Percent-of-total-market forecasts.

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

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

Bottoms up only, never top down.

7. Startups trying to compete on price.

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

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

8. Showing off your knowledge.

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

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

This is business. Get to the business of it.

9. Vague, hand-waving at big concepts.

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

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

10. Stupid trite claims.

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

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

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

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

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

I couldn’t resist.

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

Here’s my answer:

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

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

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

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

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

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

The Dribbling Metaphor for Business Planning

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.

girls basketball dribbling

  1. 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.” 
  2. 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. 
  3. 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.

(Note: Yesterday I posted this 3 Ways Business Planning is Like Dribbling a Ball on the Industry Word blog on the SBA community site. I’m reposting it here today)

(image: istockphoto.com) 

The Real Use of the One-Page Business Plan

The question is: 

There’s been quite a bit written recently about the value of a 1-page business plan. What are your thoughts on this type of plan vs. a thorough document?

And my answer:

The only problem is confusing the two as if one replaces the other. The 1-pager is a summary of the plan. You can’t have real information on it — milestones, sales growth, headcount, etc. — without a plan that develops that information.

I love a one-page summary of a business plan, which is extremely useful as long as it isn’t instead of a plan. Investors will use the summary not to invest in companies, but to rule out those they don’t want to know more about. Investors don’t invest in companies without having a business plan, except for those rare exceptions where they know the people thoroughly.

The plan is a necessary but not sufficient condition. And while generalizations on what investors think are dangerous, because they are diverse people, my above thoughts are a summary and aggregation of what I know from my role as the head (fund manager) of our local angel investment group.

That’s from an interview in Startup Nation appearing today, titled (me, blushing) Success Tips from Business Planning Giant, Tim Berry

You’re Not a Startup. Why Would You Want to Plan?

Ask the owner of a small-to-medium company about a business plan. Expect the answer: “Business plan? but I’m not a start-up. Why would I want a business plan?

Former president and military leader Dwight Eisenhower once said:

The plan is useless; but planning is essential.  

The business planning process is such a great tool for growing a business. 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.a business plan as a one-time document, hard to prepare, meant to be read by outsiders, so many businesses miss the real benefit of planning. Like Eisenhower said. 

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.

(Note: this is slightly updated from a 2006 post.)


You Need People Committed, Not Just Involved

In breakfast, the chicken is involved, the pig is committed. Baconandeggsistock_000001083916smal

In the business planning process, commitment is essential. Chickenistock_000000427700smallPlans need to be implemented, and implementation means commitment.  There has to be accountability, and peer pressure.  You have to follow up on what was planned to make sure that it was actually carried out. Here are some ways to develop commitment within your team:

  • Use the SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats) to start discussion. SWOT brings team members into the  strategic discussion. It makes strategy understandable. Your managers have to be part of the team that discusses strategy.Pigistock_000000873019small
  • Make the budgeting elements of the planning process visible. Managers should see what their peers are spending and should hear why. One of the best things I ever watched, as a consultant, was a management group that argued over the activity budgets during the planning process. Each manager had to defend his or her budget, showing what sales and marketing budgets would come out of it. There was a lot of peer pressure.
  • Make sure people know that actual results will be compared to plan.  With time, in a company that uses the planning process, this becomes second nature.  In the beginning, however, it is extremely important that the main company owners and operators set the standards by scheduling plan review meetings each month and attending them. This has to be important.

The bottom line here is that planning process, for a growing company, is about the people more than the plan. Not only does everything have to be measurable, but it also has to be measured, after the fact, and tracked, and managed. Your people must be committed to your plan.

(Images: istockphoto.com)

(Note: slightly revised from a 2007 post here)