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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.

Baby, Bathwater, and Business Planning

Business Planning,

Which is better: aiming at something from a great distance and committing to that without flexibility; or setting a general direction and moving towards it in smaller flexible increments?

The second is better. Of course.

The first is like the myth of the business plan, the way it’s frequently misunderstood. The second is business planning, the way it is supposed to work.

Real business planning doesn’t lock you in over the long term. Quite the contrary, it sets directions and priorities, and concrete steps, and gives you something you can track and manage. It gives you more flexibility, not less. Keep the long term in mind while you deal with the short term. Watch how things unfold, what turns out to be as you expected, and what doesn’t. Manage your business, with planning.

And not, emphatically not, set a plan once a year and then follow it blindly until you do a new plan a year later.

So don’t throw out the baby with the bathwater. Don’t think that because some people misuse a business plan, turning it into a straight jacket, that you don’t want to plan your business. Just do it right.

(Photo credit: istockphoto.com)

A Great Time for Planning

Business Planning, ,

It’s a very cold and very foggy morning in Western Oregon on Monday Dec. 28. This is that strange week we get every year, right in the middle of holidays. A lot of companies close. Retail does a lot of business. And it’s a great time for planning.

I emphasize planning, not just the plan. Don’t sweat the formality of “the plan,” but give yourself and your business the benefit of planning.

Unless you’re in a busy retail business, things are quieter. You had a long holiday weekend and you have another long holiday weekend coming. A lot of people are thinking and writing about next year, writing about resolutions, trends, and predictions.  It’s relatively easy this week to step back away from the day-to-day operations and look at the broad view. Take a fresh look at your market. Take a fresh look at your business.

Objectives: review your long-term goals. What’s success to you? Have you been moving toward it? Has your view of success changed? I can tell you that my vision of success changed through the years. Cash flow independence, growth, sales, freedom, fun, independence?

Market: take a fresh look at your market. Markets change right under our eyes, and if we don’t take a step away, sometimes, we miss the change. It’s like watching children grow up; you see the changes from year to year, but not day to day. How’s your relationship with the people who buy what you sell? How has it changed? Are your customers still the same kind of people or businesses they’ve always been? Do they find you the same way? Do they get the same benefits from you that they always have? Are you serving the same needs you always have?

Strategy: I think of strategy as focusing in on specifics of your business identity, market, and business offering. Review your identity with a good SWOT analysis: That’s strengths, weaknesses, opportunities, and threats. It’s better if you get a team together for a SWOT analysis, but even if it’s just you, it’s still a good idea.  Take a good look at your market focus. Are there new markets emerging? Do changes in your business offering lead you to new markets? Are there possibly some new market segments that your day-to-day focus has missed? Look especially for contiguous markets, meaning those that are close to your current markets, getting their benefits from things close to your current business offerings?

Specifics: planning is about specific concrete steps you can track and manage. Start thinking about dates and deadlines and specific task responsibilities.

(Image credit: Susumis/Shutterstock)