Archive for

Scrap the Big Business Plan – Here’s a Better Idea

Out of 300 people polled, 72% said they did NOT have a written business plan.

The truth is that most of you reading this article do not have a written plan.

Why?

Let’s see. You know you need a business plan. You’ve heard it from many sources, “Write your business plan!” So, you sit down and begin. Hmmm… bios, sales and growth projections, competition, graphs, marketing. It all seems so overwhelming. You realize this is going to take longer than you thought. You put it down to continue another night. That night doesn’t come.

Sound familiar?

How about this scenario: you actually finish your business plan. One year later, you realize you have not accomplished your goals, your finances are not where they were projected. You feel like you are failing.

Can anyone relate?

Relax, it’s okay. The big business plan gig is really not for us small, home-based owners. So, scrap the big business plan.

Here’s a better idea.

It’s not that big business plans don’t work for us, rather, they can’t work.

The traditional business plan is really only for one reason — to sell your business idea to investors. If you’re looking for venture capital, you have to put together a big business plan, and a very good one at that. While a very small sampling of you may wish to go this direction, the reality is that most home-based business owners are simply wanting to make a decent living at home.

In a poll of 300 online home-based business owners, 64% said they work part-time on their online business and receive part-time income from it. A pretty big chunk of online home-based businesses. These are people who are simply looking for a little extra cash, or they look at their business as a hobby.

In contrast, a paltry 16% of home business owners works full-time at home and receives full-time income. I would venture to say that an extremely small percentage of this group is actually looking for serious venture capital to take their business to another level.

Don’t get me wrong, we could all use a little extra funding, but that’s not what we’re talking about here. A few thousand dollars to start up your business doesn’t usually come from investors.

Keeping this in mind, if we put together a traditional business plan (to impress investors), generally, what we put into the plan, will be the wrong things for the wrong reasons. If impressing the investors is not your intent, you can’t succeed in this kind of plan. It’s that simple.

So, do you actually need a business plan?

Oh, yes! You simply don’t need the traditional business plan. Rather, what you need is a plan that will help you (and only you) take control of our own business. Think of it as a guide that will give you direction and keep you on track.

Ask yourself these questions:

1) Why am I doing this business? What are my motives?

2) What do I personally want to do with this business? What do I want to gain?

3) What are my personal strengths to offer to the business? What are my weaknesses?

4) What new knowledge will I need?

5) What parts of my business can I outsource?

6) Where do I want to be in six months from now? One year? Five years?

See the difference? These questions are you-based. Write down your answers as a preface to your plan. Refer to these questions often and adjust your answers as your perspectives change over time and as your knowledge grows.

Now, with the above in mind, go ahead and pencil in your thoughts on the following. Your answers won’t have to be terribly involved. This gives you a roadmap, nothing more. And, it will change and evolve over time. Remember, you’re not answering to anyone but yourself. You’re not trying to impress anyone.

  • Business Mission Define it as YOU see it.
  • Evaluate the Past Take stock in what your business has done in the past year. Summarize your business’ strengths and weaknesses. Ask yourself, “Is my business profitable or does it indicate that it will be?” “Have I attracted new customers?” “Have I maintained customers?” “Am I happy with where my business is going?”
  • Your Personal Competitive Edge This is not about your great domain, nor what great products you have, rather, this is what YOU, personally offer… your own innovation, what powers your business. YOU are your small business’ brand, its greatest asset. You must think in these terms.
  • Your Business Competitive Edge This is where you list your products/services. Separately list those you have and those you plan to add. Include any patents, logos, designs, licenses, domains, any kind of intellectual property.
  • Customer Relationships As a small, home-based business owner, your marketing is very different from big or even mid-sized companies. Your marketing heavily relies on relationships. Write down the ways you make or plan on making relationships with your customers. Think innovatively in terms making relationships. Don’t simply jot down a laundry list of ways you will advertise.
  • Business Relationships List your partners (your spouse?), strategic partnerships you have made or plan to make, mentors, industry experts. Who generally and specifically will help you grow and develop your business? List external and management relationships such as your banker, your CPA, your attorney. List your suppliers. Think about how involved you want your family and friends to be involved in your business.
  • Finances This should identify a clear plan for quantifying results. Develop landmarks and goals. Yes, forecast, budget and project. This is something you need to do to keep your focus. Review this from time to time and set yourself back on course if you begin to stray, or re-evaluate to make more realistic changes.

Phew! Now, take a deep breath and you will find that this exercise will actually do more to help you focus and grow your business the way YOU choose than any other traditional business plan ever could.

Why not sit down and give it a try. And, if you have any ideas to add to the above, by all means, give me some feedback.

Business Planning Is a Must

How many of you have prepared formal business and/or strategic plans? Possibly, you have prepared business plans when you were seeking financing for their start-up, growth, or an acquisition. Some of you may have developed a business plan as a road map to follow, and measure their results against it. But generally, surveys indicate that, unless it is done to acquire financing, business plans are not done.

Business plans are generally prepared for a three-to-five year period. The scope will define the start-up, expansion, or acquisition costs. Specific markets, products, marketing plans and organization for the company will be outlined. An implementation process will be outlined with dates and assigned responsibilities (milestones). Sales projections are absolutely necessary, and will be the basis for the financial forecast which will include balance sheet and cash flow forecasts as well as the profit and loss forecast. Those financing the company will want to see how they are going to get paid back; investors will want to see what their return will be.

Your city/state economic development departments, SCORE (Service Corps of Retired Executives), the banks, and various resources on the web can give you formats that you can use to develop your business plan. While business plan development can be done internally, I generally recommend using outside help. They will ask the tougher questions and will do a much more through job of market analysis because they have no “insider” bias.

Strategic plans are significantly different than business plans, and I doubt very many companies have even attempted one. Strategic plans are much broader in scope, as they start with defining the vision and goals of the company and can be developed for as long as 20 years, with adjustments being made as often as necessary as the business environment changes. Strategic plans are much more visionary and are focused on ongoing improvements and building market share. Plans may be modified, but the vision should never change. Goals are always established before the company takes any action steps.

Strategic planning does yield success. Studies have proven that companies with plans are 12% more profitable, and 64% state that they do a better job of meeting their short term goals because these goals are fully aligned with the company vision. Generally, annual budgets (if you do these) are too short term and are focused on the current situation, not the future vision. Approximately 80% of all INC 500 companies actively use strategic planning.

While there are many examples of business plans on the internet, there are not as many examples for strategic plans. The formats vary significantly, but the approaches are generally consistent. They can be anywhere from a one page plan to a complete document. Generally, there are no financial schedules. Specific financial targets are important, but strategic plans are much broader in scope and are more sales or market focused.

One of the most critical steps in developing a strategic plan is the SWOT analysis (strengths, weaknesses, opportunities, and threats). Once that is done, keep it close by and refer to it often. Update it as conditions change. Next develop your core values; these should never change as long as the company exists. The core value defines the company’s purpose – why it is in business – the heart of the company. Then define the actions that must be taken to comply with these values. The next, and most important step, is to develop your BHAG (big hairy audacious goal) – the “why” of the company for the long term.

Once these longer term goals are established, the next step is to define the intermediate targets that will be required to meet those goals. These intermediate targets should cover three to five years and should use key performance indicators (KPI’s) to measure progress on achieving the goals. The intermediate goals are further broken down into more specifically-focused annual goals and measurements. The next step is to define quarterly goals and measurements. And keep the number of goals limited. KPI’s should be measured routinely to insure that the company is achieving its goals.

The focus of strategic planning is to develop the base values and goals of the company. These are the foundation of the company, and should never change. All additional goals and KPI’s will be developed to define the shorter term steps that will support this base. The process is designed so that the quarterly and annual goals can be updated as the company progresses, and to adjust for environmental changes (which will happen). The strategic planning process is a well-defined building block process that will result in a better focused and more profitable company.

Are Business Plans a Waste of Time?

I recently attended a national entrepreneurship conference along with a number of other college instructors and well-known entrepreneurs. I found it interesting that two concurrent sessions offered conflicting points of view on business plans. One session featured a panel of successful entrepreneurs questioning the real world relevance of business plans. The other session focused on teaching students to quickly and correctly develop business plans.

I was intrigued by the panel discussion so that’s the session I attended. None of the entrepreneurs on the panel had ever written a business plan-at least to launch a business-yet they were all extremely successful. The revelation that they did not use written plans is not surprising, most entrepreneurs don’t. One reason given by the panel for forgoing a formal business plan is the natural tendency for entrepreneurs to cling to a business plan they wrote due to the investment in time and effort. The reality, they said, is that things change so much in the real world of business that the assumptions underpinning a business plan must often be altered or even abandoned to allow the business the flexibility necessary to survive. In addition, the entrepreneurs were adamant that a good plan will not make a bad idea work and a great idea probably will not be hampered by a poorly written plan-or no plan. Another concept discussed in the session was that what the entrepreneur is really selling to the venture capitalist or angel investor is the entrepreneur. One of the panelist remarked that, “If the investors believe in you, they will invest in your business.” The consensus from the panelists was that investors look for passion and vision in addition to the idea. They must be convinced that the entrepreneur is capable of persevering and making good decisions and adjustments to keep the business moving forward. Since there were college instructors in attendance, and most entrepreneurship programs require written plans, all entrepreneurs on the panel diplomatically agreed that requiring a business plan as part of a course or program of study was not a waste of time. They concurred that the process itself could offer valuable insight.

As a college entrepreneurship instructor I try to convey as realistically as I can the realities that entrepreneurs face. After attending this conference I realized that students may have difficulty reconciling the two seemingly conflicting points of view presented in the workshops. Certainly my students are aware of the statistics which suggest that most entrepreneurs enter a business without a written plan. To attempt to convince them otherwise would be disingenuous. If the panel was right why bother with a business plan at all? I believe that the answer can be found in the last nugget offered by the panel of entrepreneurs; it is the process that is most beneficial.

The planning process does not begin with the business plan. In fact, it is a mistake to write a plan too early. A feasibility analysis should be conducted prior to writing the plan so that the key assumptions underlying the plan are properly vetted. The research conducted as part of a feasibility analysis can also lead the entrepreneur to better understand their business. For example, if a focus group is used to better understand the target market, new insights can be gained which can lead to the development of a more competitive business model. The results of the feasibility study and the articulation of a compelling and competitive business model are the most critical components of a business plan. Coupled with a cash flow analysis these facts can be critical when procuring the necessary resources to launch a new enterprise.

Another point I like to make with my students is that the importance of a business plan depends on the type of business. A retail store with large capital requirement, inventory, payroll, etc. is completely different than a new venture in a technology driven industry that is rapidly changing and evolving. A business similar to Facebook, for example, has much less need for a formal business plan than the owner of a new sporting goods store.

In addition, the amount of borrowed capital required to launch a business will impact the need for a formal plan. Venture capitalist typically will want to review at least certain sections of a formal plan as part of their due diligence.

I believe that the entrepreneurs had a valid point regarding the tendency for business owners to become too attached to a formal plan. A critical time occurs when the business is launched and the entrepreneur begins receiving real feedback from customers. The decisions made at this juncture can make the difference between the success and failure of the venture. Should the entrepreneur hold to the assumptions of the plan or should minor or major adjustments be made? The entrepreneur needs to remember that the business is not on autopilot just because a polished business plan is in place. Adjustments must be made as conditions warrant.

The panel was not wrong when questioning the necessity of a formal business plan, but the planning process is distinct from the plan. A business plan, whether required or not, will enable the entrepreneur to better articulate their vision which may make writing a plan well worthwhile.