Business Planning vs Business Plans
Author: Jeff Maglin
Being a business planning professional, I continually am reading articles and blogs on the subject.
These articles and blogs often have polarizing titles that range from business plans are essential to business plans are a waste of time. My take away from reading many of these articles is that the authors mainly agree that business planning should be an integral part of any startup or ongoing concern. Where they disagree is what should be the tangible output of this business planning exercise. The answer of this question depends upon what you are trying to accomplish.
Common business plan components are the executive summary, company overview, market overview, strategy and implementation, management team and financials. Each of these components can be broken into sub-components, for example, the market overview includes market sizing, segmentation, competition, trends, etc. Most people when they think of business plans imagine a 30-50 page document that takes weeks or months to prepare. These types of documents normally are reserved for the due diligence part of professional investor financing or corporate annual planning requirements. Small businesses normally do not require such formal deliverables. Their focus should be on business planning activities that make them more efficient and effectiveness in starting and growing their business.
Idea Stage – Before the business ever exists, the entrepreneur needs to see if their idea can be translated into a viable business. The emphasis at this stage should be on determining the attractiveness of the market, which involves understanding the size, growth and penetration of the market and market segments, the number and strength of competitors and which market segments they serve, etc. It also requires knowledge of pricing and variable and fixed costs to build basic economic and financial models to assess investment requirements and profitability potential.
Pre-startup Stage – Once the entrepreneur is able to convince herself of the potential of a self sustaining entity, she should focus on creating a path of how to get there. Marketing, sales, operation and financial plans establish the framework of how the company will operate in the marketplace. Milestone development provides specific and time based goals to measure progress. These plans should be written to be used as guide rails and not step by step instructions. As everyone knows who has started a business, nothing ever goes completely according to plan. The entrepreneur has to be flexible to make changes on the go.
At this stage, the entrepreneur probably will interact with one or more potential stakeholder groups (i.e. investors, lenders, employees, advisors, suppliers, customers, etc.) The entrepreneur should have an established pitch supported by an executive summary document or presentation to communicate the business opportunity for the specific stakeholder.
Startup Stage – The business now is an official operating entity. The entrepreneur measures performance to plan on a monthly basis, while making necessary course corrections based on market feedback. She also begins to establish a track record that increases the credibility and legitimacy to potential stakeholders.
At this stage, the entrepreneur will have better information to refine their pitch and develop a more comprehensive business plan document, especially if she decides to approach professional investors such as angels or venture capitalists.
Ongoing Entity Stage – The entrepreneur now has a profitable, positive cash flow business. The business plan is revised once per year to make modifications to long terms strategy and to set yearly goals and objectives. The plan or plan summary is used to communicate a common vision and direction inside the firm. It also continues to be a basis to market the company to external stakeholders.
Regardless of the stage, business planning should be an activity to help the entrepreneur start and grow their business, not a burdensome rite of passage. Don’t write a business plan without first understanding the purpose it serves. Then determine the content and the form required. There are enough obstacles to starting and operating a business without adding unnecessary work. Two resources that I would recommend when beginning the process is Guy Kawasaki’s book, “The Art of the Start” and Tim Berry’s book, “The Plan as you go Business Plan”.
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