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WHY PLAN?
TRUISM 10 In some ways this is the most important chapter in the book since planning is the single most important element in starting and operating a business. Amazingly enough, it is also the most overlooked. Lack of planning is the cause for the majority of business failures. If you only take one thought from this book, remember this:
START PLANNING FROM DAY ONE AND KEEP PLANNING
THROUGHOUT Planning is difficult because there is no immediate feedback as to its value. But if you think of starting and operating your business in the same way you might think about climbing the mountain that was mentioned at the beginning of Chapter 1, the purpose and advantages of planning become clearer. When you start up the mountain you never know what to expect: sudden change in weather, lost or broken equipment, mistakes in maps, an injury. If you plan for these events, you will be able to deal with them and still reach top of the mountain in spite of the setbacks. On the other hand, if you fail to plan, you will not be prepared to meet problems that happen due to circumstances beyond your control. This can be disastrous. If you take the time to plan carefully, you will anticipate more of the potential problems, find solutions, and be able to achieve your ultimate objective. THE "BUSINESS PLAN" Many books have been written on how to write an "effective" business plan and most provide good advice. The traditional business plan is a very well defined and structured document. You write it so that it can be shown to lenders, potential investors, and bankers in order to raise capital for the business. So, it's sort of an advertising document and, well, maybe tends to exaggerate a little. Many people will argue that the business plan is a planning document. However, it frequently is not because of these exaggerations. After a while YOU will start to believe the business plan ... even if you know that what is contained within the document is absurd in places. (Yes sir, there is no doubt about it, sales will easily double each year ... as long as we can obtain adequate financing.) If your business is going to require investor capital at the onset, you will need that traditional business plan. See the references listed at the end of this chapter for some examples of where to find information on preparing a traditional business plan. But BEFORE you even get to this point, or if you are like so many of us and are starting a small business venture where little or no formal investment is needed, you need another plan ... A plan for YOURSELF ... A HONEST plan for you. You need a strategic plan. THE STRATEGIC PLAN A strategic plan is your plan for success. It will define your business mission, your present situation, and where you want to be in three to five years. A strategic plan, like the traditional business plan, should be well-structured, and include a number of short succinct statements covering the following areas:
VISION. This is a short statement that defines your overall long term goal. This statement should define WHAT your business will be. It should be brief (20-30 words) and clearly describe what you will be providing; and who the customer base will be. If the statement is too specific, it's not much of a vision; too general and it's unattainable. Your vision should be something to strive for ... usually a multi-year effort. Poor: "Provide the best automobile repair service in town." (too general) "Build the largest Porsche repair garage in the country." (too general) "Provide automobile painting services." (poorly defined) "Provide rebuilding services for 12-cylinder Ferrari engines." (too specific) Better: VISION:
MISSION/PURPOSE. This is a definitive comment that tells WHY you are pursuing your vision. Why do you want to start a business? What do you have to give? Keep in mind that a lot of people have a vision but very few have a mission ... At least one they are willing to pursue (many people shared Martin Luther King's dream but he was the one who also had a mission to do something about it). Think about what your mission really is. MISSION:
SCOPE. You need to spell out the boundaries of your business. You cannot be everything to every-body. If the scope of your business is too narrow, the probability for success may be diminished due to the smaller number of potential customers. On the other hand, if the scope is too broad, you will never be able to achieve your objectives. You may make a few customers happy in the short term, but it is not a good idea to spread your energies over too broad an area. Poor: "Provide automobile repair service." (too broad) "Provide Porsche repair services." (still to broad) "Provide high performance engine modifications for Porsche." (too narrow) Better: SCOPE:
ASSUMPTIONS. It is important to understand what specific assumptions you are operating under concerning your new business since they can determine and dictate how your business will grow and prosper. The more specific these assumptions are, the better. It may require a little research on your part to lay out these assumptions but the planning stage is the time to do it. It is difficult to give general examples, but in keeping with our Porsche repair facility, here are a few: ASSUMPTIONS:
This is a listing of specific goals and objectives you want to achieve with your business. Think through this carefully. Your list should include items that can be "measured." This way you will know when you've achieved success. Goals should be realistic and doable within a one to three year timeframe. Poor: "I want to be independently wealthy." "I want to be my own boss." "I hate my job, I want to do something new and exciting." "I want to be able to set my own work hours." Better: GOALS & OBJECTIVES:
Identify as many risks as you can. This might be difficult since it requires some negative thinking, but it is important for you to consider the downside in your planning. A new business venture can be risky, but what is important is that you identify as many specific risks to your proposed business as possible. By doing this, you can plan to deal with the risks. In our example, consider the following: RISKS:
STRATEGIES. Once the risks have been identified, you can list the ways to deal with them. Your strategies are the methods you will use to achieve your goals and objectives in spite of the risks. Here are some proposed strategies for dealing with the above risks. STRATEGIES:
You will need to identify a way for periodically re-porting the progress of the elements of your plan. If you write your plan and then forget about it, it doesn't serve the purpose for which it is intended. Your business is constantly changing ... many situations that affect your business are changing constantly and your plan must be updated or modified to reflect these changes. You must continually measure your performance against the plan. It is amazing how many planning documents are generated with great care and then placed in a drawer never to be looked at again. Don't you do it!
TRUISM 11 Revisit your strategic plan monthly and revise and update it as required. FAILURE Your planning, if you have considered risks and especially the unexpected, should help you improve your chances for success. However, some businesses will fail for any of a variety of reasons. We've already talked about the fact that you must constantly update your plan to make sure it is tracking with changes as they happen. If you find, by referring to your planning documents, that you are not making satisfactory progress towards your goals, in spite of your best efforts, you must be ready to admit failure. Pull up stakes and cut your potential losses. Hanging on and watching your business slowly die can be financially and emotionally devastating. Alternatively, you might consider setting a new goal for a new business. In this case, the planning process starts again. Perform
a post-mortem and assess the failure. What went wrong? Were the circumstances
beyond or within your control? Could the event(s) contributing to the
failure have been anticipated and possibly mitigated? In the
true entrepreneurial spirit, you will probably be involved in a new
business venture sooner or later and you want to be able to take advantage
of your previous experiences. By spending time performing a careful
assessment of your failure, you can document the lessons learned for
future reference. Lastly, you should be aware of this very important "planning for failure" truism:
TRUISM 12 Do not make the mistake of putting every dollar of profit back into your business. Your business may very well prosper for a number of years and then be plunged into sudden bankruptcy through no fault of your own. If this happens, and, if you have not planned ahead, you may very well have nothing to show for your time or efforts. Plan for this disaster by remembering that YOU are the business and deserve to be appropriately paid for your efforts. Never forget to pay yourself first. In bad times, the creditors may hound you, but they will wait. How much should you pay yourself? There is no easy answer or magic formula and it is difficult to give specific advice but some general guidelines are worth noting.
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