Making a business plan often sees alternative outcomes ignored. But a good plan will cover off a number of eventualities, explains Carl Reader in an excerpt from his book Boss It.
Planning is often the area where I see business owners let themselves down. Sometimes they use planning as a useful way of avoiding real work, and continually update their goal lists and business plans without taking action. Otherwise, they neglect the planning stage and dive straight into action, with no structure behind their actions. It’s important to try to fi nd a halfway house between these two approaches to give your business the best chance of success.
What’s the plan?
When you think of a business plan, you probably think of a weighty document, perhaps with a glossy cover, or presented on PowerPoint slides by some high-flying executives. Well, it’s true that the document you’re thinking of is referred to as a ‘business plan’, but we are actually looking at the whole planning process.
So, with that clear, let’s focus on the whole process of planning. It’s important to bear in mind that we all have our own approach to planning and structure. Personally, I tend to plan a little less formally than most, and I fi nd that I tend to work better with a very broad big-picture plan, combined with very short-term detailed actions in alignment to the plan. Others prefer to work on a more structured basis, perhaps tying daily actions into weekly targets, and in turn into monthly and quarterly goals.
Perhaps the biggest problem with traditional business plans is that they often end up gathering dust in a drawer somewhere, with no actionable steps, accountability, or proactive review and amendment. An effective plan for your business isn’t constrained to a few PowerPoint slides; it should be a living document that grows with the business.
Putting contingency into your plan
Instead of focusing on just the ‘why’ and the ‘what’, we need to make sure that we cover the ‘how’ – how do we go from A to B, the practical steps that need to be taken, and some of the contingency plans that should be in place? In short, we need to plan our actions, not our results.
I mentioned before that plans tend to focus on the output of the business – who the business serves, the customer benefit and ultimately the return for the business owner and any shareholders. It’s really important that this stuff is nailed down, but it is only part of the jigsaw. The performance of the business will be dependent both on the actions that are taken and the external matters that are outside your control as a business owner.
The formal phrase for having a range of backup plans is a ‘sensitivity analysis’. In practice, this often looks like a broad adjustment to the financial forecasts of the business – for example, to see what would happen if revenues are 20% lower than expected, or profit margins are 3% lower.
While adapting the results helps to sense-check the financial stability of the business, they don’t actually help address the change in course required at an early point to limit the damage to the numbers. Instead, I’d like you to bear the following in mind when creating your action plans:
How do I keep my medium- to long-term targets flexible, in order to take advantage of new opportunities or threats? What is the process for this?
How do I flex my short-term actions to take into account changes to the market, or simply learning new ways to do things? How will I review the changes to ensure that they tie back to my medium- to long-term targets?
How do I protect the business from the unexpected, and mitigate damage? Do I need to take preventative steps, fi nd ways to structure the business so I’m not the only income source, or invest in insurance?
A question of timing
Another factor that the traditional sensitivity analysis doesn’t really cover is the impact of timing. In my experience, tech businesses are particularly guilty of not hitting development milestones or revenue targets. It’s all good having a beautiful set of projections that pass muster even with a large percentage tweak, but the reality is that the hidden killer in these businesses is the timeline.
When producing your plans, you need to think about the timeliness of your actions, and the impact of actions not being completed by a certain point. Can your business sustain itself if your website is one, three or six months late? What if employing your first member of staff takes longer to recruit than expected? Mapping out the impact of these potential delays can help you prepare for the very worst-case scenarios, and also help you understand the importance of certain actions compared with others.
This extract from Boss It by Carl Reader © 2020 is reproduced with permission from Kogan Page Ltd. Visit carl.to/bossit to order a copy.