Rich irony: 37Signals, a great Web app for project management, ought to know better than anybody that real business planning is a process, not a plan. After all, they do the kind of nuts and bolts management that makes that happen. Instead, however, Matt of 37Signals posted the planning fallacy last week:
If you believe 100% in some big upfront advance plan, you're just lying to yourself.
I object. Who ever said planning was "believing 100% in some big upfront plan?" Good business planning is always a process involving metrics, following up, setting steps, reviewing results, and course correction.
He goes on:
But it's not just huge organizations and the government that mess up planning. Everyone does. It's the planning fallacy. We think we can plan, but we can't. Studies show it doesn't matter whether you ask people for their realistic best guess or a hoped-for best case scenario. Either way, they give you the best case scenario.
OK that's a dream, not a plan. Matt seems to confuse the two, but good business planners don't. Any decent business planning process considers the worst case, risks, and contingencies; and then tracks results and follows up to make course corrections.
Which leads to this, another quote:
It's true on a big scale and it's true on a small scale too. We just aren't good at being realistic. We envision everything going exactly as planned. We never factor in unexpected illnesses, hard drive failures, or other Murphy's Law-type stuff.
No, but you do allow extra time for the unexpected, and then you follow up, carefully (maybe even using 37 Signals' software) to check for plan vs. actual results, changes in schedule, new assumptions, and the constant course correction. Murphy was a planner. He understood planning process, plan review, course corrections.
That messy planning stage that delays things and prevents you from getting real is, in large part, a waste of time. So skip it. If you really want to know how much time/resources a project will take, start doing it.
Really bad advice there, based on a bad premise. Sure, if you define planning as messy and preventing you from getting real, then it would be a waste of time. But is that planning?
I wonder if Matt takes his own advice. When he travels, does he book flights and hotels? Or does he skip that, and just start walking.
I was the planning consultant to Apple Computer's Latin America group from 1982 until 1991 or 1992, the end of the relationship being a bit hard to define as I was called on steadily more by Apple Japan and less by Apple Latin America.
The challenge came in the spring of 1985. The annual business plan was done every Spring, turned into management in June and then discussed and revised and resubmitted and eventually accepted in July. In April of 1985 I had been the consultant for that process for four years running when Hector Saldana, manager of the group, said:
"Tim, yes I want you to do our annual plan for us again this year. But only on two conditions: first, I want you to stop working for other computer companies. Second, I want you to take up a desk in our office, come every day, and sit here and see us implement the plan."
Happily, he also had some good news related to giving up other competing companies as clients: "And, if you agree to do this, I want to contract you for all of your hours for the next year, and at your regular billing rate."
The condition of giving up competing clients was difficult for a single person business. What if Apple had problems, or changed its policy regarding consultants? What if Hector got promoted or fired? Where would I be then, if I had given up other business relationships.
That's not the real point of the story, although it does relate to planning as you go. That certainly wasn't part of my business plan for my business, but it was a classic example of changed assumptions. We talked about it at home at length, and decided to go ahead with it. However, we also modified the plan we had going related to efforts to generate new leads and new business: we would focus that effort within Apple itself, different groups that didn't talk much to each other, to reduce risk of having two many eggs in the single Apple Latin America basket. The plan was modified for cause, to accommodate changed assumptions.
The problem of implementation, however, forced me to consider the difference between the plan and the results of the plan.
There was some history. The previous year or two had been the time of "desktop publishing" for Apple Computer. Desktop publishing, which we now take for granted, started with the first Macintosh laser printer in 1985. It was a huge advantage for Apple in competition against other personal computer systems.
Our plan for fiscal 1985 had been to emphasize desktop publishing in most of our marketing efforts. And it didn't happen. While we talked about desktop publishing in every meeting, the managers would go back to their desks, take phone calls, put out fires, and forget about it. They didn't intend to, but they'd had so much emphasis on desktop publishing that it seemed boring, old hat. Multimedia was the thing.
So, faced with the implementation challenge, I created what became the strategy pyramid to manage strategic alignment. We ended up with a relatively simple database of business activities. Collaterals (meaning brochures and such), bundle deals (software included with the hardware at special bundled prices),advertising, trade shows, meetings and events, all were tied into a system that identified what strategy point they impacted, and what tactic.
So during that year, as business went on, we were able to view actual activities, spending and effort, divided by priority. We set more budget money for desktop publishing activities than any other. During the review meetings, we compared actual spending and activities (the beginning of what I talk about as metrics) to planned spending and activities. And over time, with pie charts and bar charts to help, we were able to build strategic alignment. What was done was what the strategy dictated.
The plan-as-you-go implication was that this didn't happen just because it was in the plan. It took management. There was a plan review schedule with the meetings on the calendar way in advance, and for every meeting I was able to produce data on progress towards planned goals. The managers discussed results. Plan vs. actual metrics became important.
When things didn't go according to plan, the meetings would bring that to the surface. Managers would explain how the assumptions turned out wrong, or some unforeseen event -- we had good results as well as bad results -- and we would on occasion revise the plan.
Where's my discussion of the secret sauce? Somebody asked me that a couple days ago, expecting it to be in this book. I was embarrassed. I talk about the secret sauce a lot, in my seminars and in my class, at the office. It's definitively another view of the same reality I'm calling the heart of the plan. So that's one thing to add for the next edition.
The secret sauce is the magic, also called (boring) differentiators, and sometimes competitive edge; Guy Kawasaki calls it "underlying magic" and recommends that it be one of the 10 (or so) slides is a pitch presentation. You can google it and see how people are writing about it, using it to define what's new or different about some businesses. (You'll also see some items on McDonalds' secret sauce for the big mac, and some cooking stuff, but you'll see what I mean).
This idea of the secret sauce is a good way to explain how you're different from your competitors. What sets you apart?
Examples? Apple Computer's secret sauce is design, for example. Michelin tires' branding tries (in my opinion) to emulate Volve, the safety angle. My favorite restaurant in Eugene, Poppi's Anatolia, has an extremely spicy version of vindaloo chicken. Whole Foods' secret sauce is its having established the brand for healthy and organic foods. In cars, just look at the mini-cooper or the Honda Element or the Toyota Prius and you see secret sauce immediately.
I understand. Enough of the explanations and positioning, let's get working on a plan. So go ahead, just jump in and do it.
- Most people like to start with the heart of the plan. Jump there now, you'll see what I mean. It's about what really drives your business. Your target market, your business offering, your strategic focus. And don't worry about format; write it, speak it, use bullet points, slides, or whatever.
- My personal favorite is the plan review schedule. This makes it very clear that you're after planning, and better management, not just a plan.
- Another very good starting point is the sales forecast. Some people like to get to the numbers first, and many people do the conceptual thinking while they work the numbers. Your target market, your business offering, your strategic focus are all in your head as you make your sales forecast. That's not a bad way to proceed.
- Maybe you want to start with an expense budget instead. Estimate your payroll on an average month. Calculate your burn rate, a very important number, meaning how much money you have to spend per month.
- If you're planning to start a business, startup costs is a good place to get going. Make lists of what you need, in money, goods, locations, and so forth.
- Particularly when you have a team, SWOT (strengths, weaknessess, opportunities, and threats) analysis is a great way to start. You can jump to the SWOT analysis now and do that.
- Some people like to set the scene better, with the mission statement, vision, mantra, objectives, or keys to success. That gives your plan a framework to live in. If you like.
However, there are some things in business planning, even plan-as-you-go planning, that have to happen in a certain order. For example, you can't really just start with the cash flow statement without having done your sales forecast, burn rate, and some asset and liabilities assumptions.
Still, you can get started fast. I don't blame you. Maybe you'll jump back here (use your Back button) to continue the explanations after you've made some progress.
The plan-as-you-go business plan is a new approach, a new way of thinking about business planning. It doesn't really change fundamentals, but it does change the focus. It adds some new angles, and it's better for you, and better for your business.
What's the difference? Why do I make the distinction?
Garr Reynolds, in his highly-acclaimed book Presentation Zen, says his approach to presentations "is not a method."
"Method implies a step-by-step systematic process, something very much planned and linear, with a definite proven procedure that you can pick off a shelf and follow A to Z in a logical orderly fashion.
"An approach implies a road, a direction, a frame of mind, perhaps even a philosophy, but not a formula of proven rules to be followed."
I like this distinction. It definitely makes plan-as-you-go planning an approach, and not a method. I've spent a lot of years working on step-by-step methods to do business planning. Some of them work. Sometimes. But the whole idea of step-by-step, attractive as it is, reinforces the myth of the business plan as a document or hurdle.
What's the difference? Why does it matter? It's not that important, but I do want to use the idea of an approach instead of method to emphasize that I don't want this plan-as-you-go concept to become another list of specific steps, or another list of "do it my way" methods. I want this approach, like this book, like your plan, to be yours, not mine. You take what I'm offering here and use what you want from it, in whatever order you want to use it, and make it work for you.
The military relates very well to planning. In business we talk about battle plans, and war plans, as well as business plans. One of the most recommended books for business is Sun Tzu’s The Art of War. I use Eisenhower’s quote “the plan is useless, but planning is essential” frequently in writing, speaking, and teaching about planning. He makes a critical point.
There’s also the famous line: “no battle plan ever survives the first encounter with the enemy,” often attributed to Colin Powell, but also to Field Marshal Helmuth Carl Bernard von Moltke.
You can also do the big plan all at once! I understand. This new approach is great but never mind, you need the formal plan. You've been asked for it by somebody who might invest, or a bank loan manager, or a boss. Maybe you're doing it for a business school class. I call these business plan events. When you need the old-fashioned full document, so be it; there's a business need, so let's get it done.
We'll get there, in this book. You can jump there right now, and start writing things down, section by section. I'd rather have you develop your core plan first, then get the essentials including the who-what-when-how-much, the sales forecast, and the spending budgets (a.k.a. the burn rate: the amount of money that flows out of the business each month) but that's up to you. "Get started and get going" means you can also do it the old-fashioned way if you want.
Why do you want a business plan? You already know the obvious reasons, but there are so many other good reasons to create a business plan that many business owners don't know about. So, just for a change, let's take a look at a longer-than-usual list of the most important reasons you need a business plan.
1. Grow your existing business. Establish strategy and allocate resources according to strategic priority. You can find more information about growing your business with a business plan by reading my article "Existing Companies Need Planning, Too" at bplans.com
2.Create a new business. Use a plan to establish the right steps to starting a new business, including what you need to do, what resources will be required, and what you expect to happen.
3. Set specific objectives for managers. Good management requires setting specific objectives and then tracking and following up. I'm surprised how many existing businesses manage without a plan. How do they establish what's supposed to happen? In truth, most of the people who think they don't plan are really just taking a shortcut and planning in their head--and good for them if they can do it--but as your business grows, you want to organize and plan better and communicate the priorities better. Be strategic. Develop a plan; don't just wing it.
4. Deal with displacement. Displacement is probably by far the most important practical business concept you've never heard of. It goes like this: "Whatever you do rules out something else you don't do." Displacement lives at the heart of all small-business strategy. And most people have never heard of it.
5. Share and explain business objectives with your management team, employees and new hires. Make selected portions of your business plan part of your new employee training.
6. Share your strategy, priorities and specific action points with your spouse, partner or significant other. Your business life goes by so quickly: a rush of answering phone calls, putting out fires, and so on. Don't the people in your personal life need to know what's supposed to be happening? Don't you want them to know?
7. Hire new people. This is another new obligation (a fixed cost) that increases your risk. How will new people help your business grow and prosper? What exactly are they supposed to be doing? The rationale for hiring should be in your business plan.
8. Decide whether or not to rent new space. Rent is another new obligation, usually a fixed cost. Do your growth prospects and plans justify taking on this increased fixed cost? Shouldn't that be in your business plan?
9. Seek investment for a business, whether it's a startup or not. Investors need to see a business plan before they decide whether or not to invest. They'll expect the plan to cover all the main points.
10. Back up a business loan application. Like investors, lenders want to see the plan and will expect the plan to cover the main points.
11. Develop new business alliances. Use your plan to set targets for new alliances, and use selected portions of your plan to communicate with partners.
12. Decide whether you need new assets, how many, and whether to buy or lease them. Use your business plan to help decide what's going to happen in the long term, which should be an important input to the classic make vs. buy decision. How long will this important purchase last in your plan?
13. Deal with professionals. Share selected highlights of your plans with your attorneys and accountants, and, if this is relevant to you, consultants.
14. Sell your business. Usually the business plan is a very important part of selling the business. Help buyers understand what you have, what it's worth and why they want it.
15. Valuation of the business for formal transactions related to divorce, inheritance, estate planning, or tax issues. Valuation is the term for establishing how much your business is worth. Usually that takes a business plan, as well as a professional with experience. The plan tells the valuation expert what your business is doing, when, and why as well as how much that will cost and how much it will produce.
Adapted from a column for entrepreneur.com