We recently had Tim Berry, Palo Alto Software founder and business planning expert, present our Bplans audience with his latest advice on lean business planning. He is the known guru in business planning, particularly for small businesses, startups and entrepreneurs, although he’s worked with Fortune 100 and Fortune 500 companies as well.

Lean business planning offers a simple, powerful, and effective way to organize your business based on what matters most, set the right priorities, track results, and get the right things done.

It’s all about making your business life easier, doing what works best, getting the best results by tracking what works and always improving.

Hear more about lean business planning with Peter, Jonathan, and Tim on the ninth episode of The Bcast, Bplan’s official podcast:
Click here to subscribe to The Bcast on iTunes »

The One Page Business Pitch Template

Read the transcript:

Tim: Thank you Sabrina. I’m going to start with what’s a lean business plan. How do you do it? What does it contain? Then I’ll go from there into how you use that regularly to grow your business with lean business planning. From there, I do want to address questions as they come and we have moderators. From there, I’ll go into how you communicate to others when you have the need what your business is going to do. I’m starting going straight into the material. I’m not going to go into background, benefits, principles, what’s lean and how lean started in the 1930s and 40s and lean startup and all that. I’m going to just talk about what we do, which you see here in this visual.

It has four components, and I’ll talk about each of them in sequence. We’re looking at our lean business planning is about strategy, tactics, concrete specifics including milestones, metrics, tasks and schedule, and essential numbers to run a business, all of which lead to managing cash flow. That’s the sales forecast, the spending forecast and the cash flow.

That’s a lean business plan. It is not a document. You don’t necessarily print it out. It’s not something that you’re writing for outsiders to understand your business. It’s objective is internal management. It’s objective is keeping strategy and alignment with tactics and having specifics that you can manage so you’re managing change. Your business is changing rapidly, and managing of course essentials of business planning and management is managing the money.

Which I just say you can’t optimize without having some sort of a plan, but it’s the lean business plan in a lean business planning process. Let’s start there with strategy.

Strategy for me, I’ve got the Stanford MBA. I’ve had years following this. We can all do Ph.D. thesis related to strategy, but we don’t, do we? I’m talking to business owners as a business owner. Strategy is really focus, and almost every useful working strategy I’ve seen seems obvious when you speak it to an outsider.

Well of course we’re focusing on this and that, and you can take a lot of times with frameworks or whatever, I say that doesn’t matter. You do in small business, in startups, you survive on focus, and my shortcut to strategy that I like is think about identify, market and business offering.

Identity is who you are as a business, what you do best, what is your core competent. What taglines are you using to differentiate yourself from other people, other businesses that might be similar. Market for me is who is your key target market? What is your key focus?

The restaurant, it’s identify for example is that it’s Thai food and its chef is special, she was on Iron Chef of whatever, that’s identity. Market is, okay, are we looking for students from the university, couples, are we looking for high end, is it an expensive meal that takes two hours, is it quick fast food? That’s the market is who we’re after.

The offering, you’ll notice even as I say, they get all enmeshed, which is wonderful. That’s strategic. The offering then, if we’re going for the high end market with the Thai restaurant, that tells us about what items we have on the menu, what hours we’re opening. Those are the business offering parts of it. They come together in a lean business plan, this is just bullet points that you’re using to remind yourself. They’re there because we all recognize this phenomenon, right?

We want to do everything for everybody. We’re running a high end Thai restaurant and somebody says, “Oh, why not drive-through?” and our first instinct as entrepreneurs and business owners is yes, let’s do drive-through.

The use of the strategy component in a lean business planning is a reminder. “Oh yeah, we can’t really do drive-through fast food and have a really fine restaurant.” Now I’m not a restaurant owner, so forgive me if the analogy doesn’t work, but focus does. Focus works very well.

As you look at business strategy, I’ve developed this list of just oh here’s ideas. What’s identity? What’s marketing? What’s offering? I’m not going to read this to you, but swat, core competence and et cetera, these are ideas and the goal is focus and I really don’t care what framework.

I’ve used a lot of frameworks. Like I said, I was in McKinsey. I’ve seen a lot of different frameworks. If you apply it consistently and it works for you, that’s really good. Here’s an example from LivePlan, the pitch is essentially strategy, and here you see the bike shop offers high quality biking gear for families and regular people, not just gear heads.

Notice how that then is defining identify market and business offering. Then there’s some more about the solution and there’s a strategy. Strategy has to be simple or it doesn’t work. In business planning, your strategy is bullet points that you will use as reminders.

Sabrina: Tim, can I ask you a quick question, I know this is great information for everybody. What’s the concept of all of this that you’re talking about and then in financing? There’s a lot of people who want to know can you use a lean plan to get funded, to get a loan or is the lean plan not appropriate for that? I just thought it was a good question to set the context of lean planning and when somebody should use it, because so many of our webinar attendees are in the process of getting financing.

Tim: Okay, and thank you for that and I will say this is where I’ve been living the last few months. I’m in my seventh year now as a leader and an angel investment group where we just announced an investment last Thursday, and I’m very familiar with how this works for angel investors.

For the whole group, I want to put this in context. We’re business owners, we aren’t all getting angel investment, so one of the principles of the lean business plan is you do what you’re going to use. You’re not going to do the angel investment geared business plan if you’re not looking for angel investment.

Having said that, if you are, what I see in our group is the lean business plan is initially in the background, it’s your screenplay for your movie. It’s your plan that you go to as you develop summary and pitch, and most important, I see a hundred pitches a year because I do judging for some other angel groups and so on.

There’s no dogma on this. There’s no rules, but what I see works is you start with a story. This we’re talking about summary and pitch. Tell your angel investors a story about need. Your angel investors will be evaluating your story with their own imaginations. You want to tell them what you need to say so they will become inspired by the possibilities.

They’re not going to believe your numbers. They will want numbers at some point, but you’re not going to drive this with numbers. You’re going to drive it with the story of the need. That is problem, solution, why us and call to action, like in here. That’s not yet your business plan.

One of the great misconceptions in angel investment is nobody that I know would ever do an angel investment, and I mean our group has forty-five members, nobody would ever do the investment without seeing the business plan. The business plan is not a selling document. By the time we see the business plan, we’re already interested because we liked the people, the background, the summary and the pitch.

You do your lean plan, and add the story in the pitch or the summary, add the market analysis I say as needed here because if your story peaks the imagination of the angel investors, then you need less formal market analysis. Depending on who the investors are, some want more, some want less. This will be context specific. You add that, now that they’re interested, you told them the story, they see the market, you’re demoing the product, you’re showing traction, they get it. Then you present to them your lean business plan, which shows strategy, tactics and concrete specifics. Investors love traction. They love milestones.

You want to show that, and investors need to see the scale of a business that have to do with your sales forecast. They’re going to look first at the sales forecast. They’re going to want strong growth but credible growth, and then they’re going to evaluate the spending, showing whether or not you know the business more than what you’re actually going to spend.

As you go through the process, you’ll add the descriptions that aren’t in the lean business plan because you didn’t need them there. You’ll add the team. You’ll add the market. You’ll add the exit. Investors need to have an exit at some point.

If you’re in a bank context, which wasn’t the question, but that’s where you’ll have credit history for banks, all of those are added. Your lean business plan is lean at the beginning and you grow it as needed to meet the business need.

With that, that one question I’m going to go back then to where we were. Step two, tactics. Think about strategy and tactics. The Ph.D.’s, no offense, can take forever talking about which is which and so on, but we’re business owners. What you feel is strategy and tactics is right. You’re the owner. You’re responsible. Strategy is the focus. Tactics are about execution. You see pricing, product …

Sabrina: Sorry. Hello, sorry we had an issue with the audio, and I think we seem to be having issues with the audio. Right now Tim just got kicked out here, but hopefully you can hear me. I know there’s a lot of people saying that they can’t hear me. This is Sabrina. I’m the CEO of Palo Alto Software. Sorry about that if you couldn’t hear me. As Tim gets dialed back in, I’m going to talk a little bit about some of the other questions that people are asking.

There’s a lot of questions about what do you actually need in terms of information, if you’re going to do your forecasting, and how does one put together a revenue forecast if you’ve never started a business or your business is brand new. It is a very difficult proposition.

If you’ve got a business that’s ongoing, applying the lean planning is a must. You absolutely want to apply that, but it’s a lot easier if your business is already going because you’ve basically got something you can go off of. If you’re starting from scratch, it can be a very, very difficult thing. A lean plan will help keep you on track and will help you get focused and do just what you need.

One of the things that people don’t see and put together is that if you know who your customers are, if you know who your target is and as you think about this business tactics brainstorming that Tim has up here on his slides, if you can define the marketing and the offerings, if you can really understand who you’re selling to, that revenue forecasting becomes way, way easier.

If I know that I’m Garrett’s Bike Shop, and Tim showed you that pitch page for Garrett’s Bike Shop, the pitch page comes from liveplan.com. It’s our planning application. A lot of people have asked about the software. If you really go in and get to Garrett’s Bike Shop and you see what Garrett is doing, Garrett is selling to families and he’s selling to families who are intimated by fancy bike shops.

He lives in a small town in Idaho, so he can find out from Census.gov how many families live in his town. He can find out what the demographic of those families is and he can find out how many of them make a certain amount of money. All of the sudden, he’s got a number of potential customers that he’s selling to, and then he can make some educated guesses when he puts together that forecast.

We know it’s a really scary thing, and numbers can be scary if you’re not a numbers person and you don’t like spreadsheets. Then the unknown is scary for all of us. Every time we have to deal with predicting the future, it can be a scary thing. If you think about who your customers are and where they live and how many of them they are, then you’ll be able to work through and you can start with simple things like what happens if five percent of them come to my store, and you get a number and you plug that into your forecast, and then you see where that happens to your revenue.

Now we’ve got our audio all fixed here, and I am going to go back to Tim to keep going.

Tim: I’d like to continue because I think that’s an important question. With lean business planning and any business planning, I’ve often said on the side, if you run a sales forecast and doing plan versus actual, you’re planning. I’m going to skip from where I was at tactics and go straight into an example specifically of what Sabrina is saying here. This is Magda. She’s opening a small deli in an office park in the Silicon Valley. She knows her business thoroughly as an employee, and now she’s doing it on her own, so she’s struggling with, exactly like this question, how do I forecast this?

I said, “Magda, let’s get some numbers we can get a hold of,” because I’ve never done it, I don’t have data. How am I going to know? Look for something in your business. I’ll show you in a minute an email marketing version or a web version, but this is a simple restaurant.

A restaurant has six tables, four seats per table. It has coffee and down below it has how many average she can sell from seven to eight in the morning, eight to nine in the morning and so on, and so she just gets over the nervousness, “How will I know,” and breaks it down how many drinks per lunch, how many drinks to go, and she gets into assumptions, and once she’s got these assumptions, then she can generate, all right, Sunday, Monday, Tuesday, Wednesday, Thursday.

Some people hate and fear these kind of number layouts, but think of them as your friend because it breaks big uncertainty into small uncertainty, so here’s Magda’s second step and this example is her capacity is twenty-four at any time, plus to go, and so she works out the days of the week and what she thinks a normal month would be, and then from there she goes into, “I’m starting, so I’m not going to be at high capacity right in the beginning,” but then in the summer people are on vacation. She goes from a standard month to percentages, and ultimately comes up with this, which is a collection of educated guesses.

Earlier we said the point of a forecast is not to accurately guess the future because we can’t, but to tie these things together so that as time goes by she’ll be managing these numbers and she saw these units were going to be this and this and this for that month, but because she’s doing lean business planning, she’ll be able to review what they actually were and change this plan and manage this plan as she goes on.

She makes some simple estimates. How do you know these things? Magda, the new business owner, knows this deli office park business, so she knows more or less to educated guess what it’s going to cost her for each cup of coffee, for each lunch. Notice she’s averaging too. As we look at the categories, she’s not having ham sandwiches versus turkey sandwiches.

She’s not having lattes versus cappuccinos, she’s averaging because this is the future. This is not a calendar. This is planning. She does these estimates, and what should be really helpful for people is to realize you’re not stuck with this. This isn’t like, “Oh my god, eight months from now it turns out I guessed wrong.”

You’re reviewing this each month. This is real management. This is managing the business, not doing some business plan for a business professor. This is stuff you’re going to use. That hurt her sales forecast for the deli. If you’re doing something that relates, for example, to email, well lay out the basic numbers.

How many emails are you going to send? How many will be open? How many of those open will click on the link? How many will go to the website? Of those, how many will buy, and without spending a lot of time on it, you see that here we have unit sales from a hypothetical email campaign.

If you’re in a startup, then this answers that “Well how do I know? It’s a new business? How will I know?” You break it down into assumptions. Last one in this context, a web forecast. How many website visit can you get? One hopes, and this goes to what Sabrina was saying earlier, planning is about you have to know to plan, but you don’t have to explain and describe to have a plan, you just have to know.

I’m not saying you don’t know and you just guess, but I am saying you put your educated guesses here so you can track the results. You have visits that you assume through organic search engine optimization. You have visits that you assume from clicks through social media. You have visits that you assume from pay per click and that gives you total insight in visits per month.

Then you have an assumed conversion rate. Remember, for startup, as you go on in your business, you are constantly refining these numbers so the projections get more and more accurate. We all live in the world of a black swan. You’re never going to accurately predict the future. That’s not the goal.

A goal is tracking what went wrong and what went right. Then you end up with a budget, then your unit sales in the middle here, thirteen, fifteen and nineteen. That’s a sales forecast. That’s critical to planning. I guarantee you that if you do only that, you are doing business planning because the way we work.

Like Sabrina said, I’ve been running a business for many years and I’ve been involved in several startups. The way our minds work is if we get together every month and track plan versus actual sale, we just being human will be thinking about the larger problems, the focus, what we need to do next, what’s working and what’s not working.

I’m now going to go back to where I was, tactics, and I’m going to suggest that tactics are what you would find in a traditional business plan as encased in subsets like your marketing plan or your product plan or your financial plan or your management plan. We’re business owners. We’re doing it for a business purpose of management, so we’re not describing all this stuff for ourselves.

We are, in bullet points, taking through what is our pricing? Are we high, low or medium? How important is packaging to us, if at all? What is our plan for social media? How important is that? What distribution, are we using gems or are we a web? In the business offering, features and benefits, launches, versions, sourcing, cost, in admin and finance, are we raising money?

Are we doing a business loan? Are we just boot stopping? Funding plans, banking, what are our employment policies? Are we recruiting? Who are we recruiting? All of those are tactics, and what we’re after here is something where we can track progress and metrics so we can manage. Having them in the lean business plan is about aligning strategy and tactics, so we make sure we execute.

Here is a list of tactics in one sample case that we don’t have time to go through, but this is how it would look in your plan. It’s not a big document. It’s keeping track for yourself. Here’s some product tactics from the sample plan. Introduce online courses as soon as possible. Complete the ebook. These are product tactics. That takes us to point three as we go through the lean business plan, that concrete specifics.

That’s my favorite part of a business plan, and in fact just a couple of weeks ago I did an article on the B plans blog about milestones, titled something like, “What makes your business plan real?” You can’t just be up in strategy and tactics. You need to execute, and planning is about tracking results and managing changes, course correction. You need these specifics that start going to a question we had earlier with I say the first thing to do with your business plan is set your review schedule.

I mentioned earlier the third Thursday of every month, all our team members knew that they should be at that meeting and if they had a trade show or something where they couldn’t, it was all known ahead of time and through all of those years at Palo Alto Software all the way to this date, the management team knew that there was going to be a meeting around lunchtime on the third Thursday of every month. We would take rarely more than two hours, sometimes only an hour to review what was going on, what had happened, our assumptions and what needs to change. That’s part of your plan.

Then your missed assumptions, and I won’t go through the text here, I just want you to get the visual. You list your assumptions in every review meeting because the point of the review meeting is do we stay the course or do we change the plan? One of the ways you evaluate that critical strategic decision is are our assumptions still correct?

Have assumptions changed when we probably need to change the plan? Are the assumptions still correct but we have differing results? Well then there’s execution. Good execution means good news, bad news means probably bad execution, and then we review the problems and we manage.

Another thing really important in concrete specifics is just the way humans work. Have some major milestones. When is the new launch? When is the new version? When is the promotion? When do we hire that new person? When do we get into that other market? When do we launch that new location?

We’re human and we need the specifics that we can work for, and the whole group needs to be able to see the specifics because then there’s peer pressure, and what we get from specific milestones is a higher likelihood of execution, so we get better business.

Here is an example of milestones, it takes judgment. This is a human thing, it’s not a computer. You need to have enough milestone to manage the business, but if you get into too much detail, everybody’s eyes glaze over.

In the practical terms, as our company was growing from five to ten, twenty, thirty, forty employees, some of the groups began to have their own milestones separate from the main meeting, so there’s a cascade downward, but you need a critical math and good human judgment and leadership frankly from the people responsible to figure out how thick, how granular are our milestones. You need metrics because we’re human.

I love the book, it was Patrick Lencioni had something, three ways to make your employees miserable, and one of them was to not give people in management their own metrics that they could see.

Some of that is dollars in spending or sales, but also it’s phone calls, it’s leads, it’s seminars, it’s tweets, it’s Facebook likes, it’s engagement, it’s retweets, as much as you can as business owners in your lean business plan give people metrics that they can see people in their team, people naturally want to have their own scores that they can see everyday so they can manage them, and that generates engagement inside team.

That generates what I call ownership, that isn’t shares and stocks, but caring about your part of the business, your functions, your tasks. That comes from metrics that people consume, and that’s critical to a lean business plan. Here we see, again, I don’t want you to read this. It’s the visual.

I’m not talking about a big deal. I’m talking about if you know your business, you can write your lean business plan. The knowing is infinite. You can spend forever knowing, but writing and preparing the first lean business plan, that could be a matter of, I don’t know, a few hours at most. It’s not detailed text; it’s just keeping track. With that, and I’ll pause before I go into step four to make sure that we’re …

Sabrina: Yes, thanks Tim. We have lots of questions. There’s a couple of questions that I think you’ve covered on strategy and for existing businesses. I guess one of the things to talk about is how someone might maybe use business model canvas first and then the lean plan. There seems to be a lot of questions.

Somebody said they thought that this was going to be about that, and I know that you’re aware, we use alongside of the business model canvas and a lot of accelerators, business model canvas being the first step to some high level strategy by LivePlan, the lean planning methodology being more of the actual implementation plan once you figure out what your business should be.

Maybe you can help people understand because they hear so much out in the market about lean startup and business model canvas and don’t do a business plan, but the reality is and we’ve worked with the business model canvas guys and the lean startup guys, but what they’re saying is figure out your business before you go to the planning point. Don’t do a business plan. Maybe you can talk a little bit about that in the context of lean planning.

Tim: Sure. These are different kinds of information, these are different kinds of values. The lean canvas is a really great way to decide the big picture.

I like the analogy of the trip, the vacation. The lean canvas is we want to go somewhere warm, we want to have beach or we want to go to the mountains and we want to have some really good hike or something in between. Then maybe we want it to be in the summer or we want it to be in the winter. That’s good, that conceptual, that framework of the lean canvas. Earlier I said in strategy that here’s a framework I like, but frameworks don’t matter as long as you apply them consistently.

A lean business plan absorbs after that, after you’ve decided you want to go to Europe or you want to go to the beach or somewhere warm, then you get into making the execution happen. The starting portion of the lean business plan links into and is very compatible with the lean canvas.

That’s the overview, and then what the lean business plan is doing for you is moving towards the specifics that you can track. In the vacation model, it was going to be how are we going to fly? What’s the destination? What hotel are we going to stay at? What are our activities going to be? If we’re on a cruise, what tours? We set all this up, and the vacation then flows, but in business then comes the management of and what were the results? What’s going well? What’s not going well.

Think about the lean canvas. It gives you nothing in terms of tracking management results later. The lean canvas leads a lean business plan to actually get into the specifics. The specifics are milestones, tracking progress, numbers. Are we making our sales? Why not? Is our pricing working? Are we spending the right amount? Did we under-spend, and that’s great so we’re more profitable, or did we under-spend because we failed to do the marketing promotions that we planned on? What is going well? What isn’t?

The lean canvas tells you nothing about execution. It’s entirely strategy and very valuable and fits entirely into my framework of lean business planning of strategy, so you put in bullet points and then you go on.

This is then you go on and then every month you review the results because what business owners lose in not doing a business plan is tracking, course corrections, revisions, managing change. Lean canvas does none of that. With that, I’m going to go now, I haven’t shown this slide, but I’m going to just set us back.

We’ve been talking about four key components. There’s strategy, excuse me, tactics, concrete specifics, and now I’m into four, the essential numbers, that starts with the sales forecast and we’ve talked about a sales forecast, so I’ll go then through Sabrina mentioned the example of the bicycle store. Here’s where I’m showing how that looks in real terms.

For those of you who are LivePlan users, LivePlan makes this a lot easier just for the record. We’re talking to everybody, so a lot of people will be in spreadsheet. For you LivePlan users, you have a better interface for doing this. Ultimately it’s laying out your assumptions. There’s the bicycle store. These ones I went through, and we get to direct cost.

A sales forecast ought to include direct cost in those businesses that have significant direct cost that tends to be product businesses for example. A lot of service businesses have very small direct cost in comparison to sales, so it doesn’t matter as much. That’s another example. There’s our direct costs, and we make those estimates, and we’re not sweating those estimates too much because we’re going to review them every month and track results and then I went through this.

Then we start budgeting costs, expenses. Here’s and example of what do I do about personnel costs. This is that bicycle store again, it’s a few people and you can do your estimated gross salary per month, and the point here is it’s conceptually simple. You don’t need a CPA. You don’t need an MBA to make these simple estimates. You do need these simple estimates to be able to manage your business well. If you think forecasting is hard, it’s ten times harder to manage cash flow without a forecast. You’ll want to be reactive.

There’s a portion of spending. Here’s more spending. Again, the point here is conceptual easy lists, and you see a spreadsheet because we’re trying to talk to everybody, not just LivePlan users. For the record, a LivePlan interface is much easier than this. Ultimately, you’re guessing the expenses by row, leased equipment, utilities, rent, payroll taxes.

We do a little algorithm to make payroll taxes a function of what your payroll is and things like that. Then other spending, again, aside from your expenses as defined by tax codes, there are these other spendings, buying inventory, buying assets, repaying debts, that cost cash but they don’t go under your profit and loss.

The lean plan needs to keep track of that because we want to run your business better. We can pretend that calling it a lean business plan means you’re not going to be tracking sales expenses and cash flow. We’re not recommending that. You’re running a business, you need to manage your cash. A lean plan includes these essential numbers. There’s the cash flow, and I won’t go into it, it’s a spreadsheet view. The LivePlan view is nicer.

Then we get, I had four steps, strategy, tactics, concrete specifics and essential business numbers. Here’s plan always. Plan, run, review, revise. The point of this is managing. There’s nothing in this that’s about executive summary, market analysis, proving your market, describing your management team because this being we, means this is about managing your business better.

I’m going to pause for logistics here.

Sabrina: Tim’s pausing for logistics. Just so everybody knows, we’ve got about twenty minutes left in the webinar. Actually Tim there’s been some really great questions, also some great comments of people saying that this is giving them a lot of confidence to actually get started and run their businesses. I want to make sure all of you know that we’re not here to sell you LivePlan.

In that webinar link that we’ll send, we’ll give you thirty days free of LivePlan so that you can check it out. If you think it’s fantastic, then you can decide to buy it, but thirty days is plenty of time to get in there and really pay for it and do whatever you want with it. If you get into LivePlan and do things with it and decide that you want your information, we also don’t hold your information hostage.

You’ll be able to export it out into Word or print a PDF. We don’t believe in that. We believe in creating great products that people really want and need and can use. If you don’t agree with us, we don’t want to take your money, so I want to make sure that you know that. Really, take what Tim is telling you and jump off the cliff.

If you have been trying and thinking and wanting to do this, the lean planning methodology that Tim’s put together and we will give you access to his book for free or you will get a copy of LivePlan for thirty days, jump in and start figuring out the feasibility of your business.

One of the great questions Tim, and I’ll hand it over to you for the last twenty minutes that we have, is from an entrepreneur from Kazakhstan, which is great that we have so many international people on this webinar, she says, “Thanks for doing this. I’m loving this webinar. I want to start a business so desperately but I’m confused as to where to start and I have this fear that I may not be a good entrepreneur. How can I overcome these self-defeating thoughts and get real? I’m from Kazakhstan, but I guess business is business everywhere. Thank you.”

I just love that because business is business everywhere, and you’re not alone. This is a fear so many people have, a fear of I don’t know this. I’m not sure.

You just have to trust yourself and be that expert, and I’ll pass it over to Tim because he’s got some great insight on all of this.

Tim: Yes, and thank you for that question. You know, that’s how I got started in business planning back thirty something years ago. After I got my MBA I was working in market research and helping big companies do things like this, and it was for me the attraction of the business planning was exactly the quandary that you find yourself in before you start.

You’re so full of doubt. Everybody is. It’s perfectly human. I don’t know that this is true for everybody. I suspect it is, but I know for me it was enormously helpful at that point of doubt to break down uncertainty into smaller pieces and start doing a business plan.

These days, a lean business plan makes it even easier, so I start thinking how would I know is this feasible and I go into my habit is doing the numbers first. I go into well wait a minute, how many units can I sell realistically and what’s it going to cost me to do a unit. How does that look for a gross margin, sales less than, direct cost.

Then what would my expenses be, and I start doing some estimates where I’m going to spend this much in office and how many people would I need to begin? Okay, I need two or three people. How much is each one?

I start asking a lot of specific questions that help me with that global vague uncertainty, will this work? Can I do it? The way to answer it I think is to go into the details. I start with the numbers. I know many people. I’ve been working with so many startups over so many years who prefer to do the concepts first.

What’s the mission? Who is this first? What’s the need? Some people will do that. There’s no rules here about what you do first. You roll up your sleeves and get into it, and you start going. Start anywhere. Just start moving on this.

Your lean plan will grow organically as you need it to. That’s my comment on that question, and I’ll go, on step always now, you’ve got your lean plan and you’re running and you’re going every month and you’re finding, plan, run, review, revise. This by the way reverberates back to lean startup and lean manufacturing and lean business.

The idea of lean conceptually as described in Wikipedia and in the lean startups is you take small steps and at least the author of the lean startup talks about the minimum viable product as a small step, and then you see what happens, which is that the sequential that’s going on, lean implies small steps and review often. You don’t define what’s going to happen for the next three years. You define what’s going to happen next, you make it happen, and then you review it.

My interpretation of that is lean and lean business planning, is the small step is this lean business plan. MVP is minimum viable product in the lean startup, but for me, I think of it as minimum viable plan. This is what you need to solve the doubts of the last question. What’s your minimum viable.

You need to have a sales forecast and a spending budget and some milestones and some metrics, and you need to have an idea of strategy and tactics. That’s the plan and then you let it run. You go forward. You move towards the milestones. You track the results. You look at the metrics, and that gets reviewed in the third arrow, and then you revise.

One of the biggest functions of management/ownership, I speak as a business owner to business owners, is this eternal question of do I stick to the plan or do I revise it? I promise you, I am so sure there is no virtue in sticking to a plan just because you’re sticking to a plan. That was from the 80s and early 90s, we’re in 2015.

No, you don’t stick to the plan just to stick the plan. You stick to the plan when it’s working. You have a lean plan and lean planning so you can review what’s working, and you revise the plan. If it’s working, you emphasize what’s working to make it work even better, and if it’s not working you change it. That’s what always goes on. That’s the management of lean business plan.

Think about it. It’s not a document. It’s not that business plan that makes you get sweaty palms like the term paper in the third year of high school for Ms. Elliott who’s going to give you an F if you have a spelling mistake. It’s what you’re going to use to manage your business. Plan versus actual means you’re going to look at what we planned, what happened, and it’s not just some accounting function. You see this nerdy MBA spreadsheet right here, it’s not about the spreadsheet, it’s not about the numbers, it’s about what happened.

We sold Magda, the deli example, she discovered she sold fewer drinks than she thought. Now she thinks, “Wait a minute, was I pricing too high? Did I just guess wrong?” It leads to management. The point of this, I hate how much it sounds like jargon and buzzword variance and so on. The point of it is what was different and why and what do we change?

That’s where you begin to get the real benefit. There’s a lot of different views of plan versus actual. Remember, if you’ve done the metrics, it’s not just sales. It’s also for example if I wanted to have my Twitter followers go from seventeen thousand eight hundred, to eighteen thousand last month, did I make that or did I not? Those are metrics. It’s not in the accounting.

Hypothetically, we’re doing seminar promotions. Did we do them? This webinar is an example. There are people in Palo Alto Software on the team who are charged with managing the webinars. They have milestones for how many webinars in what time period. Did they make it? Did they not? What were the metrics? Did we have enough people? What were the conversions? All of that then is why you want lean business planning. You’re managing your business better.

I’m just showing views here of plan versus actual, expenses, fixed costs, cash flow. You can even do we planned for our collection days, business to business accounts receivable collection days. If you don’t know those terms, heave a huge sigh of relief. You’ve got a cash business, you don’t have to deal with them.

If you’re doing business to business, you probably know those terms and they’re critical to your cash flow in that case. Manage that too. What are our collection days? How much is our accounts receivable? All of this is plan versus actual management, and that’s where we harvest the effort of lean business planning. Should be less effort than a traditional business plan, but the harvest is in the management, unless, and here I’m going in our last ten minutes.

Looking at there is a reason that business planning is what it is. I’ve said earlier I’m an angel investor. I invest in an angel investment group. I deal with this a lot. We would never, have never made an investment without seeing a business plan.

Let’s talk about aside from the lean business planning that I’ve been talking about that we the owners use to run our business plan, a business better, what happens if we have a business plan event, and here you see some of them. You’re a startup, you need funding. That’s one. You need investment, you need loans. You’re selling a business.

Divorce, settlement, inheritance, there are reasons why society, banks, SBA investors say I want a business plan, and when they say that they don’t mean just your lean plan for running your business, they mean I want something that tells me about your business and they’re outsiders. If you’re running your lean business plan, you’re already a lot of the way there.

Here’s the way I see it. The lean plan is there always. Strategy, tactics, specifics, and essential business numbers, it’s reviewed and revised always, and when you get to the business plan event your lean plan is your screenplay for a pitch presentation. You use that, and I mentioned earlier but I’ll go into it, your pitch presentation is about the story.

The lean plan has the numbers in the background that you’ll use. If you have your lean business plan, I’ve seen over and over in angel investment people don’t have the business plan in the background, they do the pitch and we start asking for an example. I’ve seen it.

Within the last three weeks I’ve seen this. We just did an investment last week. The pitch goes great and then we start to ask, “What about headcount? How many people will you need a year from now?” Entrepreneurs that have a business plan, you can see in their head well this is based on five and we’re thinking fifteen next year, and then we’ll ask, “Well what if we doubled your headcount? Could you go twice as fast?”

The ones that have a business plan, they’re already cooking on it. The ones who’s pitch was just sufficient, all they needed was a pitch, you can see in their eyes that they don’t know. There are questions investors will ask. They come from a plan.

You don’t confuse the plan with a selling document. You add this stuff to it. You need an elevator speech perhaps, you need a summary memo definitely. For our angel group, we’re going to deal with your summaries to decide whether or not you need a pitch. I said that wrong.

We’re going to read your summaries, and from thirty summaries we’ll ask about ten to pitch and they’ll come in and they’ll pitch. After the pitch, we’ll ask them for the business plan, and then we’ll use the business plan to do the due diligence. We won’t see the business plan to decide whether or not we want to know more. If we want to know more and they don’t have a business plan, we’re very disappointed, and you don’t want to disappoint your angel investors.

Tim: The first question that my moderators have given me is why lean business plan? What’s the difference between a business plan and a lean business plan, and there are so many different phrases that they use. There is the one page business plan, strategic plan, operations plan, all of that.

When I get to that taxonomy of different business plans, what I’m saying with this idea of lean business planning is that it’s now 2015. Our attention span collectively is shorter, the pace of change is quicker and I worry that people associate the phrase business plan with a document used to support a bank loan or to support seeking angel investment or some other kind of investment.

Whereas for me, all business owners ought to have and deserve the benefit of good business planning, which helps them establish and reinforce a strategy, tactics to match that strategy, the concrete specifics that we’re going to talk about, and then the essential business numbers so that they run their business better.

That’s not necessarily a document. To answer that, let me then go to, let’s see, benefits. It starts with this. You’re only doing what you need for a business plan, and then as you see this image here, because you have a business event, do you need more than that? Well this diamond in the middle there is that flow chart indicator of a decision point. I’ve got my strategy, tactics, milestones. I’ve got my lean business plan going. I’m reviewing it every month. I’m changing it every month, it’s fresh. Then suddenly I have a business plan event.

Sabrina: Tim we have another couple of great questions, which I thought would continue to be really good in the context of the lean planning.

I wanted to pass you on this question of why does someone not want to do an old school business plan. You jumped in and launched into lean planning. Why is it important to not want the old school business plans? Why should people care about lean planning?

Tim: Thank you for that, whoever asked that one. It goes straight to the business principle of form follows function. If we have the function of the business plan is supporting a loan application or supporting seeking angel investment, then you need the form of that business plan to include more information.

If the function is running your business better, the function is focusing up on the key points of strategy, developing tactics that match and execute strategy and developing accountability and ownership within the task structure with milestones and assumptions and like that, and the managing cash flow, those functions can be operated by a lean business plan, which is easier to do, faster, better and it’s just about management. Form follows function then.

If what you want is managing your business better, then you don’t need to do all this other stuff explaining your market to yourself, explaining your management team to yourself. You just want to focus on what you need to manage the business better.

Then another benefit of that is if the plan is lean and easy to do and fast, then you’re much more likely to be able to use it to manage change. Change comes quickly. You have this small lean plan, at least once a month, you pick it up and you look at what happened, compare that to what you thought was going to happen and you revise. You change. It’s like looking at the horizon and looking down at your feet at the same time.

Was there another question?

Sabrina: Yeah, absolutely. In the context of the lean planning methodology and why someone might want to really focus on lean planning, there’s a question about is there a lot of difference in research when you did an old school business plan and a lean plan, does a lean plan mean you don’t have to do a lot of research? There’s quite a few questions about research involved and how much research and does it mean less research for a lean business plan?

Tim: Yes, thank you for that. The lean planning is about what’s going to happen. In the traditional discussions of a business plan, we used to include you need to know all these things, and you still do. Let’s be honest, you’re running a business. You need to know your market.

The business plan, when it’s a lean business plan, doesn’t include the extra effort of writing the information up so that a third party will also know it. In my years of entrepreneurship, I’ve deal with so often people who are running businesses who know their market, they’re immersed in their market, and in that case if you’re going to just do it, like I did when Palo Alto Software was growing, you’re not obligated through some vision of a plan to do a whole bunch of research.

If you’re going to make the decisions and run for it anyhow, use a lean business plan to help manage plan versus actual and align your strategy to your tactics, you have to know your business and your market to run your business. You don’t necessarily have to describe it to outsiders, which is a key difference in the lean business planning. It’s what you’re going to use. Until you have what we call a business plan event that requires adding descriptions for outsiders, you don’t do that. You keep it easy. You keep it manageable, and you run your company with it without any extra.

Sabrina: Tim, there’s another great question. It’s from somebody who says, “It worries me the publicity lean processes have had as an alternative to traditional business plans. Lean processes take less time to get prepared, like it takes twenty minutes to complete the lean plan, but I’m skeptical about someone having ready information to create a business plan or a business model in twenty minutes, not even in a full hour.”

Tim: To that, thank you for that, and notice that were separating. Planning is what’s going to happen and what happened and what needs to change and managing. In lean business planning, we’re separating the planning from the knowing and the research.

No one is saying that knowing isn’t important; what someone is saying, mainly me, is that the writing down and explaining to outsiders is an extra function, it’s a daunting task that you take on only when you have business need for it such as these business plan events.

I totally subscribe to the idea that no you can’t assume that just because the plan is short and effective and just bullet points that somehow you don’t need to know your business. Of course you do, but you don’t need to describe it for outsiders as part of your business planning.

Sabrina: Okay, thanks Tim. Now we’re going to go onto the next question. Tim, somebody else wants to know does the lean business planning have some potential risks that have not been uncovered and that can have a key impact on the success of a business? For example, pricing, competitors, et cetera.

Tim: Think of a plan as if it were a vacation plan, there’s risks in running a business. There’s risks in running a business. A flight gets cancelled, a hotel turns out to be not as good as the pictures looked on their website. There’s always risks in business.

The plan and the planning is helping to manage those risks by thinking through how the dots are connected, what relates to what. For example, in a lean business plan, pricing will be included in your tactics, and as you do your tactics you’ll be keeping in mind your strategy, which has to do with your identify as a company, what you do differently, what market and so on, so pricing and these other factors that are risk factors.

The plan manages risk. It acknowledges risk. In lean business planning, what we do about managing risk is we keep it short and simple and effective, and we review it often because we are assuming that planning is to manage change.

Planning isn’t invalidated by change; planning manages change so you set your assumptions down, you set the way the dots are connected and then things start to move and you’re constantly going back and revising, and that’s the way to help risks in the background. You want to be a line, not a dot. You’re managing over time, and that takes a lean efficient plan and a lot of management. I really do emphasize the ‘ing’ at the end.

It’s not just a lean business plan. It’s lean business planning. It is effectively management.

Sabrina: Great. Tim we have another really good question from someone, as you describe the context of lean planning and why this is more interesting for people, somebody wants to know what’s a good time frame for lean planning? Are they planning every month, quarter, year? Is this just for startups? What’s the context of a timeline and a time frame for lean planning? There’s several people with similar questions like that.

Tim: Yes, thank you for that. I build into the idea of lean business planning that at least once a month, you’re going to review the plan. You’re going look at assumptions and you’re going to look at actual results and compare them to plan results in a management context and you’re going to review and revise that plan. I can say that I am preaching now what we practiced in two generations of Palo Alto Software, growing from zero to more than $6 million of sales without any outside investment.

On the third Thursday of every month for twenty something years, that third Thursday gave us time to close the previous month’s books. We would get the management team together, bring in lunch and take only an hour or two. It rarely passed two hours, but every month we’d take time to look at what’s working, what’s not working, what were our assumptions. Have we failed in execution and therefore things are bad? Have we been great in execution so let’s do more of it? Have our assumptions changed so that every month we look at do we stay the course and keep going or have things changed to the point where we need to change the plan and the key assumptions, every month for a couple hours.

Sabrina: Great, thanks Tim. The next question is a question about financials, particular revenue, and how far out in the future should revenue be projected and all financials be projected in a lean business plan? Is it different than a traditional plan and what’s optimal?

There’s a lot of questions about financials, and some of those I think you’re going to address during the presentation, but I think this is the best one.

Tim: Yes, thank you for that. This is one of the classic business questions that has to be case by case. Never let some business plan expert dictate to you what you need. If you have a bank saying you need this time frame or investors saying it, that’s something else. For your own management, we’re business owners here. I am, you are.

We’re going to determine what we need, and it’s based on what we’re going to use. I will say for me, I’ve always stuck to the same thing through a number of startups and through running and building a business. I always want to look at monthly cash flow for the next twelve months monthly, and then I want to look for a second and third year just annually.

To do cash flow, that means I need to have a projection of my sales and a projection of my spending and some adjustments for that portion of sales and spending that don’t show up in the same time you’d like, for example, business to business sales you get paid a couple months later. Some adjustments for cash flow, I want to have that always for twelve months ahead, and what I’m going to do is I do my forecasting and I recommend forecasting. It’s not about accurately guessing the future because you don’t. None of us do. We’re human. We don’t accurately guess the future.

What we do is set up our assumptions, I keep saying connecting the dots so that our expenses are tied to our sales, for example, and we have a view of upcoming cash flow and we’re watching for changes.

That’s why we meet every month to review it, so we can catch changes and if sales go up because some marketing program has been very successful, well then we have more money and we see that early so we can then push more money into priorities or what’s working. Heaven forbid, if things are worse than expected, we see that and we connect the expense dots to the revenue dots. That’s the goal of these financial forecasts. It’s not predicting the future. It’s managing the company, managing your flow of money is what this is about.

Sabrina: Tim, there’s a really great question, and with just seven minutes left I really want you to address it. First I’m going to address a question that’s out there that takes two seconds. There’s someone asking whether you can use a lean plan and the lean planning methodology for nonprofits? Absolutely, no problem. In fact, I sit on the board of about five nonprofits. They all use LivePlan. Anybody who’s involved in a nonprofit knows that you’re required as a 501C3 to do a budgeting process with your board. LivePlan is perfect for that. Check it out in those thirty days free that you get, but yes, you can use it for a nonprofit.

More intricate question that I want you to address Tim because you’ve lived this and I feel like between the infamous Silicon Valley and all the investments that get put into all those companies and all the hype, that sometimes people get the impression that the only way they can start businesses is to get all this funding. That if they can’t go get angel funding or venture capital funding, they can’t start a business. There’s a question here that says is it smart to get funding to get your business started or should you work with what you have and let it grow from there? I have so much I want to put out there to launch my business, but I’m struggling with funding, so I’m wondering where do I just start? Do I get financing? Do I need venture capital?

It’s such a great question, and I know Tim you’ve got great answers for it, so I’m going to pass it over to you for that.

Tim: Yes, I love this question. I’ve done five thousand blog posts in the last seven years. If you Google Tim Berry Ten Reasons Not To Seek Investors, you’ll start seeing where I stand on this. I strongly endorse bootstrapping, and I will tell you I speak from experience. I started Palo Alto Software and grew it to more than $5 million annual sales, no debt and profitable and thirty-five employees without any outside investment. I object to the almost myth status what gives now. If you are familiar with Quora, Q-U-O-R-A, I’m there a lot. I get a lot of email questions as well. I object to the idea that we seem to have populated nowadays among the blogs and so on that startup needs funding.

Here’s a statistic. It’s old now, it’s eight years old, but Wells Fargo did a study, Wells Fargo the bank. The average startup cost in the United States and that’s nine years ago, was $10,000. They were all self-funded. The angel investment is the tip of the iceberg only on what starts a business, and furthermore what people don’t understand, and this I see because of my activities in angel investment and in groups, people don’t seem to understand that you’re not ready for angel investment until you’ve done something.

You have to do the work, and that work is almost always self-funded. angel investors don’t want to invest in an idea. They want to see traction. If you don’t get traction until you gather together two or three people and do a prototype and do some testing. You can’t assume that startups require funding.

We’re so short on time I’m not going to search my slides, I have statistics, and in the email follow-up we’ll include that, that shows these investments, they’re just the tip of the iceberg. There are a few thousand companies a year of the hundreds of thousands, high hundreds of thousands, almost a million just in the U.S. of startups, and there’s just a few thousand again in estimate, the risk of doing like I did. You get going, you get something you can sell. Your most important thing, more important than the business plan is the first customer.

Your business plan is the lean business plan for your own management, but you don’t wait for a business plan and you don’t wait for funding. You get going or sadly you’re not likely to get funding. Nobody invests in ideas. They invest in progress. They invest in work. They invest in possibility. They invest in teams. They invest in traction, meaning you’ve got users.

Go to Kickstarter. You have to just start it based on doing the work and finding a few other people and doing the work, and if you have savings, well God help you, you can lose them. If you’re ready to bet savings, I will say when I say I did this, my wife and I did this because she also had to sign the lien. We had three mortgages and $65,000 in credit card debt at one point doing this bootstrapping. I don’t recommend that. Do as I say not as I did. A lot of that goes on. That’s the real world. Is it risky? Yes. Can you fail? Yes, and it’s hell when you fail. At least reduce the risk with doing your business planning first. That’s free.

With that, I’ve been through this. If you’re talking about angel investors, I’m going to go through, tell your story, do your market analysis, add descriptions, develop summaries, formalize the financials. Here, by way of conclusion because we’re coming to a conclusion, point number one, real business plans are never done.

Palo Alto Software, for example, started in the late 80s. It’s business plan is still not done. We review it and we revise it every month. Sabrina’s in charge of that now. She runs it. It still goes on. It’s still the third Thursday. It’s more than twenty years. We haven’t finished the business plan, because guess what? If you finish the business plan, your business is dead. You don’t want to finish the business plan.

Think of this moment that you need to produce “a business plan” for an outsider, you’re taking a picture and adding the details and the descriptions, but your core business plan stays lean and it keeps getting revised. Also, all business plans are wrong. It’s not about guessing the future right, it’s about laying down the connection between the various assumptions so you can change quickly. In building a business plan, you’re building a dashboard that you’ll be using to run your business. Our quote here to finish this up, and then I will stay on for as long as needed, comes from former president Dwight D. Eisenhower, who led the allied invasion in World War II in D-Day and yes that was before I was born. “The plan is useless, but planning is essential.”

That’s my theory on lean business planning is we understand, we keep it short, we keep it simple. We’re going to review and revise. It has a shelf life of a few weeks, but it’s going to be helping us. It becomes an everyday tool for managing your business better. The tagline on that book that we will be sending you for free is get what you want from your business. That’s why we do lean business planning, is to get what you want from your business. That might be growth and profits. That might be the freedom to coach the soccer team for the kids in the afternoons. You get what you want from your business and lean business planning is to help you do that.

Sabrina: Okay, Tim. This has been great. We will send out the recording to this to all of you. There is no cost to have attended the webinar or get the recording. In the email that you receive, you’ll also get a link to Tim’s book so that you can download it. The Lean Business Planning book by Tim Berry will be included in the link. You’ll get a full recording. We’ll include a PDF of Tim’s slides because he has a lot of neat new slides and he didn’t get through all of them, and a lot of you asked could we have a copy of the slides so we can do our business plan and look along to the slides.

Just so you all know, you’ll get a recording, you’ll get a link to download the book, you’ll get a link to download the slides, and you’ll get a thirty day free trial of LivePlan. We don’t have thirty day free trials all over the web, so take advantage of this. Use it wisely. Get in there and use this.

We’re not like one of those SaaS companies that gives thirty days free to everybody. We really believe in our tool and so people pay for our tool. This is a big offer that we’re putting out there for you guys because we don’t want you to think we’re selling our product. We want you to get in there, to understand why lean planning is good for your business, to read the book for free, to get access to the slides for free, and we think you’re going to love our product. If you don’t, don’t pay us a dime. Please, we want you to succeed in business. That’s what this is all about.

We’ll also follow up with the FAQs. A lot of great questions were asked and a lot of great answers were given, but we didn’t get to all of your questions, so we’ll include those on the FAQs. For those of you who asked, if you’ve got an ongoing business, LivePlan works with Quickbooks, both the Quickbooks online and the Quickbooks desktop. It also works with the accounting solution Xero.

It’s not an accounting solution. It will not do your accounting, but it will give you beautiful dashboards of all your numbers at the touch of a button, and it’ll help you do better in business. If not, you can go to bplans.com, it’s on the slide right now. Free resources. Free lean planning templates. Free sample plans. We want you to do your best in business. We want you to succeed and we want to give you as many free resources as possible.

We really appreciate you joining us. Thank you very much, and I’m going to sign off. Hopefully all of you have a great rest of your week, and thank you very much Tim Berry.

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Jonathan Michael
Jonathan Michael

Jonathan is the Engagement Marketing Manager for Palo Alto Software, and has spent the last 9 years developing and implementing digital marketing strategies. During that time, he has learned that empathy and authenticity are strengths by which companies can effectively engage with individuals at every point throughout the customer journey.