True story: As my software business began to grow, as we went from two employees to five, then 10, I discovered how hard real management is with startups and small business that grow organically.

In a startup, those first few people who join feel like friends, not employees. What they taught in my MBA courses on organization and management didn’t apply. We worked together, shoulder to shoulder. How was I going to step back and review performance?

Maybe it was the ex-hippie in me, but I think it happens to most founders, in most startups, and most small businesses. Organizational structure and structured reviews come later, after you’ve grown the business further. In the beginning, it’s a bunch of mice eating at a big piece of cheese.

The management magic of business planning

This is how I discovered the management magic of business planning. I don’t mean a formal, written business plan for outsiders, but rather real business planning, which is a matter of setting goals, tracking results, and following up with reviews and revisions. For best results, use the plan to set milestones, tasks, performance measurements, and numbers to track.

Then get the people together once a month (or so) to review results. And, management will follow; so will accountability. It becomes automatic, a part of the process. And nobody has to suddenly step back and change roles to go from friend to boss and back.

When you get down to its bones, management is about setting expectations, tracking results, and managing the difference. And it’s about saying no sometimes and yes other times. Why build a separate system of employee review and the extra structure around it when that’s all built into proper business planning? It’s natural, and it works better.

It starts with a lean business plan

You don’t need a formal business plan document, with its summaries and descriptions, to have planning as management. Start with a simple lean business plan:

1. Use your plan to set and execute strategy.

Business strategy out in the real world of small business and startups isn’t academic or subtle. It’s focus. Strategy is a matter of saying no often and yes only at the right time. I believe in a lean business plan that summarizes strategy in a few bullet points. Then you can use it as a reminder when you’re distracted by the next shiny new thing.

2. Use your plan to align tactics to strategy.

Tactics execute strategy. Tactics include marketing plan tactics such as pricing, distribution, messaging, promotion, presence in social media, branding, and content. And they include product plan tactics like launch dates, features, versions, and packaging. They might include team recruiting tactics, and financial tactics. Make sure the tactics match the strategy.

3. Set concrete specifics.

List your assumptions, set realistic major milestones, assign tasks, set performance measurements and standards, set items to track, and set a review schedule of at least once a month to review results and revise as necessary.

4. Project your essential business numbers.

That’s a sales forecast, spending budget, and cash flow plan.

The magic is in the regular review

What I discovered, in actual practice with a real startup, is that when people are involved in the planning process, the review becomes automatic. The monthly review meeting starts with reviewing assumptions, to see what’s changed.  Then it reviews milestones, to see what milestones have been passed and what progress has been. And then it reviews the performance measurements.

What happens is human nature. People care about what they have to show to their peers. If they wanted a budget for an activity two months ago, then they’re proud or embarrassed about results this month, during the meeting. Peer pressure is automatic. Nobody has to jump into boss mode. People care about what they have or haven’t done.

Conclusion: Good business planning is good management

It’s too bad that business planning gets undervalued sometimes because some people think a business plan is just a use-once-and-throw-away document related to getting loans or investment. Business planning is the best way to get what you want from your business. It coordinates strategy, tactics, business activities, and teamwork, and it pushes results to the forefront.

How do you use your business planning in conjunction with management strategies? 

If you want to leave business plan writing to the pros, check out LivePlan’s business plan consulting—you’ll get an MBA-written business plan in five business days.

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Tim BerryTim Berry
Tim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.