A plan is built on assumptions, sort of like a building on foundations, but assumptions are inherently shaky, so plans have to be flexible and able to change. To keep your planning effective you have to keep a watch on the assumptions. Foundations

Your plan is necessarily full of sensitive assumptions. Early sales, growth rates, costs, traffic, conversions, pay-per-click costs, clicks, leads, closes, personnel, assembly output, productivity, important hires.

We’re not talking theory here, but planning in the real world, out in the front lines. I knew two partners who planned a fast foods business based on one location, then actually started in a very different location. Their plan had to change substantially.

  • Think about real estate plans these days in the wake of the sudden rush of mortgage problems. Interest rates and financing are changing. Have those plans changed?
  • What if your product release is late; do your sales and cost assumptions change?
    Were you going to resell goods made in China? Does that plan change after widespread news of problems with products manufactured in China?
  • What if that one co-founder who was going to leave her job on startup decided not to?

Part of the planning process ought to be making assumptions clear and up front, where you won’t forget them. Planning means reviewing assumptions too, regularly, and noting when they’ve changed.

Jeff Cornwall deals with this in his post today in The Entrepreneurial Mind:

A common mistake that many entrepreneurs make is to quickly treat all of these assumptions as fact. Whether it be psychological denial of the risks we are about to face or simply our unbridled optimism, we seem to quickly forget how agonizing the process of making these assumptions was when we formulated our plans. However, this is a dangerous course.

Absolutely. As the truth marches towards you from the horizon, keep track of the assumptions and watch for changes. Jeff goes on with the following:

Our key assumptions become among our most important management tools. Develop ways to measure the variables behind these assumptions and commit to measuring them on a regular basis, be it weekly or monthly. Make sure that you continue to measure and review them over time as the business grows.

I don’t agree with Jeff, however, that you should build a plan with lots of branches and scenarios accommodating possible changes in assumptions. This is the classic idea of the various scenarios: most likely, optimistic, and pessimistic. It sounds good, but it’s like trying to plan a chess game into the middle and end. A few key moves, yes. Be aware of the sensitivity of assumptions, yes. Build regular review schedules for managing the plan and making course corrections.

Instead of the multiple scenarios, I say you should think of navigation. Keep your view on the destination and change plans to move around obstacles, without losing sight of your long-term goals. Track your changes. Manage your planning.

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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.