Planning For Success

I had the immense privilege this week of spending a day with 50 excited, keen and passionate new business owners; all of them were about to start on the adventure of starting-up a new company. My task for the day was to help them create an effective business plan as they begin a year long programme of tailored support (if you are in the West Midlands of England check the BSEEN programme out).

Throughout the day I was fascinated by the range of business ideas in the room, the types of organisational models being developed and the depth of knowledge from these start-up leaders. From this diversity, two common questions did emerge:

1. Do I really need a business plan?

2. Where do I start with my plans?

Good questions; any start-up entrepreneur knows how they use their time is vital so defining why something should be done and then how best to start makes sense. So, for those that may be asking similar questions I’ve shared my answers below as food for thought:

Question: Do I really need a business plan?

The answer is ‘No’… and it is also ‘Yes’. No-one has to write a plan, it is not compulsory for starting a business. It all depends on context. A couple of people in my LinkedIn network shared their views on this recently:

“Didn’t have a business plan - grew organically for the first couple of years but then realised I was being pulled in too many directions so at that point did do a plan. The key thing for me is that’s it’s a live document that needs to flex and adapt to changing circumstances.”

“Forget them at the start! Find something you are truly passionate about. And START. The BP will develop naturally. Usually from about Month 3 or 4 (after tonnes of focus on sales and meeting people from the industry etc).”

I appreciated their honesty but the interesting point was that both business owners moved quite quickly to writing a plan. I understand why we do not like them. Plans sound very formal, they can feel staid and unexciting. Plus the business idea is dynamic, evolving in our minds all the time at the start and not easy to put into a words let alone a linear, page by page structure.

This constantly evolving and changing situation is precisely the reason for a plan being of value. The first one you write should be different to the one you have after 6 months. The first one you write will most likely not be the only one. By moving thoughts and ideas from your mind you begin to create a structure for your ideas to be tested and refined. Often what we think something should be can be deceptive; our minds can easily twist reality or tweak expectation; it is easy to build something with a blindspot that later on costs us money.

When you write ideas out you can test them, review them and refine them. You as the business owner need to spot the flaws in advance and seize the opportunities around your ideas to best effect. As you lay out your plans you can pivot the business to a better option or stop a line of thought as you realise it does not stand up to financial scrutiny.

Another big factor in why you might write a business plan is connected to what you need to invest and / or risk to start a business. For instance, if you need to borrow £100k from the bank a sound, detailed and costed plan is necessary. If you need just £5 from your pocket and 2 hours of your time to start, you might not write down too much. So, if you have external agents to bring into the business in some way (such as a partner, investor, funder, key supplier, etc.) a plan helps you show credibility and gives you substance for negotiations.

View fullsize

Finally, the style of plan is also flexible. If you like pictures, trying using symbols and imagery as you compile your plan. Not all plans have to be 50 page text documents with complex spreadsheets. They need to suit you and the audience they are written for, so they become interactive as you update them and improve your thoughts.

Now, lets look at the second question.

Question: Where do I start with my plans?

One reason business plans do not get written is start-up owners can feel daunted by the prospect. Well, a measure of a person’s readiness to run a business can be seen in their response to such a challenge.

Why? Well, running a business is daunting; so if writing a plan is too hard right now, an honest question to ask yourself is are you reallt ready to build, sustain and grow a business? It is a crucial question. Business ownership brings lots of choice, options and decisions (plus paperwork!). If the challenge of describing your idea is too great, it may be an indicator that this is not the right time (or right business idea) for you.

The way to approach this question is to recognise that the contents of a business plan are interconnected. Decisions on product affect marketing, decisions on marketing affect finance, decisions on finance affect the timing of actions, and so. By writing and refining one aspect of your plan you may be required to review all others.

Therefore, my advice is start somewhere. Anywhere actually. If starting at the beginning suits you, start there. Put down your thoughts and build on them. If making a spreadsheet is the easiest place for you to start, do that first. If you are most comfortable describing potential customers begin there and move on. Start somewhere, as every part will need to be edited, reviewed, improved and connected as you progress.

As a practical way to start a plan, we recommend using the Business Model Canvas as it is a visual ‘map’ that can help you collect your initial thoughts and then construct a document thereafter. It can be constructed from bullet points, post-it notes and lots of paper; then you can begin to write out the detail. This is just one of many types of planning tools now available online so try some searching so you choose a format that best suits you and your business.

Therefore, in summary as there is much more I could write, the essence of my answers are:

• Yes you will do well to write a plan; and,

• Start with the part you know best and build from there.

If you want further advice we (the Know+Do team) have a 1 page business plan template that we can share. Call me on 0161 2804567 or email bernard@knowanddo.com and I can forward you a copy.

3 Ways to Check if your Plans are Sanity or Vanity

View fullsize

Many business owners aspire to grow their company and see size as a factor of success. However, as a business grows one area that can easily suffer is the profit margin; and this is a core marker of a successful enterprise. Falling profit with rising sales might seem counter intuitive but a business in the process of scaling ignores this probability at their peril. A helpful saying summarises this view:

Turnover is vanity, profit is sanity.

A new client came to my colleague last year for assistance. The business they had founded some years ago had grown significantly, turnover had more than doubled in 18 months and all was looking good for continued growth. However, they were not happy, as they’d seen their profit fall over this period. In effect, they employed more people, serviced more clients and worked harder but for less return. This might have been acceptable if it was a planned and brief stage in growth but all they could see is the industry demanding their margin of profit to shrink further. [What happened next is not part of this post but if you want to know what Andrew did to assist in changing this dilemma contact him direct!]

Profit can fall as a business grows for a number of factors. Outside forces such as an increasingly competitive market can demand a fall in price just as your sales rise. External factors and their impact may / may not be out of your control, but internal ones are not. It is easy for a business to find the price of growth means their business model does not look so good at a greater scale.

Let’s consider three key areas that costs rise too easily and profits can start to fall unnoticed:

1. Decision Making.

Can you answer some fundamental, but crucial, questions about the numbers in your business? For instance:

• When and where does the business make a profit?

• Which of your products or services are loss leaders (and why)?

• Who are your most profitable customers?

If you feel these questions are too simple, try stopping right now and writing out the answer for your business. You will not have every fact in mind but if you cannot begin to sketch an answer within a few minutes you might want to go back and double check the data!

2. Cost control.

How well can you understand the different cost elements in your business model? For instance, can you explain:

• If / how an extra sale effects your costs?

• Which costs vary with each sale and which ones are fixed?

• What expenses in your business are directly related to your product or service and which ones are indirect?

Though each business will have their own answers, essentially all costs can be divided in four areas: variable or fixed costs; direct or indirect costs. Each one needs slightly different monitoring and therefore expectations of control.

3. Costs Do Not Make Prices.

Costs are the easy part of managing a business compared to setting the right price. Too high a price and you are afraid of scaring off customers; setting it too low and you are undervaluing the business.

Though cost can be a guide to calculating the price you might need to earn, they have no bearing on the value a customer places on a product or service.

Think about the different sizes of a coffee in those well-known high street chains. Often you get a choice of a small, medium or large drink. The customer pays more for the largest coffee because it is just that - much larger - and it is only marginally more expensive than the other sizes. Yet the cost of producing it is almost exactly the same. It is the same shop with the same business rates, same lights, same furniture, same barista, same coffee machine, same tap for the water, same portion of coffee, etc. This means a coffee shop will want you to buy the big cup as it looks good value to you (the customer) AND it will make more profit for them (the seller).

So, my question is, how do you understand the value to the customer of your product or service? Will they pay only £1 for something that costs £5 to make, or would they value it as a good price at £10?

The three fundamental issues above target the core knowledge a business owner needs to make good decisions about the current needs and future aspirations. The role of leading a business is dynamic as the context, opportunities and challenges change all the time. However, if you understand profit and cost within your business you can respond better to the change.

If you want to explore your answers further to make sure your business grows in a secure manner contact our team on 0161 2804567.