Alan Gleeson, the general manager of Palo Alto software,
thinks it's high time entrepreneurs stop making excuses about
business planning.
Business plans have always been synonymous with
entrepreneurship, largely because they act as a bridge between
entrepreneurs and investors. The primary function of a business
plan is to outline an investment opportunity, so a prospective
investor has the required information they need to assess its
attractiveness.
However, this is not the sole purpose of a business plan. They
can also benefit entrepreneurs well beyond this narrow
interpretation, helping them to manage cash flow, to set goals and
milestones, to prioritise tasks and in helping them to deal with
uncertainty.
However, an increasing number of entrepreneurs are eschewing
business plans for a whole host of reasons, which are ultimately to
their detriment.
Let's look at some of the excuses entrepreneurs come up with.
1. They are bootstrapping and are not planning on
raising finance at the moment
Bootstrapping essentially means that entrepreneurs look to start
a business without resorting to external capital. Overheads are
managed carefully and the fledgling operation is run on a
shoestring until revenues materialise. This justification for not
needing a business plan is, however, wedded to the archaic notion
of 40-page, bound documents used solely to secure
finance. Part of the confusion lies in the fact that the
phrase 'business plan' is a homonym (i.e. has two separate meanings); a
distinction first pointed out by business planning guru Tim Berry. The business plan can refer to the
physical document but also the plan that needs to be implemented
with goals, milestones and sales forecasting.
2. They don't have the time
We are all increasingly pressed for time and during the start-up
phase there is undoubtedly a lot to be done. Entrepreneurs using
this excuse will argue that writing a business plan is time
consuming and they have other more pressing tasks to accomplish,
like designing their websites. Yet, when you ask them if they have
any evidence of demand for their offering they will look at you
blankly. Similarly, questions as to their 'routes to market' or to
their predicted turnover for year one elicit the same blank
responses.
The reality is that modern business plans can be very simple, yet
are extremely beneficial in helping entrepreneurs to prioritise
their work flows, to set the goals that need to be accomplished
along the path to success, and to ensure they have a holistic view
of the opportunity they are seeking to exploit.
3. They are not strong on the 'business
side'
Many entrepreneurs end up starting a business in an area where
they have a particular skill. Others pursue a dream while many
others start as solo entrepreneurs, having been made redundant from
their roles. For these people, the notion of writing a business
plan fills them with fear. Instead they stay busy getting set up
and seeking customers without being able to demonstrate whether the
opportunity they are looking to pursue is a commercially viable
one.
I would posit that this cohort represents a strong
proportion of those that do not survive the first year.
Entrepreneurs need to have some commercial grounding and, if not,
they need to hire someone who does. Business planning will help
them identify areas they are weak in and will force them to
confront the financials. Without knowledge of cash flow forecasts,
pro forma profit and loss statements, balance sheets and the like,
entrepreneurs run the risk of becoming insolvent before they even
get going.
4. There is too much uncertainty for business
planning
The argument entrepreneurs make when perpetuating this myth is
that the world has become too uncertain to plan. My counter
argument is that, precisely because of the increased uncertainty,
we should be doing everything we can to consider likely scenarios
and how they could affect the business.
Planning is not about being right; it is about considering a
number of plausible future outcomes based on assumptions we make.
By committing figures to these, we can be better prepared to
manage. Once actual figures emerge, they can be plotted against the
original plan to facilitate variance analysis, which exposes the
gaps in the plan that need to be addressed as a matter of urgency.
By broadening your horizons, you also reduce the risks of a 'black swan event' occurring.
5. They are embracing the lean startup
methodology
Lean startup is a movement based on the work of Eric Ries
(supplemented by the likes of Steve Blank), which is gaining
widespread appeal (particularly with tech entrepreneurs). It
essentially advocates a set of start-up principles that are
customer centric and focused on developing what is called a Minimum Viable Product, which is used to gain
feedback about customer requirements and demand. While Ries may not
explicitly talk about business plans, he is very focused on what he
calls 'innovation accounting', which is essentially about measuring
progress, setting milestones and prioritising work streams. Of
course, these represent the very essence of business
planning.
It is evident that many people remain wedded to the archaic notion
of a business plan as a bound document consigned to a drawer upon
completion. In reality, business planning is about setting SMART objectives, prioritising work streams,
managing cash, and establishing goals and milestones against which
performance can be tracked. As the old adage goes, 'What gets
measured gets managed,' and in these tough economic times it holds
as true as it ever did.
Alan Gleeson is the General Manager of Palo
Alto Software Ltd, creators of LivePlan and Business Plan Pro. He holds an
MBA from Oxford University and is a graduate of University College,
Cork, Ireland. Follow him on Twitter @AlanGleeson.