The Engine for a Better Business Model

The Business Plan - Well Yeah There is an Outline But This is Not War and Peace

If you perform a web search on the term “business plan outline” or peruse your local book warehouse, you will inevitably come across a half a dozen, varying outlines. My motto is – find one that you are comfortable with and then get very comfortable with that outline - quite similar to Warren Buffet’s “put all of your eggs in one basket and then watch that basket closely,” except he has a billion dollars. If you are dusting off the old business plan or starting from scratch then you need to familiarize yourself with a good outline. And remember, this is not an Ayn Rand novel.

Here’s the one I use:

Executive Summary

The Business

Vision and Mission

Strengths and Weaknesses

Legal Structure

Business Description

Product or Service Description

IP Property Description

Location

Management Personnel

Records

Insurance

Security

Litigation

Risk Factors

Major Forecasted Achievements – Milestones and Goals

The Marketing

Markets

Competition

Distribution and Sales

Marketing

Industry and Market Trends

Strategy

The Operational Plan

Organizational Structure

Management and Personnel

Legal Structure

Equipment and supplies

Accounting and Legal

Daily Operations and Processes

The Financials

Uses of Funds

Income Statement

Cash Flow Statement

Balance Sheet

Income Projections

Breakeven Analysis

The Supporting Documents

A Living, Breathing, Implementable Document

In a perfect world, your business plan would sprout arms and operate the cash register but the truth is it is probably dead in a drawer somewhere next to an old Kenny Roger’s CD you keep around for “me” time. Your mission now is to find that drawer, open drawer, grab feather duster and get to work. Your business plan in part contains your hopes and dreams for your business as well as how to operate the whole thing. It sure as heck deserves a better fate than Kenny.

As far as the living, breathing and implementing part, your business plan should be wired into your business. At a minimum, you should do this by reviewing the key elements of the plan in bi-weekly team meetings and quarterly strategic meetings and tracking progress. According to Dr. Matt Marvel, Professor of Entrepreneurship at Western Kentucky University, “the bane of most entrepreneurs is the lack of business plan implementation. For the most part, business owners find it difficult to integrate the plan into the business. This is a critical failure point for most small businesses.”

Let’s examine specific sections and see how you are stacking up:

The Vision and Mission – sometimes viewed as the enlightening, blue sky statement that hangs on the manager’s wood paneling – it sounds idealistic and cute but the real world says otherwise. The real world says to hell with your idyllic view of how you think your business should run, I’m in charge. But isn’t the Mission why you went into business in the first place? The Vision and Mission at a minimum is the driving force of the business, the fountainhead the business is chasing after. The whole point of having one is to use it to drive through the daily onslaught of reality. It should be kept at the forefront and reviewed daily. If you haven’t developed an overall mission or vision stop now, do not pass go, do not collect $200. Get to work putting one together by asking who do we serve, why do we serve them and how do we serve them? What is our overall purpose for being in business? What should our business look like now and in the future? Write it down and read it at every meeting.

Business Description and Product or Service Description – this is the section that says “we will deliver quality service and products in a unique and outstanding environment. Our customers will be wowed by us until they explode.” Great! Now the question is, how is this glorious statement tied into the business? What is your standard for checking up on customer satisfaction and product quality? Do you survey the customer on a regular basis, bring up the results in team meetings and pow-wow on solutions to the situation? You should be.

Which brings us to our next area of planning and integration …

Management and Personnel

If you really brought your “A” game to this section then you developed an organizational chart. If you brought your “A” game, a cup of coffee and a knack for delegating, then you fleshed out roles, responsibilities and accountability for each position listed in your org chart. In keeping with the previous product and service example, if you show up at a meeting and don’t know who is responsible for improving customer service, then chances are you have some unhappy customers. If the org chart indicates that Joe is responsible for customer satisfaction then the meeting script would go something like this … “Joe, we are receiving a fair amount of customer complaints. Any insight into this?” or “Joe, our customers are raving happy, how’d you do this?” Joe would ideally wake up from his nap and respond “are you talking to me?”

If everyone knows their roles and responsibilities and accountability, then there should be no big surprises.

Marketing

In the marketing section you literally listed out the varying channels that you would employ to market the business – web, print, radio, blimps, wacky waving inflatable arm flailing tube men, etc. Hopefully you also included a measure on how to grade the effectiveness of each channel. How are you doing? If the newspaper ads are providing a rate of return of 150% but the radio spots are barely breaking even, perhaps it is time to kick the radio channel and beef up the print ads … or invest in half a dozen more wacky waving inflatable arm flailing tube men.

Finally, Financials

No matter how you slice it, it typically boils down to the money. You should be preparing a monthly budget and reconciling actuals back to the budget. If not, then again, do not pass go, do not collect $200, go directly to your local book warehouse or search on “budgeting”. This is all important – in your business plan you prepared forecasts. Those forecasts need to be revisited – there may be opportunities for improvement.

You also need to be fairly familiar with the balance sheet and cash flow statement. Ideally, the business is building an asset and increasing equity over time, not metastasizing into a raging spiral of death. If you are continually throwing good money after bad into a black hole of debt, it is time for radical improvement or time to cut your losses.

Goals and Milestones – You Said You Were Going to Live up to Them, How’d you do?

Although by all appearances the “Secret” was a profitable attempt to repackage motivational material from the 80s and market it into an international bestselling book and DVD, the real secret is to set meaningful goals and milestones for your business and keep them in front of you at all times. They will serve as the engine that will drive your entrepreneurial spirit even when you don’t want to go into work for the day. They should answer the question where is the business headed and prompt you to take the steps to get there.

In the existing business plan you want to review the goals that were created and check to see if in fact you hit those goals. If not, why not? Keep the business goals in front of you and the staff at all times and remember, be specific: It is much better to say “I want to weigh 171 by December, 25^th2011 at 7pm” than “I want to lose weight.” In the second example you can take off a sock and then cheer “mission accomplished.”

Some goals and milestones you may want to think about:

1) An exit strategy is not a planned fire escape route. It is the ultimate goal for your business. Are you going to work until you hit the ripe old age of 110, hand it off to the kids, or sell it for a nice sum of cash? Michael Gerber, author of eMyth Revisited, asserts that the goal of every business owner is to eventually sell the business. How much will you sell it for?

2) When will you be financially independent? You didn’t start the business to have a hobby. At what point will your passive income be equal to or greater than your expenses?

3) What will sales levels look like in the next 3 and 5 years?

4) Do you wish to expand and open additional stores this year, create a new strategic alliance, or perhaps diversify your product offerings? Sometimes though it is best to remember that many business opportunities will come your way and it is best at times to be selective and focus.

The Times They are A’Changin

According to Matt Whitaker, Business Consultant with the Small Business Development Center, “most business owners do not accommodate for change in their business plans. They remain rigid and hope that everything will roll out exactly as planned. If it doesn’t, they are typically at a loss and cannot adjust.”

The point is, plan for change. Your budget should have a miscellaneous category for unforeseen expenses and you should project a best, worst case and most likely scenario in your sales projection.

Implementation – It’s a Pretty Document … So What?

Again, as I previously indicated, if you have a great plan chock full of financially literate terms such as “nominal rate of return” and “net present value” then good for you … you have a great vocabulary. If you actually use the plan in the business then you have great follow-through and a solid business model in addition to a fancy vocabulary. I can’t emphasis this enough: the plan needs to be integrated into the business on a strategic and tactical level via company meetings and day to day operations. The individuals responsible for facilitating the key functions of the business need roles and responsibilities spelled out and a standard they are held accountable to. The mission, vision and goals should be at the forefront of the business. The cash flow projection should be reconciled monthly.

In summary, the business plan is typically gathering dust in a drawer next to a fork stashed away for lunch. More than likely the initial development process was haphazard, painstaking and a relief to finish. In reality the plan, if done correctly and implemented, provides a great vision and map for your business to succeed as well as a consistent experience for both the customer and employees. It provides a standard of operation in your business and delivers a consistent value proposition to your customers. It creates the future by laying out goals and milestones, and builds rail-road tracks to take you there. It is a cliché to say it is a “living document” but the fact is the business plan can be a multi-cylindered engine that drives you to a better business model.