Regardless of what stage a company is in in its corporate life cycle, the market conditions it faces or how successful it is, it can always benefit from creating a strong business plan. In addition to serving as a constant guide for a firm’s entire team, a great business plan can help articulate a firm’s vision and strategy to many different types of external audiences that are vital for a firm’s success, including customers, financing parties, potential joint venture partners and counterparties in M&A transactions. This article identifies six steps that entrepreneurs and companies should keep in mind when creating and implementing their business plans.
Step #1 Create a Strong Value Statement
The basis of every business is its core values, the principles that guide a company regardless of the business conditions it faces and regardless of whether it is succeeding or failing. These principles are not only a firm’s internal compass; they are also the key bridge between a firm and the market it operates in. As Steve Jobs said in a well-known speech on marketing, given that in a noisy world with constant competition for consumers’ attention consumers will remember very little about a business, its values are what help consumers internalize an image of a business as not only a utilitarian set of products and services, but rather as a representation of the way consumers live and want to live.
Step #2 Create a Business Plan That is as Unique as Your Business
Many business plans simply state, in essence, that a business will sell more products and services and, as a consequence, its revenues will significantly grow. But even if two businesses operate in the same market, sector and segment, there will often be large differences in how they do business. This is because they have different people, different cultures, different ways of operating and different histories. Rather than being superfluous to a business plan, these differences are often a business’ heart and soul and what make it great.
Accordingly, rather than losing what is unique about a business through off-the-shelf business plan templates that are applicable to all firms in all sectors, a better approach is not to be afraid to throw out standard business plan formats and instead create a plan that clearly presents what is different about a firm, the opportunities it sees and how it plans to take advantage of those opportunities. Create a business plan that only your business can create and only your business can implement.
Step #3 Understand Market Force Allies and Adversaries
Businesses do not, and cannot, operate in an economic and financial vacuum. As the Chinese philosopher Sun Tzu said in the strategy class The Art of War, if you want to win in war you have to have a deep understanding of not only yourself but also others. In the business context this means clearly understanding the internal and external forces that work to your advantage and those that work against you. These forces are often different for every firm and can include factors as diverse as:
- Employee morale.
- The nature of a business’ competitors and barriers to competition.
- Financial factors such as the cost of capital.
- Microeconomic and macroeconomic variables.
- Regulatory factors.
To create a strong business plan, it is vital to understand the internal and external forces that work in a firm’s favor and against it. The impact of these factors can also change with positive forces creating risks and negative forces creating opportunities.
It may sound straightforward, but truly understanding our businesses and the market around us is far from easy. To understand market forces better than your competitors, it is important to have an analytical approach where assumptions about the market that are based on anecdotes about the market or unfounded perceptions are replaced with investigative processes that are designed to obtain empirical data and systematically apply that data to business plan hypotheses.
This data should provide a firm with not only actionable information regarding the current supply and demand for a product or service, but also the factors that affect that supply and demand, how they change, and factors that can affect those changes. To develop this type of vision of the market, it is necessary to both study the market from diverse perspectives and to have strong relationships with your target consumers and have a deep understanding of how they live, how they make decisions about products and services and how they use those products and services. Ultimately, every business is the sum of its clients.
Step #4 Plan for Uncertainty and Moving Targets
Business plans often paint a static view of businesses and the markets that they operate and assume that the only thing that a business needs to do going forward is more of what it is currently doing. This simplistic view of business operating realities, not surprisingly, often leads to situations where a business’ performance projections quickly deviate from business realities. Particularly for businesses that seek investment from outside investors, missing forecasts can cause investors to question a business’ credibility which of course can undermine fundraising efforts and other business initiatives.
Rather than assuming that an operating environment will be static, business plans should assume that many types of operating environments are possible.
Because of this, rather than view the future world as fixed target that will remain still as a business moves toward it, it is better to view it as a set of macroeconomic and microeconomic possibilities which have different sets of likelihoods of occurring. In this type of vision of the future businesses have to have the flexibility of reacting to different internal and market scenarios as they develop.
Step #5 Don’t Let the Long Term Become the Enemy of the Short Term
A business plan should be a document that not only inspires people to stretch for goals in the future but also provides a very concrete picture of the steps that are required to be taken to reach those goals. Businesses can fall into the trap of painting a clear picture of targeted future goals but not providing a clear path to the short term changes, quantitative as well as qualitative, that will be required of a business in order to meet those goals. A business plan fails if it cannot answer the question: “What should I be doing right now to be where I want to be tomorrow?”
Step #6 Review the Business Plan Every Day
Some companies prepare a business plan, review it once a quarter or less and then, if results fall short of projections, go through a period of internal questioning as to why the targets are not being met. However, a business plan should be a document that is reviewed on a daily basis and becomes a constant guide through changing business currents and an inspiration to meet the challenges it sets forth. It also should be a document that reflects the best of a firm and incorporates new firm wisdom as the firm grows, makes mistakes and learns from them.
Business plans can range from general statements of abstract goals that have little chance of being realized to living documents that play a large role in the day to day activities of a firm. There is no one correct way to prepare a business plan, but by creating a strong value statement, identifying a firm’s unique strengths, developing an objective methodology to understand the positive and negative forces that affect a firm, preparing for uncertainty, focusing on the short as well as long term and reviewing a business plan constantly, a business plan can play a major role in strengthening a firm’s business performance.
This article was written by Darin Bifani. The photo for this article was taken by Stephan Leonardi.
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