Writing Business Plans-Anyone Have a Pencil?

The smartest entrepreneurs plan on growing and are prepared for change.

I have a few words of advice for first-time entrepreneurs, as well as seasoned business owners looking to hit a new stage of growth. My advice is this: write your business plan in pencil. I realize this may be difficult for all you non-golfers, but doing so will illustrate two important principles.

1. Change is inevitable.   

I have little doubt that you (the small business owner) will shortly have to change, amend, modify, scrap, or abandon your original business plan altogether.  One of the attributes of successful entrepreneurs is Flexibility. By writing your business plan in pencil, it forces you to look at change as the only constant.  Make change your friend, embrace it, and work it to your benefit. The reasons why your original plan will need to be changed after your company is actually operational are myriad. It’s likely you under or over-estimated your competition, margins, cash needs, competencies, and suppliers. Or you misjudged market need and size. Every entrepreneur discovers new opportunities that didn’t appear until there was actually a business up and running.

2. We must avoid business plan worship.

When we see documents neatly typed and even praised, we are reluctant to change. Especially for those who attended business schools where the plan took on a larger than life importance. People whose plans got high marks or even worse, won a Business Plan contest, tend to feel their plan is inviolate. They also tend to believe that if they rigorously adhere to the plan, it will yield the riches of their dreams. It Is my hope that the mental image of a pencil will remind you that change is good and will help you reach your goals.

Most small business owners that I know never wrote a business plan. In 16 start-ups, I never wrote one. John Altman, a very successful entrepreneur, founder of six companies, and former professor of Entrepreneurism, never wrote a Business Plan for his start-ups either. Most people who write a business plan do it to raise money or because someone told them that’s what they’re supposed to do. The fact is that a detailed plan is only required if you want to raise money from a bank or venture capitalist. Both will hardly ever offer a loan or invest in early stage companies. So your energies are wasted writing those long and thick plans.

Now don’t get me wrong. I strongly believe in planning, just not in long, voluminous tomes, that will probably go unread. For sole proprietors or a few employees, it can be in your head or- if you must commit it to paper- on a napkin.

If you really want to write a plan, try this. At the start of each year write your goals are for that year and specifically target new areas of distribution and the names of new accounts that you want to sell. Also put on paper the names of current customers with whom you want a deeper relationship and the strategies you’ll employ to do so. This plan should only run one or two pages. I also recommend you write down your accomplishments and shortcomings from the previous year. While you can do this exercise primarily for yourself, I would also share it with members of your team.

As your company gets bigger, written planning documents become paramount. As your company grows, you want to be sure all your employees are on the same page and equipped with the knowledge of how they can contribute to the company goals.

It’s a reversal of commonly accepted logic to suggest you postpone the business plan until you’ve reached a growth spurt. But as John Altman said on this point, “If you’re going to empower the other people in your company, guess what: You’d better give them a map to the highway you’re on! Otherwise, they can’t share that vision in your brain.”

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Write Your Business Plan in Pencil

This is my May column in Entrepreneur.

The smartest entrepreneurs plan on growing and are prepared for change.

I have a few words of advice for first-time entrepreneurs, as well as seasoned business owners looking to hit a new stage of growth. My advice is this; write your business plan in pencil. I realize this may be difficult for all you non-golfers, but doing so will illustrate two important principles.

1. Change is inevitable.

I have little doubt that you (the small-business owner) will shortly have to change, amend, modify, scrap or abandon your original business plan altogether. One of the attributes of successful entrepreneurs is flexibility. By writing your business plan in pencil it forces you to look at change as the only constant. Make change your friend, embrace it and work it to your benefit. The reasons why your original plan will need to be changed after your company is operational are myriad. It’s likely you under or over-estimated your competition, margins, cash needs, competencies and suppliers. Or you misjudged market need and size. Every entrepreneur discovers new opportunities that didn’t appear until there was actually a business up and running.

2. We must avoid business plan worship.

When we see documents neatly typed (and maybe even received praise for them), we are reluctant to change. Especially for those who attended business schools where the plan took on a larger than life importance. People whose plans got high marks, or even worse, won a business plan contest, tend to feel their plan is inviolate. They also tend to believe that if they rigorously adhere to the plan it will yield the riches of their dreams. It’s my hope that the mental image of a pencil will remind you that change is good and will help you reach your goals.

Most small-business owners that I know never wrote a business plan. In 16 start-ups, I’ve never written one. And John Altman, a very successful entrepreneur, founder of six companies and former professor of entrepreneurism, never wrote a business plan for his start-ups, either. Most people who write a business plan do it to raise money or because someone told them that’s what they’re supposed to do. The fact is that a detailed plan is only required if you want to raise money from a bank or venture capitalist. And both hardly ever offer a loan or invest in early stage companies. So your energies are wasted writing those long and thick plans.

Now don’t get me wrong. I strongly believe in planning, just not in long, voluminous tomes that will probably go unread. For most sole proprietors, that business plan can reside in your head, or–if you must commit it to paper–on a napkin.

If you really want to write a plan, try this. At the start of each year write what your goals are and specifically target new areas of distribution and the names of new accounts that you want to clinch. Also, put on paper the names of current customers with whom you want a deeper relationship and the strategies you’ll employ to do so. This plan should only run one or two pages. I also recommend you write down your accomplishments and shortcomings from the previous year. While you can do this exercise primarily for yourself, I would also share it with members of my team.

As your company gets bigger, that’s when those written planning documents become paramount. As your company grows you want to be sure all your employees are on the same page and equipped with the knowledge of how they can contribute to the company goals.

It is a reversal of commonly accepted logic to suggest you postpone the business plan until you’ve reached a growth spurt. But, as John Altman said on this point, “If you’re going to empower the other people in your company, guess what; you’d better give them a map to the highway you’re on! Otherwise, they can’t share that vision in your brain.”

Bob Reiss is the author of Bootstrapping 101: Tips to Build Your Business with Limited Cash and Free Outside Help. He has been involved in 16 start-ups, is a three time INC 500 winner, a graduate of Columbia University and Harvard Business School and the subject of two Harvard case studies. He’s a frequent speaker at university entrepreneurial classes.

THE MISSION STATEMENT–Good For Small Businesses Too

The mission statement is something very different from the business plan. Mission statements set the moral and human goals to which your  company is supposed to aspire. In many cases, they also state higher order business goals, such as a corporate commitment to maintaining an annual compounded rate of growth of a certain percentage.

Mission statements are most often associated with large corporations—an effort to get thousands of people to pull in the same direction across a far-flung corporate empire. But I think a mission statement is a good thing for a small business as well, and it’s something that should be developed at the outset.

The mission statement clearly tells employees what behaviors are expected of them and describes the kind of treatment they can expect from their employer. Most people have a strong desire to know the rules of he game. In addition, they want to be proud of the company for which they work. The mission statement gives them at least one piece of the puzzle.

This is also the best reason not to have a mission statement if you don’t intend to follow it. There’s nothing more poisonous than to have the management thumping away on some ethical tub, and at the same time acting in ways that directly contradict the espoused values. If you can’t walk it, don’t talk it!

The mission statement, like the business plan, is a useful tool for triangulation and mid-course correction. Take it off the shelf every once in a while, and see if you’re living by it. (Better yet: look at the framed version on your office wall.) And when you face a tough choice, look at that statement again for guidance. To the extent that your mission statement contains concrete business goals, make sure that you either (1) achieve those goals, or (2) acknowledge that you aren’t achieving them and take steps to bring the company’s performance into line with its aspirations.

You may not spend a lot of time on your mission statement, but you should clearly set the tone for the kind of company you’re trying to create and sustain. Culture comes from the top—that is, from you. How accessible will you be to your employees? Will you truly listen to their input, or will you just pay lip service to their ideas? What are your expectations from everyone, especially in the realm of building trust? How will your company treat its customers? What are its attitudes toward quality?

Part of the point of the mission statement is the process as well as the product. If you involve other people in the development of the mission statement, you’re already sending a signal about your culture.

If disputes arise, how are those disputes resolved? Do people walk away feeling that the resolution was fair, smart, and efficient? Again, your personal example is extremely important here. One of the best ways that you can inculcate values into the fabric of your company is to embody those values.

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