WHY BUSINESS PLANS?
WHY BUSINESS PLANS? – BASIL SPRINGER COLUMN WHICH APPEARS IN THE BARBADOS ADVOCATE’S BUSINESS MONDAY ON MARCH 31, 2014
“Do not worry about anything, but in everything by prayer and supplication with thanksgiving let your requests be made known to God.” – Philippians 4:6
There is an interesting current blog post discussion on the theme “You can throw your Business Plan in the trash” in The Startup and Investor Network blog hosted by LinkedIn. The opening statement by Antoine Abou-Samra in this discussion is “Wait a minute! We have been told for decades that to start a business you needed to develop a Business Plan (pages and pages), including a 3 to 5 year financial forecast. Then go pitch it to an investor. Then get the money. Then execute your Business Plan. Simple!”
The fact is that given all these wonderful business plans that are continually prepared we are faced with the reality that 80 to 90 percent of start-up businesses fail in the first four years. This high failure rate slows down the country’s economic growth rate. We need to reverse this trend.
Antoine has pointed out that people like Eric Ries, Alexander Osterwalder and Steve Blank have been promoting methodologies such as “Lean Start-up”, “Business Model Canvas” and “Customer Development”, respectively, as alternatives to the traditional process.
I grew up in the management consulting profession with the business planning culture that “If you fail to plan, you are planning to fail” (Winston Churchill) and “If you do not know where you are going, any road will take you there” (Lewis Caroll, Alice in Wonderland). I have had my experiences preparing many business plans in the Caribbean over the years – thick documents which comprised a marketing plan, an operational plan and a financial investment plan (financial forecasts and all). After all that trouble, I would tell my clients that the only thing that is predictable about the business plan is that the forecast would not be right because it was based on a number of assumptions over which we have no control. This then led to the question “why prepare these massive business plans in the first place?” The answer, of course, is that it was part of the culture. It was what was taught in the formal business courses.
It was only after addressing the reasons for slow economic growth, we focused on the individual business and recognised that this could only be rectified by increasing the chances of one successful business after another. Then we questioned why do these businesses fail in spite of the wonderful business plans that were created. The answer was a failure to manage the business systems. The analogy with the human body came to mind. If you manage the systems of your body well (all 12 of them), you have a greater chance of extending your life. Similarly, if you manage the systems of your business well you have a greater chance of extending the life of your business.
What are the systems of a business? Well, they are: corporate governance (relationship of a business with its stakeholders); marketing (driving revenue); operations (production and profitability); human resource development (productivity enhancement); and investment finance (the fuel that energises the business). The real revelation is in the definition of management which classically consists of the functions of planning, organising, staffing, leading and monitoring. We cannot focus on planning alone but instead on the recurring system of management starting at planning going to monitoring and back to planning again.
My experience in shepherding (life coaching and business mentoring) start-up businesses has taught that me a number of things. It is one thing for the entrepreneur to be visionary, passionate, resilient, hard working but he/she must also adopt business cultures corresponding to the systems of a business. These are “board meetings “, “customer needs and satisfaction”, “profitability “, “shepherding” and “investment payback”.
If you are planning a Start-Up business or if you already have an established growing business and you have not adopted a board meeting culture, then you should start now and have your first board meeting. The board meetings provide a sound structure on which to develop the business and make it more efficient.
Revenue is the most important element in a business. Revenue comes from customers hence it is important to understand their needs and keep them satisfied. This results in the development of a base of customers to whom you sell your products and services at an affordable price.
If a business cannot sustain a profit it will make a loss and eventually die. Once the revenue base is established the business has to be profitable i.e. you must ensure that you can produce goods and services, on an ongoing basis, for less than the price at which you can sell them. The aim of the business is to achieve the highest profit without losing customers.
People are our most important resource so you must develop them to the fullest. In order to develop a cadre of highly efficient staff to grow a high quality business which is extremely competitive, you should adopt a shepherding culture to develop staff with high levels of productivity (human, technology and process) for fair compensation.
Investment capital is necessary to buy equipment and inputs as well as working capital (to bridge the gap between expenditure and actual payment of invoices tendered) needed for your business. Investors need to have their investment paid back with a dividend. To attract investors to invest in your business you must adopt a mutually beneficial pay back system.
My experience supports the thesis that a much simpler form of business plan design, based on business cultures corresponding to the systems of a business, is required. The belief is that the failure rate may eventually be converted into a 80 to 90 percent success rate with commensurate growth in our economies.
(Dr. Basil Springer GCM is Change-Engine Consultant, Caribbean Business Enterprise Trust Inc. – CBET. Columns are archived at www.cbetmodel.org or www.nothingbeatsbusiness.com).