The Best Way To Use A Business Plan
Business plans are polarising.
Some of my favourite authors and thinkers despise business plans.
Some of the smartest people I’ve worked with love business plans.
They’re right too.
I’ve come around to both sides.
It’s easy to worship business plans as holy documents – 65 pages of pure genius that can’t possibly fail.
It’s also easy to demonise them as a waste of time – outdated as soon as they’re published.
One quote that shaped my view came from Winston Churchill, who described his team’s meetings during WW2:
“The plans were useless, but the planning was invaluable”
It’s such a great way of looking at it.
The documents themselves are secondary to the thought process that comes from designing them.
Paul Steele offers the perspective from the investor’s side of the table:
“What we’re looking for isn’t strategic planning, but rather evidence of strategic thinking”
That’s an important distinction.
Nobody will build a flawless plan in isolation, but they can prove that they’ve thought about all the variables, and made highly educated guesses.
So when the circumstances inevitably change, that strategic thinking will help the business move in a good direction.
How to create frustration
Start by going into the very fine details, without validating the idea.
Then expect your investors to read and believe your 10 year financial projections, which have been made without you having spoken to a single customer.
Then in the pitch meeting, have the investor ask the entrepreneur about any alternative models, which will be dismissed because the entrepreneur is now wedded to the current idea.
Have the entrepreneur ask the investor to fund the business, sight unseen, requiring several hundred thousand dollars to kick off.
Unfortunately this isn't a hypothetical - I've personally seen this happen. It never goes well.
How to avoid frustration
Instead, start by building several different iterations of the Business Model Canvas, then pick 1-2 favourites.
This includes rough customer profiles and back-of-the-envelope financials.
Test these with customers through cheap prototypes, crowdfunding and experiments. This will quickly validate or kill the idea.
Take the validated idea to your investors, who will be intrigued but in need of more details.
Then (and only then), write out a more descriptive plan, which you then bring to the investors for approval.
Simultaneously, run another cheap trial to identify the strengths and gaps of the idea, adding to the credibility of your planning.
What’s the difference between a Business Model and a Business Plan?
A Business Model is one page that describes the way all the cogs fit together to form a neat machine.
A Business Plan is 10-70 pages that describe how you’ll source each cog, and how you’ll go about assembling the machine.
That’s why the plan doesn’t work without the model – you’re jumping to the How before you’ve established the What, Who and Why.
If the model doesn’t work, what’s the point in building a more detailed plan? We’re better off quickly vetting ideas on one page, before we fall in love with them.
One we have a good model, the aim is to test it in the real world – quickly learning valuable lessons without investing too much money.
But once we’ve validated the idea with a cheap trial, we may need a lot more money to set everything up. For startups that require significant investment and support, we need a way of explaining the details to our partners and investors.
This is where a single page doesn’t cut it.
The canvas will describe our customer acquisition approach in one bullet point.
Unfortunately, large projects need more than that.
The Business Plan is our chance to identify:
· How we intend to acquire each wave of customers, and how much that will cost
· Who we will recruit for the most important roles, and how much each will get paid
· The ways in which success will be measured
· How and when the organisation intends to grow
· The ways in which social impact will be measured
· The exit strategy for the founders and investors
· Which suppliers are on board (hopefully they’ve agreed on terms)
· What avenues for growth are available
· How the business will avoid running out of cash (seriously important!)
· The trends, competitors and threats that have been considered
That’s why I’m not happy to dismiss Business Plans altogether.
These ideas need to be explored, they need to be factored in.
When designing viable social enterprises, clients essentially ask me one question:
"Will it work?"
To answer that, I need to answer ten smaller questions, each made up of another ten micro-detailed questions.
By researching all 100 of them, I can confidently answer the bigger question.
The plans we write are often skimmed, but that’s because the detailed work has been done.
By doing the legwork, we ensure that the idea and implementation plan is credible, and worthy of substantial investment.
I’d be happy to have entrepreneurs write the plan and then shred it. No problem.
As long as the strategic thinking has occurred, I’m comfortable.
Because the plans are useless, and the planning is invaluable.
If you’re using the Canvas, you’ll love my free Business Modelling eBook, full of tips for inventing and testing ideas that will change the world