Posted September 5, 2006 by johnspence
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Frankly it scares me. In working with literally hundreds of small to medium-sized business over the past decade I have been terrified at how few of them take their business planning seriously. Even more horrifying is that a fair number of them did not even have a business plan at all! Let me make this clear: sustained business success does not come from chance, fate or good luck. To run a successful and profitable company it is critical that you understand, implement and value the process of effective business planning. But rather than just jump up and down on my soap box, let me try to lay out for you a reasoned and well thought out case for why you should invest your time and energy in creating and maintaining a solid business plan.
Following are my “Top 5 Reasons Why You Should Have a Business Plan.”
- Planning sets direction
One of the top three reasons why companies fail and go bankrupt is the lack of a vivid and detailed vision for the future of the company. Because they are not clear on where they are going, how they will compete in the marketplace, what they truly want to accomplish – they lose their way, stumble and fall… and cannot get back up.For the past several years I have been leading special one-day business strategy seminars for CEOs of companies from 2 million and 500 million dollars. At the end of the day I always ask the assembled group; “what do you believe are the top three challenges facing your company?’ With a total of more than 700 CEOs to date, the number one answer by a wide margin is: “I have not done a good enough job of setting a strong and clear direction for my people.” The answer to this dilemma: a detailed and specific business plan that is very well communicated throughout the entire organization.
- A plan gives you focus
There are three key elements to creating excellence at any endeavor: Focus, Discipline and Action. You must be fanatically focused on the vivid and compelling direction of the firm. You must then have the discipline to follow that direction and not stray off course. And lastly, the amount of action you apply to your focused plan will directly determine the amount of success you will enjoy. A little bit of focus (no real plan), a little bit of discipline (you don’t really follow the plan), a little bit of action (you don’t give it 100%); the outcome will be mediocrity. And once you start accepting mediocrity in your life, you become a magnate for mediocrity.
- Planning establishes a common language
I mentioned above that the lack of a clear and vivid vision is one of the top three reasons that businesses go out of business, well the number one reason is: lack of open, honest and robust communication. For me, perhaps the greatest value in a plan is it gets everyone in the organization talking about the same things. The plan becomes a platform for discussion. A document to be debated advocated and even attacked. It fosters passionate dialogue about where the company is going, how we will get there and if that is a realistic and attainable goal. The more people that are talking about what it will honestly take to make the company better – the better the company will become.
- The plan helps establish how to allocate scarce resources
Every company, no matter the size, is in a constant battle of making decision about how to deploy limited resources. There is only a certain amount of time, money and people and to run a successful organization those critical elements have to be used in the most effective and efficient way possible. A plan then acts as a filter for setting priorities.
- Every day business owners wrestle with incredibly difficult and often highly complex issues.
What is most important thing for me to focus on right now? Where can we increase our competitive advantage, gain more market share, even enter a new market altogether? Do I buy new equipment, hire additional staff, invest in new facilities or possibly buy out a small competitor? These are tough questions and the very nature of a business plan is to help you in directing the allocation or resources with a higher degree of confidence and decreased levels of risk.
- An important point: Just as critical is it is for a plan to help you focus on what you should be doing; perhaps even more valuable is that a good business plan will help you have the courage to decide on what you should NOT be doing! What projects and people should you move away from? What should you not be spending time or money on? What markets would not be right for you, even if it looks exciting and tantalizing? If you try to be all things to all people, you will become nothing to anyone. If you are always trying to keep all of your options open, you are also not fully pursuing the best options. One of the most essential skills of a successful business owner or manager – is clearly determining what not to do, and your business plan is a valuable tool in making those key decisions.
- It gets you working on your business
The vast majority of my clients are so busy putting out fires, handling customers, closing new deals… working IN their businesses; that they have no time at all to work ON their businesses. Caught in the frantic daily pace of running their organization, they never seem to find the time to step back and take a serious and brutally honest look at where their business is and where it is going. This is a frustrating and potentially dangerous situation to find yourself in.
However, committing to and setting aside time for reflection and planning is the solution to this predicament. Two full days a year for an in-depth planning retreat, and perhaps one day a quarter for monitoring and adjustment is all that is required to build and maintain an effective business plan. Now I can hear all of you screaming that you don’t have that kind of time available, but it would be my position that it is precisely because you are not proactively planning that you are so insanely busy constantly reacting.
Let me give you a quick example. I am often asked to teach programs on time management, to which I reply; “there is really no such thing as time management – there is only priority management.” All of the time management classes I have ever attended or taught focus on just two simple ideas:
A. Figure out what is absolutely most important – and do that first.
B. Write down everything in a clear and easily accessible format that is comfortable for you.
The first step is easy: priority management. The second step says get all of this information and appointments and ideas and tasks out of your head and down on paper (so you are not staying up all night worrying about what you might have forgotten) and put it into a format that is super easy for you to understand and maintain. Guess what? That is the magic formula for time management and business planning too. Figure out what is most important, put it down on paper, read it every day and follow it. Doesn’t seem that intimidating when I put it that way?
The goal here is not to write some 270-page document that is so comprehensive, complex and convoluted that no one can understand what they are truly supposed to be doing. A business plan will be hard to implement unless it is simple, specific, realistic and complete. Even if it is all these things, a good plan will need someone to follow up and check on it. Successful implementation of the plan depends on the human elements around it, particularly the process of commitment and involvement, and the tracking and follow-up that comes afterward. Here are some of the elements that will make a plan more likely to be successfully implemented:
Is the plan simple? Is it easy to understand and to act on? Does it communicate its contents easily and practically? Does it create commitment, coordination and consistency? Is the plan specific?
Are its objectives concrete and measurable? Does it include specific actions and activities, each with specific date of completion, specific persons responsible and specific budgets?
Is the plan realistic? Are the sales goals, expense budgets, and milestone dates realistic? Nothing stifles implementation like unrealistic goals. Is the plan complete? Does it include all the necessary elements – without a lot of extraneous stuff that isn’t important?
To that last point, the requirements of a business plan vary, depending on the context and there is no guarantee that the plan will work if it doesn’t cover the main bases.
John Spence is widely recognized as one of our nation’s leading business experts. He has delivered executive education programs to more than 300 organizations worldwide, from the top of the Fortune 50 to dozens of start-ups. John also serves as a guest lecturer on the topics of business strategy and leadership at several universities including Wharton, Rutgers, Cornell, Texas Tech and the University of Florida.
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