In small and medium business planning, there is much more chaos (in the mathematical sense – unpredictable within certain boundaries) than many realize. This is driven by the enormous range of possible influences on the environment, and their cross-linkages. This is truer today than ever before, and the business operator’s response demands flexibility, constant monitoring and plan adaptation. This cannot be done without a model to wargame – a simulation tool.
Shawn Hessinger at bootstrapme.com put up a post a while ago, as part of an ongoing discussion with some others, like Sean Murphy. There are some good points, here and I suggest you follow the links to some of the other discussion contributions.
von Moltke’s Strategy of Options
I am not generally fond of military analogies to the business environment. The military exerts a great deal of energy exerting control over its operating world in ways that businesses can’t. This analogy by Murphy, adapting von Moltke’s dictum, is fairly pointed, though.
“you might say that no startup’s product or operating plan survives contact with the market”
Sean continues with do it anyway
“prior preparation enables quick response and will likely allow you to avoid unnecessary expense and some mistakes.”
Helmuth von Moltke was the Chief of General Staff of the Prussian army in the second half of the 1800s. He successfully planned and led both the Austro-Prussian and Franco-Prussian wars. A few points about von Moltke
- he held that strategy was best understood as a set of options
- planning was preparation for all possible outcomes
- planning needed to be very detailed
- tactical plans called for organization in small self-regulated units, capable of rapid response (responsibility and accountability)
- he advanced the art of wargaming considerably
I don’t really agree with this definition of strategy, and planning in advance for all possible outcomes is prohibitive, unless you also have von Moltke’s army of staff. Some detail is really not determinative and can be approximated. Nevertheless, the flavour is correct. Generating options, and considering their impact is invaluable (wargaming). This is close to impossible without a simulation model. Models are not that hard, really!
Get Back to Reality
Here is what I see as Shawn’s best observation, and it is one that to my thinking needs constant repetition.
“the traditional business plan format has become somewhat detached from reality with focus more on getting investors’ attention than creating a realistic model.”
I’ll be blunt. An entrepreneur who hands me a lengthy traditional business plan raises my eyebrows. If this is where the person puts their energy and money, I’m not sure I want anything to do with them. Its probably the part of the VC world I come from, but such a plan is never read. I have seen a couple of pages ripped out of the plan and used, but never the plan itself. If you cannot get an investor’s attention in two pages, it simply will not happen.
Geting the Launch Done
Tips 2 and 4 are also valuable. You cannot predict sales from ground zero, and you should focus on early sales development whenever possible, deferring significant up-front investment. I would round this out a bit perhaps.
While it is true that you cannot predict sales from ground zero, you must make every effort to secure early commitments to sales penetration. In doing this, research is king. No, I don’t mean secondary research of census and other statistical sources, but primary research of investigating competitive products, identifying distribution channels, and most importantly, meeting with and talking to key players. These key players are buyers and decision makers in the channel, potential end-users of the product, and where possible, sector and association players. From these contacts, early commitments can often be secured. Early commitments can permit you to place a probability on your marketing efforts and a range of sales outcomes. While it may not be precise, it has considerable value.
Businesses often fail because of cash flow crunches caused by expansion. It is very difficult to enhance working capital when you are already riding the tiger. Anticipation and contingency planning is the saddle for that tiger, and you had better be prepared for it. That requires planning, and planning requires some model of possible realities.
The nutshell
Shawn’s closer is terrific!
“Your plan should be able to tell you and your team in brief how to start operating your business almost immediately.”
That’s it in a nutshell. Planning must NOT be to shill for investor’s. If it does not support your decision making as an operator, it has failed.
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