In the preceding post about key causes for business plans to fail, we discussed the lack of a robust process to convert strategy into tactics, to convert the plans into the day-to-day work of the organization. This posting will take up another major failure mode. That is the failure to have a compelling customer perceived value proposition and the corollary failures to understand markets and customers more generally. Continue reading
Why Should You Develop a Business Plan?
For every startup the development of a business plan is a required first step. It is so obvious – business schools have course on writing the business plan and it is impossible to get funding without one. Teams coalesce around the labor. So, every startup has a business plan.
For the going concern, the ones that are now three or so more years old, the business plan (also called strategic plan -really the same thing) is forgotten, only stumbled on when a move forces someone to pick it up and wonder, “Should I just relegate this to the dumpster?”
This is not a good situation. A business without a plan is like a boat sitting in a pond just waiting to sink to the bottom for nature to compost it. Or, if it has the fate to be afloat in a stream, it will be carried along willy-nilly until it bumps into a stone or dead branch or reaches the ocean where nature will also send it to the big composter.
Every business exists in a world that is changing and filled with opportunities and threats. Your business plan is your set of oars to provide the means to pull in the direction you want to go in, to avoid the rocks. You might even row to shore and portage around the falls, to move to an entirely new river.
But, many people, even accepting the wisdom of having a plan, find it a painful exercise, all too easily avoided. This may be driven by the idea that a business plan involves dozens of pages of writing, lots of spreadsheets with numbers they really don’t believe (sometimes don’t understand). Business plans, strategic plans, these are just the exercises one does in business schools. Or it may be the folk wisdom that business plans are not a useful part of managing and they always end up on the shelf or hidden in a file cabinet only dusted off for display when in search of a bank loan.
However, shift your thinking to view the process of building a plan as a value in and of itself, and adopt a simpler more flexible business plan model you will find that building that set of oars for your little boat is fun and productive. Continue reading
Outsourcing is sometimes seen as a panacea, especially for startups. However, a sound knowledge of business practices is required to make outsourcing really work.
Outsourcing functions is a key element of every business’s strategy. Richard Mammone, Rutgers University BEST Institute, has written a brief article, “Humility and the Successful Startup: Every skill required to form a business should be judged on make-or-buy grounds. If you don’t have it, outsource it”((1)) .
Mammone’s argument is captured in capsule form here: “Every skill set required to form a startup should be subjected to a make-or-buy decision process. In other words, if you don’t have it, outsource it. Let me just stop here for a moment and mention that outsourcing is the strategic entrepreneur’s solution to most problems.”
Outsourcing is a great strategy. In fact, outsourcing is a fundamental component of every business strategy. Outsourcing decisions reflect the fundamental values of the organization.
However, people may think that outsourcing gets you off the hook and solves all of the problems involved in the outsourced functions. The truth is that whether as a one armed paper hanger or a global giant like Boeing, outsourcing must be managed. You can not manage functions that you do not understand. So, the executive level of any organization (back to the single entrepreneur to global giant span) must understand all of the basic functions of a business (strategy, sales, marketing, product/service development, personnel, operations, finance, information systems, and legal (these are the most important ones)) in order to decide which must be internal and which can be outsourced. Then, you have to have enough knowledge of the outsourced functions to decide on the desired results required, choose vendors, and manage for the results. This may seem to be daunting for the low end of the size scale, but most of this stuff isn’t rocket science at the basic concepts level and one can always draw on people in your network and consultants (like me obviously) to help out.
Outsourcing is tricky business as demonstrated by Boeing’s Dreamliner problems((2))
I picked up this little book, Warren Buffett and the Interpretation of Financial Statements – the search for the company with durable competitive advantage (Scribner: New York, 2008), thinking that I might learn something valuable about the current economic mess and as a possible guide to shaping personal investment decisions. However, from the small investor perspective of building long-term wealth the strategy is summed up in the tag line: “durable competitive advantage”.((1))
But, to return to the Buffett book, I am struck by another use of this book. That is as guide to the basics of how to read and interpret the important elements of a company’s financial statements. The book covers The Income Statement, The Balance Sheet, and The Cash Flow Statement. If you feel uncomfortable or completely ignorant of these three financial documents, this book might just do the trick.
While you are learning about Warren Buffett’s approach to durable competitive advantage, you will be lead through a tour of these three statements. This is a very literal line by line march. For instance, thirteen chapters, averaging three pages each, cover all of the common elements of the income statement. With the example statement always in sight it is easy to follow the calculations to see what Gross Margin or Earning per Share mean. If you find Depreciation a mystery, this is covered too. In this era of excessive leverage, the book carries along a discussion of the impact of debt on the performance of a company.
So, pick up this book at your local library or buy it. You will understand more about the how and why of Warren Buffett’s strategies and learn to understand financial statements. Then, get out your own statements and march through with this book as a guide.
- My attention for that purpose has shifted to another more compelling analysis – John Bogle’s The Little Book of Common Sense Investing (John Wiley & Sons, Hoboken NJ, 2007) [↩]
Peter Drucker wrote a charming little book in 1967, The Effective Executive: The Definitive Guide to Getting Things Done. I have now read it numerous times and each revisit rewards me.
Just this morning I was speaking with a manager about efforts to refocus a business on new services and the difficulty of dragging along the old, tried-and-true services that still have a customer base and generate revenues. Drucker had quite a bit to say about this problem of the past. In the chapter titled, First Things First, he wrote, “Systematic sloughing off of the old is the one and only way to force the new.” And, “Yesterday’s successes ….. always linger on long beyond the productive life.”
Drucker wrote in the same chapter, “It is more productive to convert an opportunity into results than to solve the problem — which only restores the equilibrium of yesterday.” This seems like quite a provocation to most managers. After all, managers and management are all about problem solving. Or so we seem all to think. But, from Drucker’s perspective, problems are always about the past. This is very clear from his notion that solving problems only reestablishes the status of the past, some sort of guarantee that we can reproduce the results of the past. Whereas, opportunities are about the future. The future is where customers in the real world are, not in the past. Drucker sees the world as continually evolving and requiring new solutions to new problems, always defined by customers.
So, then, back to where I started. One of the hardest things for any manager to do is to look away from the products and services of the past. These may very well still be producing revenues and profits, though analysis and planning are telling them that future customers and revenues must come from elsewhere.