Why Business Plans Are BS For Business Owners

Once upon a time…

Sam was worried about his electrical supply business, and rightly so.

The initial burst of growth over the first three years of the business had halted in the fourth year and in the fifth his sales and profitability were now going backwards.

Fast.

Sam urgently needed more bank funding to keep the business afloat until he could drum up some more sales.

So he first met with Pam, his CPA, to complete a loan application and she started the meeting by reviewing the business’s financials.

“Not pretty” she observed.

“Agreed” said Sam.

“But I can’t figure out why we’re in free fall. Sure the GFC had an impact but we actually grew in the early stages of that buy now we’re going backwards. And I really need this loan so the business can survive the drought we’re going through at the moment.”

An uneasy pause filled the room.

“Do you have a business plan Sam?” Pam asked, even though she knew the answer.

Another uneasy pause.

“Er… not as such” replied Sam.

“Well that may explain why your business is in decline. The importance of a good business plan is one of the fundamentals taught at every MBA college and if you hire any business consultant worth their salt it’s one of the first things they’ll want to put in place. Besides” she continued, “the bank’s going to want to see a business plan including your financial projections before they’ll even think about giving you a loan”.

Sam could see the logic of Pam’s argument but protested: “Okay but I’ve got no idea how to do a business plan, let alone financial forecasts. Frankly, that sort of stuff gives me a headache.”

“Well naturally I can help you with the numbers side of the plan. And as for the rest of it that’s no problem either” said Pam as she reached for the stack of business cards in her top drawer and handed one to Sam.

“This guy’s a friend of mine but that’s not the reason I’m referring you to him. He’s not only got an MBA he’s also a qualified business coach and he knows how to put together a plan that’ll impress the socks off the loans officer at your bank.”

Sam took the card, called the coach and they all lived happily ever after…

… not.

Quite the opposite in fact.

Sam met with Rudy, the business coach, who explained that yes, he could help but that he’d need $2,500 up front each month.

Sam didn’t have that sort of cash to spare so he paid with one of his credit cards and made a mental note to apply for another credit card, just in case he needed it to fund Rudy’s fee in the upcoming months.

After all, according to Pam and Rudy, getting that business plan sorted was not only the key to better business performance, it was also critical to getting the business growing again.

After a stressful couple of months, the business plan was completed, the loan applied for and thanks to the impressive chart in the plan which showed an upward trend in sales and profitability, the loan was granted, albeit with onerous monthly repayment conditions and the requirement for the inevitable noose-tightening personal guarantee.

On the one hand the loan brought Sam some breathing space but on the other he was more stressed than ever.

Sure, he’d paid off most of his outstanding creditors but how the heck was he going to service the loan repayments?

“Not a problem” said Rudy. “All we need to do is implement the plan. We’ve done the hard yards. You’ve now got a mission statement so you know what your purpose is. And you vision statement gives you a clear sense of long term direction. Also, you’ve now got that great looking wall plague that tells your team what your business values are.”

“Well, ah… yes” said Sam, shifting a little uneasily in his seat “but how is that going to get me the new clients and the sales I need?”

“Whoa, steady on Sam” said Rudy. “Sure we need to get some marketing happening but first we need to make sure your staff Position Descriptions and your supplier agreement are updated. After all, there’s no point in getting new clients in if you’re not well organized in the back room”.

Sam thought a moment.

“Well okay. You’re the expert Rudy and you come highly recommended from Pam so I guess we better get started with the paperwork huh?”

Rudy and Sam worked together for another four months putting Human Resources and supplier systems into place, holding team meetings, recording agreed actions, reviewing the financials (which continued to deteriorate) and creating quality control checklists and documenting other systems.

But after a total of six months of headaches and extra hours, Sam finally had enough.

And at their next meeting he let Rudy have it.

“Rudy I’ve now spent fifteen grand with you and after six months of blood, sweat and the occasional tear, I still don’t have any more clients and not even one additional sale to show for it. It’s like my ship is still sinking and all we’re doing is straightening the proverbial bloody deck chairs!” he protested.

Rudy was ready for this.

Sam wasn’t the first client to express such a concern.

“Hey Sam, relax. You’ve come a long way and now we’re ready to start the marketing. Don’t give up yet, we’re just about there. We’re going to redesign your Yellow Pages advertisement, get you onto Facebook and start your Blog. After all, most marketing is going on-line now and so of course we need to get your website made over as well. Also we need to do a review of your product range, complete a customer satisfaction survey and we should probably hire a research firm to find out what the market place really wants. All that’ll give us a whole lot of valuable information that we can use in our marketing.”

At that point Sam exploded. “Are you freakin’ crazy Rudy? That’s going to cost me a small fortune and it’s gonna take even more months. I’m struggling as it is and if I don’t get new clients in soon I’m going to have to shed some staff or shut the doors.

Rudy, it’s time you left. We’re through.”

Rudy didn’t mind too much. He’d seen this before. And after all, he’d still banked fifteen big ones.

Sure, it was a shame that Sam didn’t ‘get it’. “But I mean, what does he know?” Rudy thought. “I’m the one with the MBA and I’m the one who earned my business coaching diploma with first class distinctions.”

—————-

Unfortunately this sorry story, or variations on its basic theme of wasting money on BS theories that don’t put money into the business account, has been repeated hundreds of thousands of times the world over.

It’s the classic anti-entrepreneurial mistake of putting management ahead of marketing.

Not that management is unimportant, it’s just that there is nothing to management until the marketing is working.

And so that leads us to the moral of Sam’s story which is that it’s effective marketing that makes the difference, not a business plan and not any fluffy stuff such as Visions, Missions or Values statements.

And no matter how exciting they may look, no amount of upwardly trending growth charts or row upon row of increasing dollar amounts will make one fig of difference in your business.

And even if your product or service is terrific and your clients love you, that’s also not the thing that will make or break your business. The history of commerce is littered with millions of businesses that had a product or service that was good enough or even great but that went broke because they didn’t invest enough focus into developing and refining systems that would bring in a steady flow of new clients.

To paraphrase the pragmatic and ever-inspirational Ed Johnson:

“They say that if you build a better mousetrap then the world will beat a path to your door. The hell they will. It’s the marketing that makes the freakin’ difference.”

Summary: once you’ve got a product or service that people like, stop messing with it and forget about management initially. Instead, Make the time to continually grow your “Marketing Muscle” and then flex it every day of the week.

Once you know how to get people buying your stuff, then, and only then, should you start messing with the management side of your business.

How can you build your marketing muscle? Simple… If you want to grow a physical muscle you need to do two things: feed the muscle the right diet and then exercise it.

And it’s the same with growing your Marketing Muscle: feed your mind the right diet of proven marketing ideas and then exercise the muscle by implementing those ideas.

Then, and only then, you may live happily ever after…

Write Your Own Business Plan? Or Get it Professionally Written?

There are definitely some cases where writing a business plan yourself is preferable and others where an expert third party may add value to the process.

Writing your business plan yourself

For micro businesses raising small amounts of investment (say under £50,000) this is likely to be the best approach. Apart from anything else it doesn’t make sense spending 10% or 15% of the funds you are trying to raise on getting someone to help you write a plan! Most high street banks offer on-line applications or software templates to help you. Just beware that you may have to repeat the application process several times in different format if you don’t have a stand-alone business plan.

For larger businesses too there may be value in writing your own plan. If you write your own plan then you will know every detail of it which will help you when questioned by a bank or potential investor. Everyone wants to avoid those embarrassing moments played over and over on Dragon’s Den where the entrepreneur looks vacant when asked for details of their gross margin or net profits in the first year of trading!

Writing your own plan might also show your all round commercial ability to appreciate all aspects of the business and with that there is a good chance that you will understand how to drive it towards success. Software & templates abound on the internet to support this approach and there are plenty of “Do’s and Don’ts” published free to guide this process.

The draw backs of this approach are that many people do not have all the financial, sales, marketing, operational skills and experience necessary to construct a good business plan. They may also lack the ability (or time) to integrate them into a solid business case. Some people may not have the writing skills to bring the plan together. Finally, some people may find themselves “too close” to the business to clearly and simply convey the business opportunity. Weakness in any of these areas may reduce your chances of securing funds.

Business Plan Writing Services

The alternative is to get some help from an experienced hand. Historically accountants and sometimes solicitors as well as independent copywriting services have offered these services.

However, there are now an increasing number of companies specializing in providing business plan writing services. These companies bring specific independent expertise to the table. As well as writing skills they can have a broad base of commercial experience including financial forecasting and by nature of their independence can provide an objective perspective on your business.

As well as offering writing itself (both financial forecasting and the written plan) they may also offer help with research and feasibility and introductions to potential sources of funds.

When selecting business plan writing services there are a few good guidelines worth following:

1) Commercial Experience – The ability to write well is not enough to make your plan investable – this is not simply a copy writing exercise. If you are going to secure funds you need to construct a business case that integrates all commercial aspects of your business. So, be sure that the people writing your plan have several years of senior commercial experience – the broader the better. This commercial experience should include budgeting or forecasting – your financials are a critical part of your plan.

2) Track Record – Many business plans are confidential so do not expect to see many examples. However, companies should be able to provide written and attributable testimonials from clients.

3) Pricing – Services range from around £2,000 for small start-ups upwards to £15,000 for larger corporate plans. As with most things, you get what you pay for and the price generally reflects the complexity of the business model. Make sure you ask for a specific proposal that outlines exactly what you are going to get for your money, the timescale and price. Consider “virtual services” rather than “face-to-face” consultants to reduce your costs but not the quality of work.

4) Ownership – one potential disadvantages of having a plan written for you are that you will not “own” the business plan and be totally familiar with it. So, ensure that you are fully involved in the process and that there is time scheduled for you to review and discuss the financial forecast and written plan with whoever is writing the plan for you.

5) Funding – Have plans that they have created secured funding? Whilst funding depends on a wide variety of factors and not just the quality of the business plan (state of the market, availability of capital, product, service, proposition, management team etc.) any specialist service should be able to quote a few examples where their plans have helped to secure funds.

For most people who do not possess experience of writing business plans you may improve your chances of securing funding by engaging a specialist writing service to help you create a plan. However, make sure you are fully involved in the process – you need to own the plan at the end of the day and know it inside out and backwards – your future is in your hands not theirs!

Why a Business Plan?

The recession has hit two groups disproportionately: the over-50s and the under 20s. The over 50s are increasingly turning to self-employment as employers are often blind to their talents and experience and find jobs increasingly hard to find and eBusiness, trading on the internet, is ideal for those with skills to sell.

But our generation is the last generation for whom the computer and the internet were an ‘optional extra’ for our formative years.

So does my eBusiness, with its low start up costs, its access to a world-wide market, really need a business plan? Wouldn’t it simply waste time and effort better used to launch a business?

Well, if you’re simply going to sell off the junk in your loft and garage on eBay then a business plan would be a waste, but if you’re thinking about earning a sensible living this way then you’d better give your business plan some serious thought. And that’s the point: the process of thinking out the business plan is probably as valuable as the plan itself.

In working on the business plan of a youth organisation providing youth clubs to a deprived group of children it seemed enough to make shelter, organised games and access to the internet but what was the real purpose of the organisation. Well their results are confidential but one could suppose that providing 1. positive role models to young lives, 2. a sense of stability in a chaotic world, and 3. a view beyond their immediate cultural surroundings, might figure in any list of objectives.

We came to see that the pool tables, the computer terminals, the leadership were the ‘inputs’ to the system, the ‘outputs’ the organisation was trying to achieve were quite different, and our recruitment policy moved away from seeking active, fun-loving young people towards more mature motherly types likely to stick around for the long term.

The Business Planning process helps the entrepreneur to focus, to ask the right questions.

  1. What is my business? What does it do? Who does it do it for? To what end?
  2. Who are my competitors? How strong are they? Have they left a gap in the market I can fill?
  3. How will I sell my goods or my services? How will my customers come to me?
  4. When my business takes off, how will I exploit it? What will that cost?
  5. How I deliver my goods or my services, where will I buy in my products, store them? How will I organise my business, keep my books?
  6. How much money will I need? Where will I get it?

On this last point, if you’re using your own money, think of yourself as your own banker and ask when will I make a profit, and what is the cost of failure?

So, even if you never write down your answers the process of thinking them through will make your start up better organised and targeted.

Better to ‘waste’ a few days in some basic research than to waste a few months on following the wrong trail. It may be your own money, but you can only spend it once, and when it is gone…