5
Nov

How to Build a Lean and Efficient Business Plan

How to Build a Lean and Efficient Business Plan

Tim Berry

Tim Berry Guest Writer

How to Build a Lean and Efficient Business Plan

Image credit: Shutterstock
The concept of the lean startup, developed by entrepreneur Eric Ries, looks at how product development cycles can be shortened and businesses can run more efficiently by continuously measuring progress and feedback. This philosophy is particularly relevant when it comes to thinking about your business plan.

In business, it is the continuous planning process that matters. Your business plan, like your business, is a living, evolving, flexible thing. It requires rapid changes and fact-based decision making. I like the body metaphor implied by the term. Lean doesn’t just mean thin; it also means healthy, muscular and efficient. Here five ways to help make your business plan leaner:

1. Make strategy the heart of your plan.
Strategy is focus — focus on specific target markets using specific products or services. Your strategy is based on some strength or characteristic that links you to your preferred buyers and the solutions you offer them. It defines how you want to set your business apart from the crowd. Strategy isn’t text — it’s concepts. You can summarize strategy in bullet points, using charts or even with a series of images.

To test your strategy statement, read it and ask yourself whether it describes your unique business or could be applied to many others. Is it specific enough to be implemented? Does it define a market, product and branding focus? While everything in a business plan is subject to change, the strategy changes more slowly than the rest of the plan in response to changing conditions.

2. Summarize more, elaborate less.
Your business plan is held up by eight key core concepts: market, product or services, production, marketing, sales, distribution, management and finance. A fat business plan describes each of these key areas in elaborate detail. Lean business planning means using more bullets and less text. It refers to trends and ongoing assumptions as economically as possible, explaining them in detail only where the detail isn’t already understood.

3. Track progress and manage course corrections constantly.
Track your progress with lists and tables full of numbers that you can use to course correct. This is lean to the extent that it’s specific, concrete and measurable. The most important part of this is a list of milestones. These are scheduled achievements and activities, each of which ought to have dates, budgets, performance measurements, expectations for spending and sales and specific assignments for task responsibilities.

Aside from these milestones, good planning also needs regularly updated projections of sales, costs, expenses and cash. The projections should be just detailed enough to offer good plan-verses-actual analysis for better management. For example, monthly projections are probably essential for at least the next six months, and usually 12 months is better; but monthly projections beyond a year are most often a waste of time. The goal isn’t guessing right (which never happens) but rather laying out the probable results and connecting the dots (like expenses to sales) so you can track progress and make useful changes.

4. Dress up your plan with descriptions.
Descriptions you use to dress up your plan depending on the audience might include market details, technical or scientific background, company history, bios of the management team, generic market research, proof of concept and competitive analysis. Like clothes, you make these descriptions appropriate to the occasion. For example, you might need to prove a market to assure investor or to prove financial stability to assure bankers.

5. Be consistent about updates.
Planning for a startup is a lot like diet and exercise. Business planning is a process, not an event. Like diet and exercise, the key to staying lean is regular repetition over a long time to generate real positive benefits. You don’t do it once, or even once in a while. You review and revise your plan regularly.

5
Nov

Do You Need to Write a Formal Business Plan?

Do You Need to Write a Formal Business Plan?

Doug and Polly White

Doug and Polly White Contributor

Every entrepreneur needs a plan for his or her business. However, they may or may not need a formal business plan.

First, let’s start with the basics. Every business must answer these three questions:

1. Why should a prospective customer buy your product or service rather than a competitor’s?

2. Is there a segment of the market that values what differentiates you and is it large enough to support your business?

3. How will you reach this segment with your message?

Once you resolve these very basic issues, whether you need a formal business plan is a function of cash flow. If your business will have significant negative cash flow before it starts to throw off cash, or if you need your business to throw off cash from day one (say to pay the bills), a formal business plan may be in order.

Let’s consider examples at each end of the spectrum. You have an idea for a fantastic new product. You want to launch a business to bring the product to market. However, you’ll need to make a significant investment in product development. Then, you’ll need to purchase equipment, rent space and hire people to manufacturer it. There will be a lot of cash outflow before there is any income. You’re looking for investors to help make your dream a reality. You are going to need a formal business plan.

At the other end of the spectrum, suppose you want to launch a business that has no fixed cost. No upfront investment is required. You’ll be cash flow positive from day one. Further, let’s assume that you are not counting on income from this new venture to pay your monthly bills. An example might be a residential cleaning business. You’ll use the customer’s equipment and supplies.

You have already had two prospective customers approach you about cleaning their homes. You know that a large number of working people in your area use housekeepers, so there is a good market. Your prices are competitive and you consistently do a better job than the franchise cleaners do. Therefore, you expect that your business will grow through word of mouth.

You certainly have a plan for your business. You’ve answered the three questions every business must answer. However, we would not encourage you to hire a consultant to help you develop a formal business plan with revenue, expense and cash-flow projections. Instead, test and learn. Fail fast and fail cheap. Learn from your mistake and move on.

Most businesses fall between these two extremes. The key to whether you will want to invest the time and effort to develop a formal business plan is your cash-flow situation.

If you are looking for outside funding or you are going to dig a deep hole before you become cash-flow positive, invest the time to develop a formal business plan. If you will be cash flow positive from day one, answer the three questions above and get on with your business.