Business plans…you either love them or hate them. They are a beautiful thing when they create a unified focus and alignment across your company. Properly done, they can empower your team to go out and do what they must do to produce results. But fast-growing companies can outgrow their business plans. Often, it is just a matter of time because business plans don’t last forever…
It’s highly likely you have outgrown your business plan when:
- You see and are acting on major opportunities that were not visible last December when the plan was created… and you can’t or won’t say no to them.
- The programs and projects that are now the prime focus of the company cannot not be found in the original plan.
- Management team can no longer live within their discretionary budgets… in fact they are spending money on things that were never envisioned or approved in the plan.
- Production or service delivery functions of your business can not keep up with the sales demand, even with extensive use of overtime.
- You have successfully hired all of the people in the hiring plan… and the requests for new hires keep on coming.
- Your original cash plan had you comfortably living within your credit line limit for most of the year… you have now been maxed out for the last three months and next month’s cash demands may not be met.
- It’s clear the right hand no longer knows what the left hand is doing at your company. It’s obvious to you that your team is not on the same page.
- A major competitor has either just entered your market place… or one just went bankrupt… and you must take significant action, now!
- The gain or loss of one or more significant clients has the impact of 8.0 on your Richter scale.
- You aren’t sleeping, you’ve gained ten pounds, you haven’t played golf in months, and your spouse and children don’t recognize you…and you are now wondering why you ever started or hired on at this business.
If more that a few of the above scenarios ring true for you, here are some simple and effective planning strategies that can help you ensure that your plan stays current longer:
- The Plans…keep them simple. Short, concise to the point. Cut all of the fluff and filler. Have each profit center, cost center, all major projects and programs have written plans. If it is important enough to invest in a manager or team, they need to a have a plan, it needs to be in writing, one page is probably enough… and everyone needs to be able to see everyone one else’s plans.
When plans are concise… they are easy to change! A good friend recently advised, “Be wary of excessive verbiage”. Insist that your management team write clear statements of what is to be accomplished, by when, for what purpose and be sure to have explicit, measurable goals.
- Budgets… critical tool for fast-growing companies. Haven’t mastered the process yet? Consider outside help. Management accountants, consulting controllers and CFO’s and some CPAs can train you and your team how to make the budget process your friend
- Timely, Accurate Monthly Financial Statements… without them, your company is like a Ferrari going down a dark country road at 120 miles per hour without headlights. There is a serious accident about to happen. If you can’t read your financial statements (and many executives can’t), get help!
- Monthly Business Review… recent surveys we have conducted indicate less than 20% of businesses with management teams of five or more managers have a regularly scheduled monthly business review. This may be the most important meeting in your company; this is where you walk through the financial statements and review all critical projects and programs. One tool that our clients use is The One Page Business Plan.
- Forecasting…this can be a quite simple, but highly effective process for eliminating surprises. Especially the “we are out of cash surprise”! Most successful companies take their budget spreadsheets and turn them into a simple forecasting process by dropping in the current month’s actual results and then selectively fine-tuning the future month’s sales, expense forecasts, new hires, capital expenditures, updates to projects and programs. Keep it simple…don’t create another bureaucratic nightmare!
Final thought: In the end, it is not the quality of the plans that counts…it’s execution and results that matter!
Like many technology startups that struggle with adolescence, Twitter has taken awhile to develop a solid business plan. But that hasn’t bothered investors, which have plowed an estimated $900 million into the firm since its inception in 2007. “We don’t necessarily have to start making a lot of money right now,” co-founder Biz Stone told CNBC in a 2010 interview, a year before a Russian company invested $800 million into the firm. Stone may be right. With 140 million users, a good number of people are obviously getting value from Twitter.
But it’s far less excusable for the average mid-market company to go without a codified business plan. Unlike Twitter, which sells something no one needed before they began using it, a mid-market company that manufactures pantyhose or sells legal advice absolutely needs a business plan. They’re operating in markets where the rules of competition are far better established.
Biz Stone, co-founder of Twitter (Photo credit: Wikipedia)
Mid-market companies especially need business plans if they someday want to become much larger companies. Forbes Global 2000 companies live and die by planning. Small firms don’t need planning as badly because their CEOs can often manage the most important details of the business in their heads.
But middle market firms ($10 million to $1 billion in revenue) are at a size where formal planning and accountability truly matter. A 2011 study by Ohio State University and GE Capital of nearly 1,500 mid-market companies found that those with the strongest financial performance were far more likely to have the core elements of a business plan than the rest of the companies. Some 66% of the growth leaders had formal growth targets (vs. 31% of the laggards); 58% of the leaders formally tracked their progress (vs. 33% of the others); and 53% communicated their goals and progress to employees (vs. 24% of the rest). All to say that skipping business planning is a bad idea.
Over the last 30 years, whole forests have been felled so that books on business planning could be printed. (Watch me present my favorite planning system.) Yet ironically very little has been written about switching on the planning process in companies that have long operated without one. It is a critical but delicate task. If you do it wrong, your managers will resist. They may even revolt. One successful online publisher that too aggressively implemented business planning watched 40% of the leadership team leave the company four months later.
At the very least, your managers are likely to miss their targets and engage in ugly plan review meetings. Their morale will sink, and they will pressure you to shelve the plan so things can get back to “normal.” Normal means little accountability, which in turn means lower performance. Too many CEOs justify backing off planning by saying, “Now just wasn’t the right time. We’ll try it next year.” While business planning is necessary to guide companies through treacherous markets, it is unnerving for managers who have never felt the performance pressure that a good business plan will induce.
Instituting a rigorous business plan is a complex rite of passage that CEOs must phase in deliberately but delicately, steadily ratcheting up of the pressure on their team to meet their targets. The lessons of several mid-market firms shine light on how to institute it without sending off fire alarms.
First, Steer Clear of the Common Pitfalls
Academics and consultants have created a cottage industry selling business planning processes. Many planning processes are designed to be instituted meticulously. When the CEO rigidly enforces the program, their team is likely to reject it. Helping an organization become excellent at planning is a process, not an edict.
Other CEOs worry about upsetting their team, so they create a plan with a clear direction but allow soft goals (e.g., “increase market share” or “improve customer satisfaction”). The problem is you can’t determine whether executive team members have delivered or not. While this is much less threatening to executives, it rips out a critical element of planning and will decrease its effectiveness.
Another common but flawed technique to soften the blow is to reduce the internal exposure of each executive by having the CEO hold private one-on-one review meetings with each of his direct reports. It’s less embarrassing if no one but the CEO knows an executive missed his targets. But hiding poor performers won’t get the results that a good planning process can deliver. When each team member knows how others are performing every month, a funny thing happens: They all get serious about their own performance.
Increasing Pressure Slowly But Surely is the Key
Business planning, when done right, creates clarity for a management team: the markets to pursue and not pursue, the products to offer, the processes for bringing those products to market, and metrics to monitor progress.
But by mapping all that out, business planning also brings pressure to perform. CEOs need to introduce this pressure delicately — low pressure for improvements in the first quarter, medium pressure in the next quarter, medium-high for the second half of the first planning year, and full planning pressure for year two and beyond.
GSC Logistics, a mid-market transportation provider on the west coast, started with just two plans—a sales plan and an operations plan. For the first three months after creating the plan, we reviewed results and talked about what we were learning. In the second quarter, we modified some measures to make them more useful. In the second half, we’re digging into challenges that the planning process has helped to identify. The pressure is building. Next year we’ll get more of the leadership team involved in planning.
My experience and 16 years of research by the performance research firm Elkiem have found that three elements of a business plan can slowly but steadily raise the pressure on managers to perform:
• Targets for both success and failure. You must start with clear goals that are measurable and date-based. Goals are the definition of success. They should be just achievable—not stretch, and not easy marks. Don’t start by defining failure, the point at which heads will roll. Threatening to jettison poor performers shouldn’t happen in year 1 unless you’re in need of, and ready for a shakeup.
• Rewards for success, discomfort for failure. At the start of the process, the CEO must act as a cheerleader, letting the team taste what it feels like to “win”—the emotional rewards for success. In the second or third quarter of planning, those not performing to plan should start to feel discomfort —things like team-wide brainstorming to help them overcome obstacles, more CEO attention, budget cuts or critical reviews. Some managers will try harder and improve their performance; others will resist the planning. Having a majority of your team adapting to the planning provides a counterbalance to those trying to avoid accountability.
• Exposure. As soon as you create your business plan, you need to schedule monthly review meetings. Your entire management team must be present, and each executive must present his results. Just knowing that they’ll be exposed to their peers creates significant pressure. For the first quarter, nary a critical word needs to be said by the CEO. But the CEO must enforce everyone’s participation.
An engineering firm I worked with was overly reliant on its CEO for direction. He brought in business planning to provide a clear set of targets for each executive, and to raise awareness of broader business issues. As adroit project managers, they adapted quickly to the process. The CEO set attainable goals and adjusted them as the team learned exactly what needed to be measured. Their COO became the main driver of the plan review process. The entire executive team now finds it essential.
Yes, I know that Twitter hasn’t needed a business plan. But unless your company is inventing new markets, you do need one. Just be very careful about how you introduce it.