Business Planning

Another one straight out of the Harvard Business Review, this time from well before I was born!

The authors of this article assert that there are five stages of growth in a business, and that they are non-linear in nature. Not all companies will go through all stages, and the stages don't progress in the same order for every company. Here they are:

1. Existence - getting customers, meeting their needs. These two things mean that a company exists.
2. Survival - Switching focus from existence to the relationship between revenues and expenses. Here is where you worry not only about whether you can make money or not, but whether you make more than you spend!
3. Success - This isn't the end of the road, by any means. By the time you're here, you've created a viable business that brings in sufficient profit. You have two things that you can do:
1. Use the success of the company to finance the owner's lifestyle/other activities, or
2. Use the success of the company to finance further growth.
4. Take-off - After making the decision for more growth, your primary concerns are managing the growth and financing the growth.
5. Resource Maturity - The authors say that this is the point at which you have "arrived" in your business. Less than one percent make it here, but that is by choice for most. Here, you must take hold of the business after its high growth stage, and implement systems to help control the company.

1. Company Specific
1. Financial Resources (cash and borrowing power)
2. Personnel Resources (how many people, how awesome are they, what level are they)
3. Systems Resources (Business Process Automation, planning/control systems, info systems)
4. Business Resources (customer relations, manufacturing/distribution processes, reputation, etc)
2. Owner Specific
1. Owner's personal goals and business goals
2. Owner's operation abilities
3. Owner's managerial abilities, and willingness to delegate
4. Owner's strategic abilities

The interesting thing about these "key factors" is that they are ALL important, but that in each stage some are more important than others. According to the authors, here is what you should focus on in each stage:

1. Existence
1. Business resources - what little you do have needs to be quality.
2. Owner's operation abilities - your ability to do what the business does.
3. Cash - For without it, nothing survives.
4. Matching personal and business goals - if your business goals and your personal goals are dissonant, get out now.
2. Survival - at this stage, doing what your business does, and keeping an eye on revenue & expenses is your focus.
1. Owner's operation abilities
2. Cash
3. Success - There are two sub-stages here, disengagement and growth.
1. Disengagement
1. A little less on your ability to do, but that's still the #1 focus.
2. Of the eight factors, all are rising in importance but cash, ability to do, and business resources.
2. Growth
1. Matching business and personal goals. This is a risky and stressful time, make sure you really want it!
2. Operational abilities
3. All of the rest are important here, but not the PRIMARY focus.
4. Take-Off - It's ALL important in this stage, but here's the order of focus according to the authors.
1. Cash - if you can't finance growth, you'll fold
2. Strategic planning - You must have the road map to get there.
3. Systems and controls - Since you can't do everything personally in a high growth stage, you must have systems in place to bring you the results you're looking for.
4. Business/Personal goals
5. People - Do you have the right kind of people, in the right positions? How's your culture here?
6. Delegation - if you can't delegate, you carry the weight of the world on your shoulders. Your people are there for you, to do what you tell them to. Give them things to do, and let them!
7. Your ability to do - Since you're delegating and focusing on growth (strategery), you shouldn't be in the day-to-day of doing what your business does. It's less important, but since you're a teacher in this stage (delegate!), it's still important.
8. Business resources - these are becoming increasingly a natural byproduct of business operations. Manage your relationships, but don't give it all your attention.
5. Resource Maturity - in this stage, the systems are in place. Most things are important, but managed - not a CRUCIAL focus. The only crucial focus is:
1. Strategic planning. Many companies forget that the market moves with or without the company, you might as well move with it.

• Every business goes through these stages differently. Some stages may even be skipped or not touched.
• Use this as a guide to what you should be thinking about in the future. If you're in the Survival mode now, but you intend on getting into the Growth stage, make sure you account for the crucial factors of the growth stage.
• When considering advice from other business people, consider how their businesses evolved. The evolution of Wal-Mart was not the same as the evolution of Facebook, so Sam Walton's and Mark Zuckerberg's advice about the same business issue may vary quite a bit.

Straight out of the Harvard Review from Nov-Dec. of 1996, these questions are still relevant today. Of all of the businesses that start, a staggering number fail. Every time I hear the number of successful businesses, it lessens and lessens. I recall hearing most recently that one hundredth of one hundredth sounds about right. As a young entrepreneur, these three questions can help your chances of success by:

1. Looking into your definition of success (Where do I want to go?)
2. Mapping the road to success (How do I get there?), and
3. Addressing obstacles (Can I do it?)

Where do I want to go?

As an entrepreneur, you needs to consider what you want personally from the business(es) you start. Are you looking to get filthy rich? Have an outlet for creative talent? Spend more time with the kids, or on vacation? None of these are bad things, but each one lays a separate foundation for the company you will create. 

Once you pinpoint what you want from your business, you should give serious thought to what it really takes to get there. If you're looking for filthy rich, you'd better be capable of the long term risks, late night hours, and delegation of your company. If you want to spend more time with the kids, or go on more vacations, realize that the way to do that is not by spending all day every day slaving over that next deliverable. You need to create a company that will facilitate those goals! I mention this under the "Where do I want to go" heading because you may need to reconsider your goals after considering the type of business you need to create.

How will I get there?

Be clear in planning how to get where you want to be. Account for geographic reach, policies, rates of growth, decision making, and financing the business. As Albert Einstein said, "You do not really understand something unless you can explain it to your grandmother." If you can't articulate your thoughts on how to get there, you should take a second (or third) look.

Make sure that your plan, whatever it may be, can generate sufficient growth and profit. If money is to business what ATP is to humans (think oxygen), then you'll need enough of it to keep going. Also, ensure that your plan accounts for the fact that "stuff happens." Over the next ten years, there will be significant technological change, political change, and economic change. You can't be prepared for everything, but having thought through what you can definitely helps.

Can I do it?

When I read this question, I instictively said "Yes!" After further consideration, this question is much more difficult to answer. Even if your strategy is flawless, it's worth nearly nothing if you can't execute. Can you get the resources you need to succeed? Can you help develop your employees to their fullest?

When asking this question, consider that you will need to establish the infrastructure to facilitate your company's operations. If you want to grow quickly and sell, you'll need to develop systems of delegation, financial management, and much more. If you are looking for freedom to spend time with your family, you'll need to ensure that your business can handle not having your undivided attention all the time.

Lastly, know that as your business grows, your role will likely need to change. You may start on the front lines, doing the day-to-day. As time goes on, you'll find that your role develops to a management role, where you spend your time training and teaching. 

Summary

These three questions are admittedly extremely difficult, but they must be asked. Make sure to revisit these questions as time progresses - goals aren't static all throughout your life. Likewise, each of these questions build off the other two, so your answers may vary widely the next time you think about them.

I have an acquaintance with an excellent business idea, enough funding to be getting on with, and excited companies ready to buy his product, and yet is making $0 in sales. I have another acquaintance who hesitated submitting numbers that had too much speculation involved in them. Yet one more person I know doesn't like getting involved with anything until he knows everything about it. What do these three people have in common? I think the answer is that they are waiting for an event that can never happen.

Many young entrepreneurs get pretty wrapped up in their product or service. They insist that it must be just right before it is capable of making money. The truth is that it's better to have a mediocre something making a difference in people's lives than it is to have an excellent something making a difference in nobody's. For instance, I've developed a piece of software for websites that makes keeping your website up to date as easy as sending an email. I made it just for myself, and had no intention of selling it. I had a few people that found the same problems with their websites as I had with mine - they were time consuming to update. Having this program that I made, I was able to help them along with their sites. The software is nothing spectacular, it simply gets the job done. If I didn't release the software because I wanted it to be perfect, I don't think I would have ever completed it. It is more valuable being available to people in its simple form than it is not being available at all because it's not yet perfect.

If I can impress upon you any single piece of advice for your company or idea, it's this: DO IT. Don't wait for some idea of perfection. Make it good enough to have value, and get it out there. If you're capable of making it fantastic in the same time period, then do that too. Then, let your customers tell you what there is to improve, and improve!

One common notion that young entrepreneurs have is that they need a partner in order for them to really have a business. I had partners in my first four endeavors, and I'm pretty sure that unless I can't get by without one, I won't have a partner in my next venture. My experience with partners is that you have to be 100% open about expectations, or there is too much room for "misunderstanding."

Partnership #1 - The Equity Lesson

In my first partnership, I was the sole financial contributor. We both did quite a bit of work when it was time, but I felt like my work was equal to my partner's, while I had a financial contribution as well. Since we were both 50% owners, we felt that we had to talk about every single decision. Because of that, many decisions weren't made that needed to be. When it came time to make another investment, my partner was not in a position to do so. He is not really a risk-taking guy, so he wasn't prepared to toss a paycheck into the business not knowing what would become of it. I wasn't too thrilled about the idea of "dumping" more money into the business and still being just a 50% partner, either. I valued the friendship much more than the business, so slowly we let the company die.

Partnership #2 - Open Communication

In my second partnership (different partner this time), both of us invested equally. We both had the knowledge of the industry, and knew which decisions to make and when. Having learned from my first partnership, if one of us wasn't around to make a joint decision, the other would do their best to make the right decision. This type of trust is important, but uncommon. We both worked gruelling hours through the summer developing a foundation for the company, made a fair amount of money, and hired a contractor to help us out when we needed it. We were both college students at the time, and once the school year got busy, I let my grades suffer (no second thoughts there, I'd do it the same way again). My partner let the business suffer. He felt bad that he was not able to dedicate himself to the company, and he didn't really want to communicate that he wanted out. He decided that the best way to handle the situation was to avoid it. After cornering him a couple times, we talked about the company, its future, and each of our parts in it. We both decided that the best thing to do was to let it go, and pursue other paths.

Partnership #3 - Partners' Skill, Honesty

This partnership was started in order to participate in a business plan competition. We were a group of seven with an excellent idea, two well-respected scientists, an existing line of product (owned by one of the scientists), and a big geographic divide. We all took part in the creation of the plan, and had a good time raising over $35,000 for a feasibility study. Unfortunately, there were a few patterns that I was uncomfortable with.

Our financial guru turned out to not be such a guru. She had a hard time projecting numbers, and each time we came across a breakthrough, she wanted to take a step back and review the process. Entrepreneurs like myself find it hard to not just do something when the opportunity presents itself. The team had a discussion which went rather badly, and two of us (myself included) expressed that we were not proceeding if she insisted on remaining. She resigned, in a very bad mood.

Another pattern I found was in one of our partner's life experiences. He, being a typical college student, was still into partying hard - all play, and little work. He did not feel comfortable enough in himself to make a solid impression on those he worked with, and we weren't hoping to ride along with his self-development. We requested that he consider not being involved, and he left. He was in a much more pleasant mood than our financial "guru."

That's not to say that I was perfect the entire time - I had my downfalls. This partnership ended on a sad note after our two scientists' tests on the feasibility of the products didn't come back as expected. By this time, I was pretty used to terminating partnerships, and considered this to be a great learning experience!

My take-away from this is if you have a hard time working with one partner, DON'T TRY SEVEN.

Partnership #4 - The Good One

This partnership is still hanging in there. I partnered with the same person as in Partnership #1, only with expectations set up front. We also brought in a third partner, a promising entrepreneur who has vision and the desire to succeed. He's not scared of hard work. We aren't making progress as quickly as we had hoped, so the first partner gracefully backed out of the partnership. If we start making headway, we'll probably ask him to join us once more, since he is a very valuable part of the business concept. The other partner and I both maintain full time jobs, and focus much of our time on them. We are geographically separated, but will travel to meet when we need to. I have to say that he pulls more than his fair share of the weight, which is excellent, and he's pretty good at communication. I recognized his good work ethic and positive attitude, and took a chance on asking him to work with me on the project. I would gladly add him as a partner on any business that he can add value to.

The Take-Away

After four partnerships, I think I've got a grasp on the do's and don't's when it comes to picking a partner for me. What I look for is

• Good communication
• Ability to take financial risk
• Set expectations properly
• Hard working

Unfortunately, my biggest problem in choosing partners is that I tend to not think about each person from a neutral point of view. I lean towards looking at the best in people, which has gotten me in trouble a few times. If you absolutely have to have a partner, make sure you choose wisely. Think about the qualities that you value the most, and think about what benefit your partner will add to the business. If there's any doubt or hesitation, talk about it with the potential partner. If you can't do that openly, it's just not going to work. And if you decide to partner with a friend, do a little role-playing. Practice yelling at each other, and act like you mean it. You'll find yourself in a similar situation eventually, and you need to know that after the fights are over, the business will still be there.

When coming up with the concept, I want to pick a unique idea. I want there to be an aspect of reality in the plan that will help me face the same challenges that you would face in doing your own plan. At the same time, I'm not intending to follow through with this and create a business off of it. That means that I won't be hunting down a solid management team, I won't have a real-life board of advisors, etc. I will try my best to fill in the gaps with realistic information when needed. Now, down to work!

The Concept

My business will be a manufacturing and Internet business.

Industries: education and food.

My products will include (at this point):

1. Math Crackers - crackers shaped like small puzzle pieces. Printed on one piece is a number, printed on another piece is the other half of the equation. Only the ones that are mathematically correct will fit together. Examples --
   1. piece one: "3"
   2. piece two: "+ 4 = 7"
2. Shape Cookies - cookies with basic shapes such as triangle, square, circle, oval, and rectangle. Printed on both sides is the shape of the cookie.
3. Word Roll-ups - Similar to a fruit roll-up, this snack will have a word on it, as well as its definition.

Potential Customers: Pre-school through third grade teachers, new parents with kids in the pre-school through third grade age range. (I consulted with my wife on this, since she really likes child development, and knew at what ages kids should know these things.)

Basic Marketing & Sales Strategy: Market by word of mouth, superb customer care, publications, and distributors. Maybe try to get on The Big Idea? Sales include demonstrating at relevant stores, selling to consumers there. Show the stores the demo numbers, and try and get them to buy based off of consistent sales requests during the demos.

Companies I Consider Competiton: Current snack-makers. Educational toys, though they don't have to be considered competition.

Competitive Advantages

New Products/Services: I haven't seen anything like this before.

Added Value: Every kid has an after-school or during-school snack. This company's product line adds value because it's educational and tasty!

This is my basic concept, and it will guide the way for me to move forward on my business plan. It took me just over 40 minutes to complete, and I had to ask my wife for some input because I don't have much experience in the child development business, in education, or as she will tell you, in food. If you're following along with your own plan, how does your "Concept" portion of the plan look compared to mine?

Many young entrepreneurs will come up with a superb business idea, a basic strategy, and several specific tactics. They will start their business, take on the challenge, and may even see a reward or two. One thing that I found out in my entrepreneurial endeavors is that the best ways to ensure your business goes according to plan is to document the plan.

Several entrepreneurs feel that they have the entire business plan in their mind, and will know where they're at and where they're going at each moment. That may be true for some, but for most of us the business plan is one of the most useful tools we can have. This article is the beginning of a series I will write showing you the process I go through when developing a business plan. Full Disclaimer: I did not come up with all of these bits of information by myself. I tend to follow what Rhonda Abrams outlines in her book The Successful Business Plan when I create a plan.

The First Step

Every time I have created a plan, my first thought is an overwhelming "Where do I start?!" A good friend and mentor of mine coached me in the process, and gave me a real solid piece of advice. Start by putting what you already have on paper. You'll be able to see where the gaps are, and fill them in as you research. Looking back on the process, that was an excellent first step. When you start your business research and planning, begin by putting what you already know down on paper.

How to Research

The business planning process is the best opportunity for you to reasearch your company, and other successful ones in your industry. You will be able to learn about finances, seasonality, economic influences, competitors, and a whole slew of other things. When you do your research, think outside the box and come up with unique ways to approach your data-gathering problems. You might call businesses in a different geographical region and ask for input. You should be visiting your local library during this process, and asking friends and colleagues for information if appropriate. Leave no stone unturned when you're hunting for information! The more you know before you get your business started, the better off you're likely to be.

What Should it Contain?

Your plan will be comprehensive, so it will contain several different sections. Here they are listed in the order that I will be doing them for this series:

1. Concept
2. Company Description
3. Industry Information
4. Market
5. Competition
6. Positioning and Risk Assessment
7. Marketing and Sales
8. Operations
9. Technology
10. Management
11. Social Responsibility
12. Development and Milestones
13. Exit
14. Financials
15. Executive Summary
16. Appendix

While the plan will contain a lot of research and require plenty of work, the good news is that it does have a start and finish. As I write articles for each of the sections above, I will link this page to them so that you can follow along.

It is well past the point that companies get to decide on whether they will get a website or not. If you are thinking about starting a business, make sure to include the website in your planning process. If you have already started a business, your website should either be in development, or already be done.

Not having a website can severely impact your ability to reach customers. Google's VP for Online Sales and Operations says that "Small businesses are increasingly going online to better connect with both existing and prospective customers," and that "over 92 percent of adults regularly or occasionally research products online before buying them in a store." Having a website will not by itself guarantee customers, but not having one will mean that 92% of people will find several of your website-owning competitors before finding you offline (if they ever find you).

Since you know how important having a website is for a young entrepreneur's business, now it's time to think about which kind of website will you need. Will yours be informational, entertaining, or an online store? A hybrid, maybe? There are several types of websites, and each one is useful for different things. Determine what works best for your company at its current stage. At the minimum, have an informational site where future partners and investors can get to know about your business!

Buying a domain name and putting up a "This site under construction." page with your logo on it is not enough. That's simply a more expensive way of not having a website. Take the initiative to get your business on the Internet as soon as possible, and reap the benefits of being seen by those 92% - not to mention potential investors and partners.

In early 2007, I had the honor of participating in the Big 12 Business Plan Competition - a competition comprised of teams from different schools in the Big 12. My team placed third, and due to a fair bit of luck, all three winning teams were invited to the Moot Corp Business Plan Competition in Austin, TX. Each competition gave out cash prizes to top winners. I found out that another young entrepreneur there was financing his business by participating in (and winning) these types of competitions.

He had done the research to have a solid plan, and had a network that included a Senior Vice President at Microsoft (where he had interned). His idea was really unique, and was a benefit to everybody involved. His company was focused on a piece of software that was going to blow his industry away (and I'm sure it will). Since good programmers aren't really cheap, and he was going to follow through with his business anyway, he found that taking part in business plan competitions was a good way to pay the bills. He financed a full time business by doing this, up to the point that he was invested in by one of the founders of Microsoft (after a meeting with Bill, of course).

If you want to finance your startup by winning different business plan competitions, follow his example by having a superb plan, the resources to get the job done, and the guts to do it even if you lose the competition. You may have to front the bill for taking a plane to a $100,000 competition, but hey - why not? It's doable!