Business Plans: Approach, Risks and Measures

Wednesday, March 17th, 2010

You’ll find this phrase appearing in almost every section of the business plan, so let’s dissect it to aid in the planning process.

Approach is the term I use to describe the direction or strategy you will take for a particular component of your business.  For example, my partners and I define the approach for the Technology component of our business plan as follows:

We will use the PC-Intel platform, with widely used business software to ensure broad compatibility with potential clients’ and business partners’ technology.  We will purchase and maintain our own systems, and outsource any technology functions that are beyond our current or easily acquired expertise.

This approach allows us to purchase or build our own PCs, purchase group licenses for MS Office and other software, and choose from a wide range of free-ware or share-ware for special purposes such as screen sharing, conferencing, and content management.  We outsourced the development and hosting of our proprietary expectation alignment software since we do not have or wish to acquire the expertise to do that work ourselves.  The result is that we keep our technology investment low, easily “on-board” new business partners, and transfer the risks of product development to the experts.

That leads us to the idea of Risk.  Risks, if allowed to materialize, result in loss of resources, failure of processes to remain on track, and/or failure to attain your goals.  Any approach you choose will be subject to some kind of risk.  For example, with our technology approach we know that the PC platform and software are the most common targets for virus, worm, Trojan horse and other kinds of security breaches.  A Mac platform would be less risky, but less commonplace in the business and consulting worlds, and more expensive in general.

The virus and security risks are risks we are willing to accept within limits, so we pay for certain internal controls like antivirus software, router-based firewalls, encryption, and backup that will further reduce our risk to a level we are willing to accept.  Define your risks, determine what level of risk you are willing to accept, and pay for the necessary internal controls to reduce your risk to that acceptable level.  If you can’t reduce the risk enough, then transfer it through insurance with a deductable amount you believe you can afford should the risk materialize.

The last term in our title phrase for this post is Measures, also known as key performance indicators or KPIs.  What we want to decide, right up front, is how we will measure success for this part of our plan; how do we know things are working right and we are meeting our goals, and how would we know it if they stopped working right and we were falling short of our goals.

There are two big challenges with measures.  The first is reducing the activity to something that is measurable.  Many activities, like successful vendor or customer relationship management can be very subjective.  How do you measure the quality of the relationship?  You may need to resort to carefully crafted surveys with numeric responses such as “Exceeds Expectations (4), Meets Expectations (3), Comes Close (2), or Falls Short (1).”  Think carefully about what to measure and how to measure it.

The second big challenge with measures is useful timing.  Measures fall into two groups, leading indicators and lagging indicators.  Leading indicators tell you in advance of reaching a critical situation or result; they tell you that something is about to happen.  Lagging indicators tell you that something has already happened. Lagging measures are generally OK for reporting financial results to owners and shareholders, but not too helpful when you just produced a whole run of molded plastic parts that do not meet the customer’s specifications.  Processes generally need leading indicators so people know if they’re drifting off track or outside of acceptable boundaries.  In other words, we need to stop molding plastic parts immediately if measures indicate they are drifting too close to the limits of tolerance.

The lesson is this: within each component of your business plan define your approach, identify risks and the levels of risk you are willing to accept, and define carefully the measures that will indicate you are following your business plan and achieving your goals.

Next up, the long range plan.

Business Plan Essentials

Monday, March 15th, 2010

Too many business owners look at the business plan solely as the budget or financial plan for their business.  In reality, a well done business plan covers a lot more territory than finances.  Remember, all you really have so far is a purpose and some rules for how you and your team are going to behave.  Now you need a strategy, a comprehensive guide to fulfilling your organization’s purpose.  You need to define your target market and customers, the resources including people, raw materials, plant and equipment, technology, and money necessary to create and deliver your product or service, some idea of how you’re going to apply those resources in each component of your operations, and what results are expected; i.e., what will success look like?

Here are what I consider to be the key pieces of your strategy or business plan:

  • Introduction
    • Restatement of Mission, Vision, and Conceptual  Foundation
  • Long Range Plan
    • Objectives, risks and measures related to mission and vision
    • Greater than one year
    • Updated every year
  • Annual Operating Plan
    • Current year goals, risks and measures related to long range objectives
    • One year or less
    • Updated every three months or more frequently
  • Marketing Plan
    • Approach, Risks and Measures
    • Target markets
    • Promotions and advertising
    • Public and community relations
  • Sales Plan
    • Approach, Risks and Measures
    • Customer Relationship Management
    • Lead generation
    • Sales process
  • Operations Plan
    • Approach, Risks and Measures
    • Vendor Relationship Management
    • Acquisition
    • Production
    • Distribution
    • Other Systems
  • People Plan
    • Approach, Risks and Measures
    • Organization structure
      • Practical governance
      • Risk management
    • Employee relationship management
    • Hiring
    • Compensation
      • Base
      • Incentives
      • Benefits
    • Training
    • Termination
  • Technology Plan
    • Approach, Risks and Measures
    • Environment management
    • Application management
  • Financial Plan
    • Approach, Risks and Measures
    • Capital Budget
    • Operating Budget
    • Cash Flows
    • Return on Investments
    • Owner relationship management

If your organization does a good job with the business plan, it will have a comprehensive roadmap that is focused on one destination, the purpose described in the vision and mission of your organization.  That roadmap will tell you what systems and processes are necessary and how the organization should be structured to be most effective.  It will also provide guidance for effectively managing your most valuable resource, your people.

In upcoming posts we’ll dissect the components of the business plan, showing you how to build and use it most effectively as a better business basic.

Building on Your Foundation

Thursday, March 11th, 2010

We’ve been talking in these early posts about Mission, Vision, Values, Principles, Competencies, Gifts, Talents, and Experience.  This conceptual foundation we’ve been building is the cornerstone of your business.  Think of it as the heart and soul of your organization.  Now it’s time to start on the superstructure, or in human terms, the brains, muscle, bones, and blood of your business.  In business terms we’re working on the strategy, systems, structure, and people that provide a framework or superstructure and give life to your organization.

There’s a reason for listing those components in that particular sequence and it relates to being a purpose driven organization.  Without a purpose, there’s no reason for the rest.  With a purpose, we can identify our potential customers or market, define a strategy for delivering on our purpose, create the systems or processes essential to delivery, build the structure necessary to keep everything organized, and acquire and train, as necessary, the human resources necessary to make it all work.

In my next series of posts we’ll be concentrating on the strategy, or business plan, for your organization.

In preparation, let’s talk about the “business plan”, starting with this advice, don’t let it scare you!  You may think of it as a whole bunch of numbers as in a budget, or a road map, or a loan application, or even a complete book on running your business.  Well it can be all of those things, and more, and that’s a good thing because, once you’ve put it all together you’ll be able to keep your processes and your people focused on delivering exactly what you’re promising your customers and owners.  You’ll be able to use all of your resources wisely and effectively, keep costs in check, and, if successful, be rewarded with the profits, both financial and otherwise, from serving your purpose and achieving your goals.

Your business plan is the opportunity to identify your long term objectives, the resources and processes you need, and the ways you’ll recognize success; think of them as your personal and team success objectives.  If your organization starts to lose its way, a quick check of the business plan should help get you back on track.

Also, your business plan is where you start to make your organization’s performance personal.  With a clear and comprehensive plan, people can see where they fit, and what their part will be.  They can begin to align themselves by defining their expectations of you and what they think you expect of them.  And you can do the same.  Every piece of your plan will require one or more actions on someone’s part to make it happen.  With your business plan as the source of all the tasks your organization will complete, and your conceptual foundation as the source of the behaviors you and your people will display, you’ll have the critical building blocks of success in place.

Next up, the essential components of your business plan!