Most business plans are simply projections of the past. It is simply Excel madness. It is almost as if, by putting the data into Excel and projecting it forward for three years, it will happen. Of course it might. But that would be more hope than strategy. Forecasts need to be based on a set of realistic and defensible assumptions.
For others, the business plan is an expression of what they would like to happen. They know what outcomes they desire and work backwards until they establish the growth rate which will get them there. Alternatively, they use a set of assumptions which seem reasonable and build their business plan from there.
This is often expressed as the classic “percentage of the market” plan. “The market is huge and we only need 2% of the market to be a $100 million business.”
However, this is often not supported by any validation that the customers will buy the firm’s products or they will buy in the volumes asserted.
The growth business plan has a very specific purpose. It is to ensure that the business is capable of delivering on the specific goals and objectives the business has committed itself to.
The purpose of the business plan is to show that those objectives can be met. To reach the destination you have to know which path to take and how each step will be undertaken. Day to day control of the business is an essential characteristic of a well-run firm. This means knowing where you are going, what you need to get done and having the systems, policies and procedures in place to monitor and correct deficiencies. The reason why VC firms prefer to work with experienced executives, especially those with start-up and high growth revenue experience, is that these people have learned the importance of being well informed and taking remedial action early.
Operational systems include all the budgeting, financial and operational reporting systems, performance setting and monitoring processes and systems and reward systems to encourage the right behaviour. High growth businesses are very finely tuned because they consume cash in building capacity. They have little room for mistakes and therefore early warning systems and quick response systems are very important.
The general view is that, if you cannot put together a good business plan explaining every aspect of your business, you probably don’t understand it well enough to manage significant growth. The major benefit of the business plan process is to be able to communicate the complex nature of the business to everyone involved in achieving the targets. It has to explain every aspect of the business in sufficient detail that you clearly identify how each part of the business interacts and supports every other part. It needs to show how all the parts have to work together at a point in time and over a period of time.
The business plan really has three components:
The existing business provides the platform for growth and should be able to demonstrate the operational aspects of the business model. This should validate the product/market information, the financial aspects of the business and the capabilities and capacity of the existing business. It should also be able to identify where resources, capabilities and untapped skills can be utilised to support the growth plans. Plans need to show how the growth opportunities the business intends to pursue are translated into such things as new products, geographic expansion and acquisition opportunities.
The firm should develop a comprehensive roadmap showing how the plan will be achieved. This should include the identification of specific milestones, the tactics which will be employed to reach each milestone and the manner in which the firm will adapt its structure to move to the next milestone.
The business plan is simply about execution. You are at point A (now) and you need to get to point B (the agreed goals). Simply put, what are you going to do to get there? You need to show exactly how you are going to put the strategy in place over a three to five year timescale.
Say you are a $5 million revenue business. To get to your defined goals, let’s say you need to grow the business to $20 million, how are you going to do it? It is simply not an extrapolation of the numbers. Few high growth businesses develop in a linear manner. They typically extend their capabilities into adjacent areas of business. Since new business areas often consume current resources and impact existing business units, the growth strategy must contain operational plans for every part of the business, both the new and the old. The plan should contain considerable detail about the operational areas of the business. For example:
A detailed marketing plan:
A sales plan:
An R&D Plan:
And so on.
Senior management should be able to investigate any part of the plan to see exactly what each business unit and each manager will be doing to contribute to the overall plan. This is then all brought together as an organisational plan, including recruitment and training, office accommodation, manufacturing and warehousing space, infrastructure planning, a finance plan and a set of resulting financial statements and so on.
The CEO should be able to say, ‘Show me exactly how these revenue numbers are going to be made.’ This might require a breakdown into recurring revenue and new business. The recurring revenue might be supported by actual contracts with customers. The new business should be supported by a prospect generation and sales closure plan which targets specific customers or specific channels and so on.
The more the managers within the business can show they really understand how to make the numbers and have the people, systems and processes in place to do so, the more convincing the plan is.
At the same time, the growth plans may call for new management positions to be filled, new departments to be created and/or new business units to be acquired or developed. An executive recruitment plan, a succession plan and a staff development plan therefore needs to be included in the overall plan. Finding the right people, moving existing staff into new functions and back filling jobs is a
critical activity for businesses which experience high growth. A serious limitation to growth potential is the ability of the business to find and train quality staff.
Smart Company is the leading online publication in Australia for free news, information and resources catering to Australia’s entrepreneurs, small and medium business owners and business managers.
