We continue with our series of “how-to” articles on starting your small business and this week we will look at how having a plan can help you start your business, and begin its growth life-cycle.
It never ceases to amaze me that there are studies after studies that are conducted in various countries and years apart that come up with the same result.
Invariably about 80% of startup businesses are no longer in existence within 4 or 5 years of startup. Many of these studies dig deeper – and find that the number one cause of why people think their business failed is because they did not have a Business Plan.
We know this. Yet the cycle repeats itself.
So, you heard it here – if you are starting your small business, prepare your Business Plan.
In fact, I would like you to consider preparing two types of plans.
We’ll discuss how they fit together in the planning process.
The first is technically called a “Strategic Plan” and the second is the one you are probably more familiar with, the Business Plan. I’ll talk about the difference between Strategic Plans and Business Plans below.
However, don’t feel that you would be doing more than you need to or know how to. In both of these plans, you do not need to write pages and pages of text, nor explore deeply into business models that you don’t understand. Both these plans are about writing common-sense descriptions of what you want to do, how you think you can do it, and then list the steps you will take.
As simple as that, they form a core skeleton around which you can hang the administration, operation and direction of your business. With these plans, you can be prepared to make decisions in the context of what you want to do and where you are going rather than on the fly.
Imagine going on a holiday without a plan.
What tickets do you buy? Who do you buy them for? What clothes will you pack? How many days of clothes should you pack? What currency will you take? How much of it? How big a suitcase will you need? Where will you stay?
You can organise your holiday without a plan and just make decisions on all those questions as they come up, but can you imagine?
You arrive at the airport and have to decide what tickets to buy and who to take with you. You’ll probably end up going somewhere you don’t like without one of your children! You will have packed for winter and arrived in the tropics, you will find that you didn’t take enough underwear but brought too many suits. You can’t buy more casual clothes because you brought the wrong currency.
Starting your business is exactly like that.
But it’s not a lot more than like that, so you don’t have to be nervous about writing a plan.
There are simple questions that you can decide upon and answer upfront, like what is it you want to achieve in your business? What skills and resources do you need in order to achieve this? What are some important steps you need to take, and in what order?
Let’s start with your Strategic Plan, which you can condense into one page.
A Strategic Plan is simply an overview of your business and what you want to do with it. A Strategic Plan provides you with a strategic direction. Using our holiday example, a Strategic Plan simply tells you that you want to go on holiday to relax, therefore you have chosen a tropical beach, that you need to spend about $5,000 on flights accommodation and spending money, and that once there for 5 days, you intend to explore the place on your first day and then spend the rest of the time relaxing on the beach.
It doesn’t have much detail but it tells you what your main goal is and roughly what you need to do.
So when you start your small business ask yourself these questions and write them down on a piece of paper. Writing it down is important because from time to time you will have to remind yourself of your “strategic direction” so that you can make decisions on detailed questions as they come up, decisions that align with what you wanted to achieve in the first place.
The questions are:-
- What is your vision of the business? When it is “successful” what will it do or sell, who to, and how does it do that? What will it mean to you, physically, spiritually and financially? Your answer to this question is often your main goal for your business, and if you can express it as a description of what your business will look like and be like when it is successful, you will have set up a useful set of measurements for the future.
- What are your business values? What values will you uphold in your business that will characterise the type of business you are? This is important because it sets up the borders within which you will operate. For example, you may say that you will always be ethical. If a future decision had to be made between extra profits and ethics, then well, your decision was made for you from the start.
- How will you get to your vision? What practical steps will you need to take, and roughly when will you/can you take them? Where the Vision established your direction, these steps are your roadmap. In our holiday example, the vision set up a tropical beach location, the roadmap provides steps like choosing the best beach you can afford, choosing the right hotel on that beach, finding the best airfare, then taking steps to book, changing currency, and so on. In your business, the practical steps may be to make a reputation for your business as an ethical supplier for the first few years, then hire more people to expand the business, find new products that they can handle, then look at expanding into other locations, and so on.
You can certainly write a much more involved Strategic Plan, but for the moment, this is all you need and you don’t have to be overwhelmed. Later in this series, I will discuss the preparation of a more detailed Strategic Plan in a mature business, but at startup, this is as much as you need.
You should be able to place your answers to these questions – formatted as descriptions of where you want to go and how you will get there in broad terms – on a single piece of paper. This Strategic Plan on a page will then become your focused description of how you want your business to grow and develop.
As you create more detailed steps in your roadmap by writing your Business Plan (below), you can use your Strategic Plan to guide you so that you are constantly heading in the right decision – stop you buying a holiday ticket to a busy city when what you want is a ticket to a beach resort.
A thousand questions can be answered as they pop up through the life of your business by just checking: “Which is the best decision if I want to get to my vision in the way I have described?”
You can use this approach to choose between business opportunities, or selecting employees. You can check with the approach to the vision whenever you have to decide between suppliers because they will have advantages and disadvantages for you according to your approach to your vision. You can use this approach to decide on how you will expand, or how you will introduce new products, in fact, anywhere there is a hard business decision, you can simply answer the question: which choice will get you to your vision in the way you want to.
Whereas a Strategic Plan is a long-term plan that is an overview of where you want to go and how you want to get there, you will need a shorter-term Business Plan to “direct traffic” and take care of details.
A Business Plan is usually planning your steps and actions over a 1 to 2 year period, where there is a little more certainty and predictability about what might happen.
At the same time, it follows the direction of the Strategic Plan, because of that predictability, it provides more details about your strategies in the next few months ahead.
To follow our holiday example, your Business Plan is what tells you what you will do on each day that you spend on holiday, and in doing so, prepares you to have the cash available for shopping on Day 2, and the time to put aside for visits to the Museum on Day 4, and about where to have dinner after the visit to the Museum.
Typically, a Business Plan looks at the strategies of the Strategic Plan and picks out the short term goals and steps and tackles them first, in logical order. Some of those short-term strategies become the business plan’s goals for the year ahead.
With the greater detail, you can also prepare a timed checklist of actions and steps you need to take to carry out your Strategic Plan, and importantly, you can budget for the expenses and costs as well as the forecast revenues of your actions. If you’re not confident about preparing your own budget, go and talk to your accountant – with the plan in your hand so that you already have talking points about what you’re going to do.
To prepare your startup Business Plan you can read on and follow the steps, and you can also get our free video training here.
It is more unlikely that you can prepare a Business Plan on a page – because it requires more detail and explanation about what to do. You do need to write it down so that it is recorded and not merely kept in your head, and easier to follow and measure achievement against the written plan.
The steps to take are:-
- Write down your vision from the Strategic Plan, so that you are constantly reminded of the big picture and your longer-term strategic direction. You need this so that when you do arrive at difficult detailed business decisions, you can remind yourself of the vision to ask “which option will get me to my vision faster, and in the way I want?”
- Review the Strategic Plan and pick out the short term strategies that you intend to complete in the next 12 – 24 months. Also, pick out some “first steps” of the longer-term strategies that have to be completed in the next 12 – 24 months before the rest of the long-term strategy can be implemented.
- Describe the end result of those strategies (or milestones) as your short-term or Business Plan goals for the next 12 – 24 months. So for example, if one of the short-term strategies is to expand your product line, then the goal might be “To have 7 more related products available for sale by the end of the year.”
- For each goal, outline the key steps to achieve the goal. For example, the goal “To have 7 more related products available for sale by the end of the year” may have the following key steps:
- Ask customers what they would find useful in relation to my main product – by the end of February
- Research suppliers of 7 of the most popular recommendations and negotiate prices and supply – by the end of April
- Obtain capital to buy the first batch of the 7 new product lines – by June this year
- Prepare a marketing plan to announce the introduction of the new products – by July
- Order the first batch and implement marketing and sales – by September
- Make sure that each step has a date to complete by, as well as who should be “in charge” of getting it done, and what resources (time, money, networks) they need to be given to do so.
- Prepare a budget for the goal – expenses to prepare, ongoing expenses to implement, and any expected revenue – to be used as the budgetary guidance within the 12 – 24 month timeframe of the Business Plan.
Later in this series, I will write about writing your Business Plan in a mature business, providing more detail commensurate with the greater detail you will need for a more mature business. However, at startup, an initial Business Plan to cover your start across the first year or two is all you need.
As you start your business, you will find yourself extremely busy.
It would be so easy to “just start” and let the momentum carry you along, but in what direction? To what end? How do you know if what you are doing on a day-to-day basis is right for the business in the long term?
It is far better to have a direction in place, and a plan on what you need to do to get there, along with a plan on those first steps. This is borne out by those statistics I spoke about earlier where 80% of start-up businesses are no longer in business within 5 years, and most of them because they did not have a plan.
With these plans, even if you are busy on a day-to-day basis, you can assure yourself that as you implement the steps in the plan, thus achieving stated goals, you are working for long-term success, and, you won’t forget to do important things until too late.
Next week, in our series about how to start a small business, I am going to talk about hiring your first employee – how to do it, what to look for, and what traps to be aware of.
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See you then!