A business plan that’s just a plan is destined to remain in a desk drawer, say small business experts. Effective strategic planning isn’t a product; it’s an ongoing process, with benchmarking, accountability, and real-world forecasting factored in.
That’s how Walker Peek says his company, Residential Acoustics, has been able to grow by nearly 50 percent month over month since he and two friends started it a year ago. The Tampa-based company makes soundproofing curtains for people who live in noisy areas or who want to muffle sounds inside the home.
As CEO and vice president of product development, Peek says he lives by the adage: “You can’t manage what you don’t measure.” He tracks progress on company goals with 40 different key metrics, from website visitors to profit margins. Based on what the numbers tell him, Peek says he recalibrates the company’s plan regularly.
“One thing our plan did was make us accountable for our goals,” he says. Thanks to an aggressive approach, Peek says, the company just bought its first commercial-grade sewing machine, is moving into a factory space, and will hire employees to replace the independent contractor who had been sewing and shipping each curtain.
Business coach Virginia Ginsburg of Swell Strategies says that’s the kind of finance-first thinking she urges entrepreneurs to adopt. Many simply think their great ideas will sell themselves.
“I’ve seen a lot of people not take the extra step of putting some numbers behind their beautiful idea,” Ginsburg says. “It leaves them ill prepared for what I call the business side of business.”
The most important part of a strategic plan, Ginsburg says, is crafting a strong financial model. It should detail all revenue streams and expenses so the business owner can see whether the company will be scalable and sustainable. And the model should be somewhat flexible so that you can reforecast as needed based on real-world results.
“It’s much more like test and revise, test and revise,” she says. “You should have guidelines and benchmarks more than a strict structure of what’s actually going to happen.”
Ginsburg guides her clients through a series of questions that flesh out their strategies for marketing, sales, costs, and revenues. The exercise helps address critical issues such as when you might expect to pay yourself from the business, or even whether your model is financially viable. “You should be as open-eyed as possible to the financial side of the business,” she adds.
A living document
Some entrepreneurs view the business plan merely as a tool to attract a lender or an investor, says Jim Stewart, founder and president of ProfitPath, a business consulting firm in Toronto. “They say, ‘Thank goodness that’s out of the way, let me go back to making money.’” Stewart says there are three reasons a business plan winds up collecting dust rather than driving growth:
- People tend to believe that a formal document is outdated as soon as it’s printed.
- The overall plan is missing detailed action steps, which means there’s no way to check progress toward a goal and no incentive to meet regularly for follow-up.
- There’s no discipline to step back from the day-to-day tactical issues and review the company’s big picture, then update the plan with what has happened since it was developed.
Stewart advises companies to develop action steps within the overall plan to clarify who will do which tasks, with deadlines. A “champion” is assigned to each action plan so that everyone knows who is responsible for it.
Stewart says many folks believe that traditional business plans are too rigid for the ever-changing nature of today’s economy and technology. A strategic plan should flex with your business, he says, not hold it steady. “We can go back and give ourselves the power to make a change, if required,” he says.
Peek says he has reforecast many times in his first year—not changing his overall strategy, but rather fine-tuning it. For instance, early market research showed that Residential Acoustics customers ranked quick order turnaround as less important than custom fabric choices and effective soundproofing. So they focused on those priorities.
But in reality, quick turnaround was important. Peek says customers were calling within a few days of placing an order to see if it was finished yet because they were sleepless and desperate for relief. The owners realized they needed a new way of doing things and shifted their business model. Peek says investing in their own small factory not only speeds up the time it takes to fulfill orders, but it also drops their labor cost from $40 to $10 per curtain.
Stewart advises business owners to think about everything it will take to move the company forward in one, three, or five years. Then prioritize, link each item to an action plan and a budget, and allocate the resources to get it done. “If you can do those things, your plan will come alive, and you improve your odds of success dramatically,” Stewart says.
Strategic planning expert Steve Krupp promotes an “outside-in” method to planning. Krupp, the CEO of Decision Strategies International, says the traditional SWOT approach—analyzing the company’s Strengths, Weaknesses, Opportunities, and Threats—is no longer adequate. Instead, business owners have to become experts in the outside factors and uncertainties that can catch a company off guard: health care reform, emerging technologies, or new regulations, to name a few.
“Often small companies don’t fully anticipate all of the potential scenarios,” Krupp says. “You have to plan not just for one future but for multiple futures.”
What could disrupt your business tomorrow—and how can a solid strategic plan help you prepare for it?
Krupp recommends making time to scan widely for changing market conditions. Talk to your customers, your vendors, your distributors, and especially your competitors. Ask: How are their needs changing? What could blindside our business? What could cause our business to take off and grow much faster? Answer those questions, Krupp says, and your options will open up.
Stewart says it’s easy for business owners to forget the things they said they would do. Enlist a mentor or a board to help keep you accountable to your goals, he says. They can remind you to step back and make time for analysis when you’re entrenched in operations. Then you’ll be better equipped to follow a plan that’s strategic, instead of filed and forgotten.