A business plan is an essential tool for start-ups and established organisations alike. It helps you make sense of your offering, the market in which you operate and other essential factors such as costs, revenue and projected profit.
But most businesses have no formal plan, perhaps because most entrepreneurs see little value in creating a rigid strategy that becomes obsolete within a few weeks of its completion.
They have a point, but those who reject the idea of planning wholesale risk missing out on a golden opportunity to isolate needless spending, spot opportunities and expand into new markets.
Jonathan Dowden, Product Marketing Manager at Sage, argues for a new approach to business plans, one in which bulky, static documents are eschewed in favour of practical information that changes as fast as the markets they describe.
“For start-ups it can actually be quite dangerous to write a business plan,” he says. “Unless you have data then you can’t know what will happen. If you go down the route of traditional business planning methodology then the template becomes, not an objective document that helps your business, but something that falsely convinces you that the idea is going to work.
“It’s also intimidating to fill out a template articulately in words, with everything you know, especially if you are not used to writing long-form documents – and many business owners will not have done that since they left school or university.”
The alternative, according to Dowden, is something the business strategist Steve Blank calls ‘customer development’. Instead of writing down your prospects for fast growth, wide profit margins and evangelical followers, answer a few basic questions, including:
– Who are your customers, what do they like?
– How will you reach them – for example, online, face-to-face or a mixture?
– Why would anyone buy from you?
– What activities will generate revenue for the business?
– What resources do you need?
– Who will help you, for example a bank manager, accountant and suppliers?
– Will you make a profit once costs are deducted from sales?
“Get the basic ideas out of your head and onto a piece of paper. You can do that in a matter of hours with Post-It notes. Then test your hypothesis with real customers and learn whether your idea is viable in a repeatable way over a long period of time.
“None of that is answered by filling out a huge template. By starting simple, testing and building evidence you can start filling out the blank canvass of what is achievable and what is not,” says Dowden.
The beauty of this ‘sandbox’ approach to business building is that it’s just as relevant to FTSE 100 companies as it is to sole traders on their first day behind a computer. Tech behemoths Google,
Amazon and Facebook have dozens of live experiments, most of which are mothballed. But the cost of each failed idea is low, while the successes often attract millions of pounds in revenue.
Think of a business plan less as a document that predicts the future and more as a set of principles that will help you discover it, or a science experiment with a hypothesis, methodology, practical and, only once evidence is collected, conclusions.
The approach comes in particularly useful in times of great disruption, according to Dowden.
“Imagine you were running a small business when the pandemic hit. The first thing to do is put your business back up on the wall, look at what sales channels you have and consider which you can adapt to the new environment.
“A yoga studio is hugely exposed, but could you take it online and, if so, what investments do you need to retain customers? Maybe a professional Zoom account and better audio-visual equipment to take the business online. Every time you have an idea, you should go back through this process, mash concepts together and innovate.”
When it comes to the format of your plan, it’s important to pick something that suits your personal approach to business. Are you data-driven or creative? Would you rather an accountant built one for you, or would that represent a loss of control?
You might want to use a simple pen and paper, or word processing document, but software will help you take full advantage of the agile approach, because it’s easy to record data and adapt plans quickly as circumstances change. By running reports, you can also measure the accuracy of your predictions versus what is really happening.
It’s where Sage can really help, according to Dowden: “It’s easy to run reports that show how your business is performing. By storing data digitally, you can do interesting things with it, whether that’s business planning, generating tax returns or creating P&L reports to understand your cashflow better.
“If you can visualise sales and costs, it’s easier to focus on profit centres and manage overheads, all of which information goes back into planning for the future.”
The bottom line? Don’t think of a business plan as a huge, unchanging document. Start small, map out your business and establish goals. If something doesn’t work, change it and go in a new direction.
Get more support on business planning in the Sage Advice hub.
This article was sponsored by Sage, the global market leader for technology that helps small and medium businesses perform at their best