I work in the surreal world of Silicon Valley where venture capitalists fund companies based on PowerPoint pitches and executive summaries. My friend Tim Berry rightfully pointed that business plans still serve an important role in “the rest of the world.” He’s right, and he should know because he’s the president of Palo Alto Software, the principal creator of Business Plan Pro, and the author of a blog called Planning, Startups, Stories. He was recently named the US Association of Small Business & Entrepreneurship (USASBE) Corporate Entrepreneur of the Year for 2007.
1. Question: Who even reads business plans anymore?
Answer: How about “Who should read a business plan”? It’s not about whether venture capitalists read plans, it’s about planning to make your business better. So here’s who should read a plan:
First, you the owner, manager, author of the plan–and you’d better be the owner of the plan too—not some consultant. The plan is by you and for you and if tracking it, reviewing it, managing and executing it aren’t important to you, then you don’t understood planning. Planning isn’t about the document; it’s about controlling your destiny, running your business better, setting goals and tracking progress, and keeping your eyes on the horizon while not tripping over potholes in front of you. If you’re not going to read it regularly, then don’t ask anybody else to
Second, team members, boards of directors, and collaborators. A business plan is a way to coordinate, communicate, and collaborate with accountability and tracking. It should get all the key people on the same page. Nobody can execute a plan they don’t know about.
Third, relevant outsiders. Banks, investors, boards of advisors, key consultants, and even occasionally—but only with caution—vendors or prospective new high-level employees.
2. Question: What’s the most important qualities of a plan?
Answer: First, a plan should set priorities with the understanding that you can’t do everything. After all the buzzwords and analysis, strategy is focus. What can you do better than anyone else? What’s your core competence?
Second, specifics. What’s going to happen, when, how much it’s going to cost, and who’s responsible for it.
Third, cash flow. Growth spurts in a company are good things, meaning more sales, and presumably more profits, but unplanned growth can suddenly sucks up liquidity and in the worst cases kill the company. Growth without prior planning can be as fun a hard kick in the stomach.
Here’s a story to illustrate the concept growth versus cash flow: Willamette River runs through Eugene where I live. More people drown in the slow deep portions of the river than in the rapids because people think they’re okay when it’s slow. Cash flow is like that, you think it’s okay when you’re growing and profitable. Profits are good, but cash and profits aren’t always timed together.
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