Performance Measurement is Vital to a Meaningful Business Plan

Hours and hours of time are invested in constructing business plans for start-ups all over the globe. Innumerable amounts of similar blogs and articles are written about the value of these business plans. And, yes there is value
in them. Especially if they include well-defined performance milestones across business functions.

A Common Planning Mistake

A huge error made by many entrepreneurs is seeing their business plan as a one-time use only document. This is simply not true and here is one reason why: The plan should include financial forecasts and a business life-cycle timeline of some sort. Investors and lenders want to see this in order to determine their own Return on Investment. This is one area where the business plan becomes much more than a one-time use only document. While you may see those numbers only being important to obtaining that needed capital from investors, the opposite is true. Quality forecasts and timelines can be your own internal performance measurement baseline.
This is how performance measurement works. First, a baseline must be created and then actual performance is measured against your “planned” performance. That creates the ability to have meaningful analysis and really flesh out why your start-up is on track, over-performing, or under-performing. A good baseline makes it easy to find focus areas later down the road. The more detail included in your own internal and original plan, the better.

Keys to a Good Baseline

First and foremost a good baseline requires specific milestones both financially and chronologically. These will be different for each business depending on your industry and business model. Milestones may include breaking even, staffing upgrades, product development, market expansion, conversion rates, capital investments, and many more. Most importantly, no matter your industry, is to create specific, measurable, and meaningful milestones. They should be driving factors in business development and success. Be careful not to get bogged down by performance indicators that have no meaning or are not driving your business. Such things may be variables in other, more important milestones.

Performance Milestones Help Us Make Informed Decisions

Strong performance milestones with a plan built around them will aid you in knowing how to allocate resources and budget to individual areas within your company. When things go good or bad this will help you make more informed decisions about how to reallocate resources and budget because of the framework in place that tells you what is important and where over-performance and under-performance are taking place.

The Extra Work is Worth It

Anyone who has created a business plan before understands that creating quality forecasts and timelines is difficult and time consuming. Often a rough forecast seems sufficient. And honestly, in the short-run, will probably get you what you are looking for. But in the long-run the extra effort is extremely worth it as your company matures and begins to grow. Time and money will be saved because a framework is already in place for recognizing progress and problem areas. Starting from scratch months or years down the road can be even more costly than doing it at inception.
As you begin your business plan, see it as a long-term investment and take the time to establish meaningful and measurable performance milestones. The milestones you create and the performance measurements taken from them are going to bring true value to your business plan and bring true ROI for the time and money spent on constructing your plan.

5 Reasons Why You Should Write a Business Plan

Many people choose not to write a business plan before starting their business. Some believe that a business plan isn’t necessary for new business owners unless they are seeking outside funding while others think it is too time consuming. Each has their reason but truly they are missing out on a valuable resource going forward.
Truthfully, the value of the business plan is as high as the creator chooses for it to be. It can either offer a huge upside or it can just be a means to an end. The choice is up to you. Here are five benefits a good business
plan can offer.

Easy to follow and measurable objectives.

It is commonly accepted that goals lead to success. Use your business plan to clearly define key business measures and then objectively choose quantifiable measures. These will help you prioritize your work and gauge success in the future.

You’ll be able to track your progress better.

This is a continuation of the number one. After creating objective business measures, use them to your advantage. This is where the business plan really gains value. The more these goals are revisited, measured, reworked, and adapted the more your business will grow. Track your progress from the beginning through your business plan.

More accurate forecasts.

Admittedly, most forecasts are wrong. We know that, you know that, everyone knows that, but that doesn’t mean that they should be useless. There is a reason that nearly all corporations spend valuable time and money on creating forecasts yearly, monthly, and weekly in order to promote efficiency. They know it will help them in key business processes. By taking the time to create the most accurate forecasts possible you are only helping your business be more efficient in the future. Don’t bog yourself by overshooting your costs or by committing other financial mistakes simply because you didn’t want to spend the time on a better forecast.

Increased ability to adapt strategy as your business grows.

We already talked about tracking progress and setting measurable objectives and the importance of them. The truth is you’re business landscape could completely change from what you had originally envisioned. This is often attributed at being one of the greatest weaknesses of the business plan but, in fact, should be one of its greatest strengths. A good, workable business plan will help you recognize this change sooner, allowing you to make strategic adjustments as your business grows. Remember, a business plan isn’t necessarily set in stone.

Better understanding of internal business processes and external factors.

The business plan is a learning tool. Done correctly it will walk you through your business model and all the intricacies of doing business. At the end of the day, you should understand your business, your market, and yourself better than anyone out there. Your business plan will help you achieve this. You will come to understand your strengths and weaknesses, your competitor’s strength and weaknesses, and you will understand who benefits from your success. These are all powerful things to know when deciding how to market, innovate, and grow your business.

A business plan will help you and your business going forward. As stated before, the choice is yours as to how much value or upside it will provide you as you seek to take your great idea and turn it into something special.

How to Simplify Your Technical Business Plan

When Less Can Become More

A common mistake made by entrepreneurs creating a business plan is to make their plan too technical. What do we mean by too technical? Simply by including too much jargon and details about the specifics of the product or service being created.
Now this may seem a little contradictory since essentially what you are pitching is your product/service and that is what makes you different from competitors in some sense. But as in all things, there is a time and a place for all things. These technical details and jargon can be shown later on in the process. Too correct this commonly made mistake entrepreneurs need to recognize their audience, acknowledge the purpose of their business plan, and change their focus.

Audience and Purpose

The business plan, especially for startups in manufacturing or other industrial startups where technical details are prevalent, is written to obtain capital and support. The readers are business professionals, investors, lenders, etc. who are focused on profitability and potential. These people do not want to see necessarily see how your technology works but instead want to see how it;

  • Solves a consumer pain
  • Exceeds competing products or processes
  • Is defendable in terms of patents, market entry, etc.
  • Can be produced in a timely and cost-effective manner
    As you write your business plan, skip the technical details of how it works and focus on answering these questions. Record those technical details in other documents to show investors as the process is carried out.

    Change of Focus

    It is a general rule of thumb that a good business plan is anywhere from 20-30 pages long. That is not necessarily a ton of space to include all the competitive advantages and product descriptions of your business. Writing a business plan becomes an analysis of determining truly vital information and non-vital information. The more technical information included essentially means there will be less room for other strategies and plans that investors really want to see within the business plan. This includes

  • A Target Market Analysis
  • Marketing and Sales Strategies
  • Budget Planning
    Investors want to know who is going to buy your product, how you plan on selling it to them, who is already buying this product, and even how you plan on delivering the product to the target market. For investors, answering these questions is just as important as explaining how the product works. Even if the product works and blows all the competition out of the water in terms of usability, if you can’t get anyone to buy it, then they won’t fund it.

    The Lean and Mean Plan

    Know your audience. Know why you’re writing the plan and focus on that. At the end of the day a few blanket statements can cover a solid business plan strategy. Focus on your competitive advantages that your audience wants to see by writing objectively, clearly, and concisely. This will produce a shorter document where truly less is more.

    Is My Business Plan Permanent?

    The Business Plan versus the Business Model Canvas

    The recent push for the Business Model Canvas has sparked a debate questioning the need for the business plan for today’s new start-ups. The argument lies in how a start-up is structured versus a large company and in the flexibility of the business plan versus the business model canvas.

  • A start-up is defined as an organization in search of a repeatable & scalable business model.
  • A large company is defined as an organization which executes a repeatable & scalable business model.
    Taking these definitions into account and studying them lead to the business model canvas and the lean business model canvas which are centered on noting core organizational functions which build a minimum viable product. Once this minimum viable product is built a repeated process is followed of putting a product into the market, receiving feedback, rebuilding, and then repeating the process until a scalable and repeatable business model is found. This approach is heralded for its flexibility and promotion of innovation in the uncertain world of a start-up.
    Ultimately, the business model canvas is an effective tool for entrepreneurs searching for a successful business model and a way to monetize their ideas.
    So, where does that leave the business plan?
    The business plan is a document that has become standard for anyone searching to start a new business. It is most often is used as a document presented to lenders and investors as a way to gain needed funding. As well, the business plan is a thorough analysis of business processes including the business model, target market, cost structure, staffing decisions, future strategy, and of course deliverables such as products/services. No doubt a business plan can be a tedious process but indeed helps one to understand his or her potential business.
    Like a business model canvas, the business plan is a tool to help entrepreneurs get their business up and running.

    Is the Business Model Canvas a Replacement of the Business Plan?

    As stated, both are tools with similar purposes. Many see the business model canvas as a superior tool because of its flexibility in the search of a business model which ultimately is the goal of a start-up. But is the business plan permanent? No, and it should not be considered as such. The business plan is a workable document that should be revisited, corrected, and changed as deemed necessary throughout the life of the business.
    Anyone who has created a business plan and has thrown it out as soon as the business catches steam or begins to fail is not using it correctly. The business plan should be treated as flexible, workable, learning-tool just like the business model canvas. Those who have used it successfully have been the ones who reworked their plan and adapted as their business matured and grew over time.
    Both are valuable to entrepreneurs. The business model canvas will help find a business model around which to build a company. A business plan will help in the understanding of how to build a company around that business model. The business model is ultimately part of the business plan and cannot replace it.
    Successful entrepreneurs will let the market drive their products and will plan accordingly as their company grows and matures.

    Is There a One-Size-Fits-All Business Plan?

    Build the Right Business Plan for You

    Anyone who has ever bought a new baseball cap understands that finding the right fit can be a process. There are a ton of different sizes to choose from with incremental differences in each size, not to mention wondering if the hat will shrink or your head will grow. An easy solution to the situation is to buy a one-size-fits-all hat or even a possibly
    less stylish snap-back hat.
    Many entrepreneurs may feel the same way the first time they begin trying to write a business plan. The internet is flooded with business plan pointers and templates. Most have recurring themes that match but quite a few differ in their opinion of business plan structure or even necessity. So, are business plans necessary? And if so, does a one-size-fits-all business plan exist?

    Are Business Plans Necessary?

    To answer this question in short, absolutely, but maybe not for the reasons that are obvious. A business plan is often written because “it’s what successful businesses do” and “you need it to get funding.” While these statements are not false they are not the ultimate reasons why the business plan is absolutely essential. Your business plan should be a personal learning tool to learn about your business, your industry, and how you fit in the landscape. Going through the process of creating a business plan teaches you valuable information regarding your start-up which can lead to greater success down the road.

    What Should My Business Plan Contain?

    While there are templates, coaches, and software (such as eBusinessPlan) to help you answer this question, the answer is ultimately up to you. Your business plan should paint a picture of your business and draw readers into your idea, convincing them that you will be a successful venture. This goal is achieved by providing relevant details, numbers, statistics, and analysis. Common sections of a business to cover these items are;

    • The Executive Summary
    • Financial Statements
    • Market Analysis
    • Management & Company Structure
    • Product & Services
    • Marketing Plan
    Within these sections you must decide what sets your business apart from others.

    Create a Personality through Your Business Plan

    At the end of the day, people don’t buy into new businesses because of a document, but instead because of the people behind the document. Your business plan should be professional, but also portray the kind of person you are and why you will be successful. Be conscience of the voice you use in your business plan and be sure it appeals to your intended audience.
    Because the business plan is a document that reflects you, it should not be identical to any other business plan out there. There is no such thing as a one-size-fits-all business plan. Templates and software are very beneficial tools to building a business plan but their contents should be determined by you, the entrepreneur. Templates and software are flexible tools to help you get started but they will not be the deciding factor in your business plan’s success. You are. And as said before, people are buying you, show them who you are through your business plan.

    How to Get the Most Out of Your Business Plan

    Make Your Plan an Effective Tool

    Opinions vary about how to approach your business plan and how it should be structured. While each has its merit, there isn’t a fits-all business plan template. The best way to constructing a business plan is to understand what potential lenders/investors are looking for and what you need out of your business plan.
    Ultimately, the business plan is a tool. All tools make our lives a little bit easier but can become worthless if we do not understand how to use them properly. A business plan constructed and used properly can be an invaluable tool to all entrepreneurs.

    Focusing on the Process Gets You More Out of Your Business Plan

    The key to making your business plan an effective tool is to focus on the process. This means understanding why you are writing each section of the plan and what they mean to your business. The business plan is not just for the readers, it is for you. Focusing on the process of writing will not only lead to business plan improvements but actual business operations improvements. Now your business is becoming an effective learning tool and investment tool.

    A Learning Tool

    Business plans should clear and concise, but also thorough. By building a thorough business plan you can learn an awful lot about your business, target market, pricing strategies, and the competition. As you construct your parts of your plan like Market Analysis, Financial Statements, etc. you will begin to understand why each is critical to your business and you may find ways to improve. Business is a game of constant improvements and this is no different in the initial start-up phases.

    An Investment Tool

    Here is where most people see the true value of their business plan. Will it help you get the financial support you need? But this document isn’t the only thing that determines whether that funding is gained or not. Investors and lenders are not just buying your business, they are buying you. By focusing of the process of writing your business and not just the dollar signs at the end of the tunnel you will get to know the ins and outs of your business. Knowledge becomes confidence and confidence goes a long ways towards gaining financial support. You, your plan, and your forecasts will be scrutinized. Learn your business backwards and forwards to show investors you know what you are talking about and you are confident in it.
    The business plan can be so much more than a document used once at the start-up phase of business operations. It is a tool used for improvement. When used as such you will find it fulfills its purpose in more than one way.

    Integrate Business Models Across Industries

    The Search for Successful Business Models

    Starting your own business is a difficult process for anyone; whether they have had formal business training or not. The hardest part is often analyzing whether your new idea will be profitable or if a market for it even exists. Sometimes it is trying to decide if there is space in an existing market which can be exploited. Such questions can be answered through economic analysis but a certain amount of innovation and creativity is always required.
    Often the creative solution to finding prominence in market is by creating a new business model to the industry. Does that new business model have to be completely original? Absolutely not. Many companies have found success by simply integrating an existing model from another industry into their own. To illustrate this point let’s take a look at the DVD rental industry.

    How Movie Rentals Have Changed

    Up until about 5-10 years ago the movie rental industry was filled with names like Blockbuster, Hollywood Video, and Movie Gallery but today you would be amazed to find a single one of those stores anywhere. Instead this industry is now dominated by Redbox kiosks, Netflix, and other instant movie-streaming systems. What happened and how was the game changed?
    First, let’s take a look at Netflix and what they did. Netflix originally entered the movie-rental industry without the streaming service we now know today. It was first done by customers paying a monthly flat fee then receiving DVDs delivered directly to their homes. Netflix did not take long to catch on and took a significant chunk of the industry fairly quickly. What Netflix did was apply a business model predominately used by online merchants such as Amazon to the movie rental industry (Dyer and Bryce, HBR May 2007, “Strategies to Crack Well-Guarded Markets”). They accomplished this by offering cheaper prices, flexibility, and building a chain of distribution centers much like Amazon did when it revolutionized the ecommerce industry. Ultimately, Netflix succeeded by using a new model within an existing industry. The model wasn’t completely new, but is was new to that given industry and created a competitive advantage.
    With the addition of Redbox the movie rental industry has changed significantly and is borderline unrecognizable from what it used to be. We all know that Redbox is easy and cheap; offering one-day rentals instead of multiple day fees and the quickness of simply sliding a card. Redbox also was an application of an existing business model to a new industry. An almost vending machine principle was used by McDonald’s when they first introduced Redbox. They knew their customers would be interested in renting movies but also knew they could not build rental stores within their restaurants. The solution was a kiosk outside stores and the new model that is so popular today. Now there are Redbox kiosks all over and the idea has been invested in by several companies with McDonald’s still holding significant stock.

    Apply Existing Models in New Ways

    Netflix and Redbox have reshaped the movie rental industry in a matter of years by simply integrating successful ideas from other industries. We all have witnessed their success and are most likely consumers of each. As you seek to build your own new business venture, be creative and innovative in how you model your business. The answer may lie in applying existing models in a new way. Doing so may not revolutionize the industry, but it most likely will create a new competitive advantage for your business.

    Establish Measurable Goals in Your Business Plan

    Include Measurables in Your Business Plan

    The business plan is your individual roadmap to success. This map is designed for you and to those whom you present your business to. Through it you are showing yourself what steps will be taken on your way to success, when they will be accomplished, and how. While this is very important for you, it is very important to investors as well. The more measurable steps you have, the more possible financial prosperity seems.

    Where Your Product Is and Where It Will Be

    When writing your business plan you are most likely in the development phases of your business. You may not even have a product completely established or produced. Include goals regarding when your product will be finished, tested, marketed, and mass-produced. Explain how funds will be used to make this process happen. Show how the money will be used if received and how quickly sales can begin bringing in returns.

    Set Financial Goals

    As mentioned above, exhibit how you plan to spend money, what you expect in return for those expenses, and sales projections. After all your company is an investment for those you are presenting to, they want to see when the can expect results. If going in for a loan this is very important as well. Lenders need to know you will be paying them back on time. Be detailed and thorough. Forecasting is a powerful tool if you can back up your projections. They will not be perfect, forecasts never are, but well-done forecasts can go a long way for your business plan.

    Market Share

    Market analysis is essential to understanding your business and showing potential. Set goals and standards of success in terms of market share. Target a group that you intend to sell to and create a timeline for when you expect to attain different market share levels. With each level you may include strategies and plans to get there. Again provide details that show you have thought it through.
    Business is results and goals driven. Having a business plan structured the same way will connect with readers while showing them how possible your plan really is. The business plan does not need to be 50 pages with every detail and step that will ever be taken. In fact, chances are the future will play out very differently. But your business plan should be thorough, providing a process or progression towards success. The better you can articulate your goal through step-by-step milestones the more potential your plan exhibits.

    Get the Most Out of Your Business Plan

    Where Business Plans Go Wrong

    For entrepreneurs, the business plan can be the difference in getting necessary funding to getting your business off the ground. This important document is the first thing investors see regarding your business and really is the first impression of entrepreneur’s start-up ventures. How well-crafted this document is can be the difference between gaining support or not. Let’s take a look at where entrepreneurs often can come up short on their business plan.

    Differentiating Themselves

    Investors see lots and lots of business plans and not every idea is completely unique. In fact, most businesses start from similar products or ideas that have small changes in product or the business model. Investors need to see and believe that your business will add value. The business plan needs to clearly state and highlight what separates your business from the pack. This may be in the product, cost structure, target market, or whatever niche you may find. Sell that niche by making investors believe that niche will lead to large returns.

    Including Company Goals

    Within your business plan you should include a timeline of goals and milestones to be met. For example, discuss how funding would be used and where that would move the company in a certain timetable. Goals should be optimistic yet attainable. Discuss any future partnerships and when those are planned to be finalized. Tell investors how much product you intend to produce and sell within six months or a year. Show investors your goals, giving them something measurable to believe in. This is a great opportunity to show growth potential.

    Use the Business Plan as a Marketing Tool

    Really your business plan is the first opportunity to sell your business, the product, and yourself. The investors are your first supporters. Your business plan should keep them interested and intrigued. By no means should it be a pamphlet or brochure but it should provide relevant, interesting statistics that will keep the reader engaged. The more engaged they are the more likely they will invest in your future.
    Business plans have necessary information and sections that all investors like to see but a business plan is more than that. You are selling yourself and your business with it. Take the time to do solid research and provide necessary information but do so in a manner that differentiates you, that gives measurable goals, and that engages the reader. If you do so you will find more investors giving your plan serious consideration which gets you closer to making the deal you need to get your business going.

    Key Components to a Business Continuity Plan

    What is a Continuity Plan?

    The business continuity plan (BCP) encompasses disaster recovery planning and business resumption planning. The BCP outlines how the company will continue operations in the event of disasters and unforeseeable events that shutdown facilities or operations.

    Recognize Critical Factors

    Critical factors are factors carried out within the firm that are essential to operations. Without these critical factors operating properly the product/service cannot be offered or manufactured. Often critical factors create competitive advantage for your firm and will be absolutely necessary to continue operations following some kind of disaster. You can use your business plan and developing operations to recognize these key factors. Highlight points in production that create value and are irreplaceable in operations; these will be your critical factors.

    Create Contingency Plans

    There are a number of events that can require BCP implementation. Examples include earthquakes, storms, power outages, cyber-attacks, fires, and other disasters. For each event a recovery plan should be created. The recovery plan should outline the requirements to getting critical factors up and running again in order to continue business operations in times when perhaps employees are unable to meet at the office, etc.

    Keep BCP Up-to-Date

    As the organization grows and evolves so should the BCP. Over time new needs will arise and new threats, each needing to be addressed formally by a BCP. Frequently, BCP procedures should be reviewed and confirmed to verify that needs are met. This includes testing of recovery procedures and functions. This is normally done semi-annually or annually.

    Communicate Procedures

    As with any organizational plans and procedures, they need to be communicated and taught to all players within the organization. Management should frequently review and train employees on continuity plans. Make all information easy to access and visible to all employees. Take the time to gather all information and put it in one place where all employees know to find it. Once this information is gathered make a step by step guide for each employee defining their role in the contingency plan. This will help everything go smoothly if a situation ever arises.
    Having a continuity plan will save you lots of time, money, and headaches if a situation were ever to arise. In times of disaster the last thing you want as a manager is to be unable to get your business going again while your employees run around unsure of what to do. A good continuity plan will outline critical factors and define each employees role in getting those critical functions up and running again as quickly as possible.