Traditional Business Planning v Continuous Business Planning

02-March-2015 6:59
in Small Business Planning
by Admin
Business Plans are trash

There is a growing consensus of opinion amongst the entrepreneurial community that the traditional business plan is increasingly irrelevant, especially amongst the early stage technology start up community.  Alexander Osterwalder, author of Business Model Generation, recently advised technology start up founders to "burn their business plans", claiming that they were "too dangerous to the health of your business".  

Can this be right?  Are the traditional twenty to thirty page plans beloved of loan officers really "dangerous" for a start up business?  All this talk of the traditional business plan being an historic artefact has led some to prematurely conclude that a written business plan is now useless.  To completely dismiss the value of a written business plan in the traditional format is very much a case of throwing the baby out with the bathwater.  A smart entrepreneur, while agreeing that writing a traditional business plan is not essential for every business, will not use that fact as an excuse to abandon the planning process all together.    

Firstly, it's important to acknowledge that there is much to admire and considerable merit in the approach that Osterwalder and others such as Steve Blank and Eric Ries advocate.  They argue that traditional business plans are too static and can give entrepreneurs the illusion that they have all the answers when, in truth, many of the assumptions upon which their business plans are based are simply informed guesses.  They advocate instead a more dynamic, learning approach that "stress tests" business ideas in the real world and encourages rapid adaptation based upon feedback from real customers until the product or service perfectly fits the needs of those customers.  This process would work perfectly for an early stage technology start up.

The cost of developing what they call a "minimum viable product" (MVP) has never been less and is realistically within the grasp of most wannabe entrepreneurs after they have begged, stolen and borrowed from friends, family and fools.  They can then use this MVP to conduct real tests of market demand and use actual customers to gather feedback on the key elements of the nascent business model, adapting the product, service and business model in response to this feedback.  Those skeptical about the value of the traditional business plan are right to say that it will always be better to show that a business idea works in practice rather than tell how it might work in theory.

The problem is that, whilst this approach might work well for early stage technology start ups, it would be impractical for an entrepreneur seeking to start a bricks and mortar coffee shop.  It would be difficult for someone starting a coffee shop to slavishly follow the process advocated by Osterwalder, Blank and Ries.  It's not very easy to "pivot" when you discover that you have set up in the wrong location.  Capital intensive businesses in the manufacturing industry are another example of businesses where it would be less practical to adopt this approach.  It's not viable to start a car manufacturing business on a small scale.   These are big bets and the big bets require careful planning.

If we are honest, there are far more people starting these types of business than the technology businesses beloved of Venture Capitalist firms.  The "burn your business plan before it burns you" sloganeering that is now gaining traction in the wider entrepreneurial community is every bit as dangerous for the entrepreneurs for whom it is not applicable or intended as it would be for the founder of a technology start up bringing a new product into a new or resegmented market to believe that the research or projections found in a well researched business plan could be taken as read without extensive customer validation.  

Is there a way of reconciling the two approaches into something that would work for the vast majority of ordinary businesses? Continuous Business Planning is not only the name of our business but also of a new business planning concept that brings together the best of traditional business planning and the emerging Lean Start Up approach.  Continuous Business Planning is the answer for those small business owners that have ever said “I don’t plan because it takes too long, and a few months down the road my plans change – it’s just not worth the time.”  So, what is Continuous Business Planning?

Continuous Business Planning is not a product or a service.  Instead, it is a methodology.  It is about engaging in the essential planning necessary in order to understand your actual results and to guide your day to day business decisions . I believe that every start up needs a written plan.  However, not all elements of the traditional business plan are initially required.  A start up should have a written business plan that contains at the very least the following:

  • An executive summary, or investor deck, which you can use to tell your story quickly, efficiently and as visually as possible
  • A financial plan with a sales forecast, projected profit & loss, cash flow forecast, and balance sheet
  • An action plan with milestones scheduled and accountability
  • A review schedule of regular meetings where you compare real with planned financial results and review other key metrics.

Continuous Business Planning is our name for the ongoing process of reviewing and comparing the planned numbers with the actual numbers. When you go through the process of creating a forecast, you are forced to think through the key numbers for your business.  Every business from technology start up to coffee shop would benefit from this exercise.  Once you have been through the forecasting process and have set goals for all these key numbers, you will be able to manage your business more efficiently as you will be equipped with the information you need to know whether ot not your business is on track.

The next step in the Continuous Business Planning process is to set up a regular review meeting in which you review your planned numbers against your actual results. This will give you the opportunity to analyze any variance and ask the questions that will lead to adjustments in your strategy, business model or even products and services.  What hasn't happened that should have happened? What assumptions had you made that are not true?  The review frequency might vary from business to business.  However, as a minimum a review meeting should be held once a month.    

The last step in the Continuous Business Planning process is to make small adjustments to your plan based on the variance between your planned and actual results. The process of comparing these numbers and understanding why the reality is different than the plan will help you make the decisions that can actually change your financial picture, and help you grow your company.

As you can see, Continuous Business Planning is similar to the Lean Startup ideas of Osterwalder, Blank and Ries which suggest that you need to quickly get ideas and technology into the hands of customers, obtain feedback, then tweak and repeat the process until you achieve your .  When you are actively managing your business through Continuous Business Planning, you are setting goals and objectives, financial targets, and then taking the time to measure these goals and targets, get data about them, and then adjust when necessary.  You have a process in place to make plans, and then you have the ability to measure your results against those plans and make calculated adjustments.  Knowing exactly where your business is financially, compared to a plan you have put together, lets you understand whether there are problems or solutions to problems way before they actually affect your business.

Continuous Business Planning does not replace traditional business planning.  If a bank manager or an investor wants to see a traditional business plan, then that is what you will need to produce.  He who pays the piper calls the tune and you would be foolish to present a third party with anything that did not meet their expectations.  However, we believe that Continuous Business Planning represents a new, more useful way of approaching planning in a small business.  If Continuous Business Planning is a process that you believe would benefit your business, we offer support packages to help you consistently apply these principles in their business.  We will also act as a sounding board and a source of potential answers to the challenges posed by any variance between planned and actual performance.   

Traditional business planning may be seen as quaint and old fashioned in some quarters but the principles of Continuous Business Planning, which combine the best of the old and the new in a way that will be universally useful to any small business, are timeless and will never go out of style.  Put them into practice in your business today.