All business plans are wrong. It’s just a question of how wrong. It’s especially true in rapidly changing markets, such as information services, where the impact of technology is often unforeseen.
Since we sometimes help clients write business plans, this may sound like an awful admission, but it’s true. Business plans are fictions about the future based on a set of assumptions about internal and external factors, such as market demand, competition, product quality, pricing, and costs. While some business plans may be less fictitious than others because of their high level of research and analytical rigor, few business plans turn out to be entirely correct. Even when a business does well, the details of its success usually don’t map to specific scenarios projected in the plan.
Despite these criticisms, business plans do matter. Solid business plans show investors, whether internal or external, that the management team has done its homework and has a disciplined approach to a new business. Done right, a business plan serves as a road map against which management can assess progress once a new business launches and make changes. Rigorous research and analysis, coupled with honest debate, are essential to the original business plan as well as to managing the business after launch.
Like any tool, a business plan should be used correctly. We were recently asked by the board of a large publishing company to review its business plan for an entirely new information business within its existing market space. A few things became clear to us: The internal team that created the plan had done its homework and written a solid plan using reasonable assumptions. However, the board was looking for the plan to be 100% accurate and was not likely to provide any leniency if the business evolved differently (read: more slowly) than projected. This is a recipe for failure, no mater how strong the plan.
From our experience, we have developed three guiding principles for writing and using business plans:
Invest in the Planning Process: Too often clients think of a business plan as a term paper: Just get it done and turn it in. Unfortunately, with business plans, the process of creating the plan is as important as the resulting document. Solid business plans result from objective research and honest debate, which along the way builds buy-in among various stakeholders. This requires an iterative process over an extended time period. We cringe when would-be clients ask us to “write” a business plan because they want to outsource a task that they consider onerous. Consultants like us can organize and drive a business planning process, and can even author credible documents, but doing so without strong internal participation misses much of the value inherent in the planning process itself.
Back the Plan: We’ve seen too many clients adopt a business plan and then fail to invest adequately in it. When a new business fails to go according to plan, management often blames a flawed business plan, rather than a failure to invest in the plan. “Invest” may mean spending enough money on product, marketing, and sales resources, but it may also include making the necessary changes to organization and internal processes.
Be Ready to be Wrong: When the plan turns out to be wrong, respond decisively by making changes, and do so without shame. Managers should be judged not on how accurate their plans turn out to be, but on how effectively they make adjustments to the business after launch. History is full of cases of successful businesses that were the unplanned result of adjustments, sometimes radical, to business plans that turned out to be wrong.