Fundamentals of Business Planning

There are two types of Business Plans

The first is one you can easily find on-line and download, often for free. It is for telling a story about the business to potential investors or lenders. It is essentially a marketing document.

The second, and in our view far more important type, is an analytical process to improve the performance of the business. Its audience is internal and the final document is really incidental to the analysis and thinking behind it.

While it might seem obvious that business planning is an important part of improving performance, it has not always been widely accepted that this is the case. In 1994 Henry Mitzberg, a well known Canadian business writer and thinker argued that there was a difference between strategic thinking and strategic planning and that the bureaucracy of the planning could stifle the thinking. [1] This argument seems particularly strong in smaller businesses where people have multiple roles and resources are limited.

The weight of evidence now suggests that provided it focuses on the right things then business planning really is an important driver in growing revenues and improving performance. [2]
This is consistent with nem’s own experience in advising and guiding hundreds of companies through the business planning process.

Mintzberg’s concerns about not stifling business creativity are still valid, but it is important to remember creativity is rarely spontaneous – a good artist puts a lot of work into developing the themes and structures of his work. So if planning focuses on the right things and is done the right way it is not the opposite of creativity, but a way of stimulating it.

So what are the right things and the right way? A few suggestions based on nem’s experience:

1. Involve the right people. A plan handed down from on high is far less likely to have strong engagement within the business.

2. The planning process and journey may involve hearing things you don’t want to hear. An open mind and open debate is critical to the outcome and is often the catalyst for creativity.

3. Think about involving a trusted outsider to help with this, and also to challenge any group think.

4. Use facts not opinions. This means you will have to do homework. You can’t plan successfully without a good understanding of your market, your customers and your competitors.

5. Don’t be tempted to start with the big ideas and grand theories, as you will likely go in circles and end up with meaningless motherhood statements. Work with the detail and put the jigsaw together. That is how the big picture emerges.

6. Have a process. This means taking time out at least once a year to do nothing else, writing down your thinking, setting goals and actions that have clear accountabilities, and reviewing progress regularly.

7. Most importantly adapt as you go along and learn more. A plan is a guide to where you want to go, not a pre-determined outcome – no-one can tell the future flawlessly.

So what are the basic elements of a good Business Plan? At a minimum you need:

1. A basic strategy. In this context the often confusing word “strategy” means where you are positioning yourself in the market. To do this effectively you need to understand the attractiveness of the market and your competitive positioning in it – a key part of the homework.

2. An understanding of what the key drivers are in your business that will make your strategy work – what skills, what capabilities, what capacity, what investments are needed. This is your business model.

3. A high-level set of objectives. These should not be just plucked out of the air, but be based on the realities of understanding your strategy and business model. This is sometimes called a “vision”, but if you don’t see yourself as a visionary then “long term objectives” suffice. This might be an aspirational but achievable growth target, or an exit strategy in ten years.

4. More detailed short-term targets and changes to make it all work, with clear outcomes and responsibilities. This often ties in with the financial budget.

There are a lot of readily available theories and frameworks that can help you get there. Most people start planning with a SWOT. Why? There is no good reason, other than it is well known - though seldom done properly. Too often you see the same thing classified as a threat, an opportunity, a strength and a weakness all at once!

A study in 2015 identified [1] over 80 well accredited business strategy frameworks like SWOT, starting with the Ansoff matrix in 1958. No doubt a few more have been added since. As the authors noted there are no lack of powerful ways of thinking about business planning, the real problem is “selecting the right ones for the right circumstances”

Professional guidance can help to cut through the clutter, decipher the often confusing language, point to shortcuts that can stop you reinventing the wheel, and guide your thinking so you can focus on getting the best planning outcomes. nem has been helping successful businesses do this for 20 years and can help you.

References

• [1] Mintzberg H, The Fall and Rise of Strategic Planning, Harvard Business Review, March-April 1988 p70-74

• [2] B George, R M Walker Does Strategic Planning Improve Organizational Performance? A Meta-Analysis  Public Administration Review, Vol. 79, Iss. 6, pp. 810–819 (2019)

• [3] M Reeves et al – “Navigating the dozens of different Strategy  options” Harvard Business Review June 2015  

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Author: Mark Rainbird, Partner nem Australasia

This article is based on research and opinion available in the public domain.