talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9 pm ET. This is excerpted from my recent interview with Tim Berry (@TimBerry) is the world’s leading business plan expert. Google “business plan expert” to see. Check out his latest book ‘Lean Business Planning’ at leanplan.com, where a lot of its content is posted free, please visit www.TimBerry.com.
SmallBizLady: How does lean planning relate to the classic business plan?
Tim Berry: Lean planning isn’t about the business plan. It’s about the business. It’s about setting priorities, goals, milestones, metrics, and tracking progress, making corrections, and doing business better.
It’s not a chore or a task, not a hurdle you have to get over; it’s a way to get what you want from your business. Whether you want growth and money, or maybe just fulfillment, or free time.
It’s immersed in the idea of lean, build-measure-learn, taking small steps, watching results, and changing quickly.
So ignore the myth of the big formal business plan. Screw that. Do a lean business plan – simple, concrete, for your eyes only, easy – and then keep it fresh with monthly review and revision.
SmallBizLady: What’s a lean business plan?
Tim Berry:
- It’s for you, the owner, to work with
- It’s to make your life better
- It’s simple: a selected few lists and tables.
Specifically, a lean plan has four components. Strategy, tactics, concrete specifics, and essential business numbers.
You keep it simple from the beginning, just big enough to run the business. And you review it often, track results, and revise as needed. It’s there to manage change, help you prioritize, and help you get the right things done.
If you put it into pages at all – and there’s no good reason to do that, since it’s for you and your team only – you keep it very short. Strategy and tactics are just bullets. Concrete specifics include a monthly review schedule, a list of assumptions, major milestones, and performance metrics. And essential numbers include a sales forecast, spending budget, and cash flow.
SmallBizLady: What and why is strategy in a lean business plan?
Tim Berry: The key to simple business strategy is focus. It’s as much what you aren’t doing, as what you are. And as much who isn’t in your market as who is.
I don’t like to make a big deal of my strategy methodology, because really, with strategy, there are lots of frameworks and it’s anything that works. Most great strategies look obvious after they are working.
Writing your strategy down is important because you need to remind yourself, in the thick of things, about priorities and long-term goals. As entrepreneurs, we want to do everything. As business owners, we have to focus on the most important things.
I use a 3-part framework: identity, market, and business offering (IMO). Identity is how your business is different, what it does best, skill sets and so on. Market is your target market, defined as clearly as possible. And business offering is what you sell. All three should work together. So for example the restaurant started by somebody with a history in and a love for organic farm-to-table local foods probably ought to cater to people who care about that in their food, which probably means they are at the higher end of the market; and it probably should offer meals based on that, which should probably be more expensive than the average restaurant meal. The strategy points work together.
SmallBizLady: What do you mean by tactics?
Tim Berry: Tactics are the real nugget decisions in what we normally call marketing plan, sales plan, product plan, and financial plan. They key points of a traditional marketing plan are tactics. They include pricing, social media, messaging, promotion, and so forth. The key points of a traditional product plan are tactics. They include launch timing, feature sets, versions, sourcing, and so on.
For a lean plan, summarize in bullets. Pricing, channels, website, launch dates, features, financing, etc. Don’t write out descriptions and summaries; just list the key tactical decisions you make, so you can review them, track results, and change when necessary.
We do strategy and tactics to keep them close to each other, aligned. Tactics and strategy have to work together.
SmallBizLady: What are the concrete specifics in a lean business plan
Tim Berry: This is my favorite part of planning because it’s what’s really supposed to happen, when, and who is supposed to do it.
Start with a schedule for reviewing the plan, monthly; like the third Thursday of the month. This is essential even for a one-person business. Planning is void if you don’t track, review, and revise as necessary.
Then list your key assumptions. You want to keep a list because later on you’ll ask yourself whether you need to stick with the plan or pivot. Recognizing changed assumptions helps.
List major milestones. Not everything that’s supposed to happen, but key events you can manage toward and track. Milestones might be reaching a thousand subscribers, or launching the website, opening the second store; it depends on your business.
Include the important performance metrics. How will you know if you’re on track? Not just sales and expenses (those come next, in essential business numbers) but trips, engagements, subscriptions, calls, seminars, returns, deliveries, whatever work for your business as key performance indicators.
SmallBizLady: What are essential business numbers?
Tim Berry: Sure, forecasting is hard, but it’s even harder to run a business without it. You can do a simple forecast for your business. It doesn’t take an advanced degree, or an econometric model; it takes common sense and knowing your business.
And in the meantime, hard as may be to forecast sales and expenses, it’s harder still to run a business without forecasting them. You need to break things down into meaningful chunks, make some educated guesses, and then follow up with regular plan vs. actual review and revisions.
Your sales forecast won’t accurately predict the future. We know that from the start. What you want is to understand the sales drivers and interdependencies, to connect the dots, so that as you review plan vs. actual results every month, you can easily make course corrections.
You need a spending budget to track and manage spending and adjust spending to sales, and new developments, and changes in your plan, and changes in the market.
You need a cash flow plan because without cash your business just died. Profits don’t guarantee cash, and in fact, with most companies, cash flow can be quite different from profits.
Anybody can do a sales forecast
To do a sales forecast, focus on the drivers. These are the assumptions you can connect to sales. What are the factors you can forecast, and follow up on, that predict sales.
For example, a restaurant counts chairs and tables, hours of serving time, how many meals you can serve at capacity when the restaurant is full, and how many hours it might be full. And a subscription website projects ppc traffic, organic traffic, email clicks, conversion rate. Think of it as connecting dots.
Don’t sweat being right. You won’t be. Just get the drivers right, and dots connected, so you’ll have meaningful plan vs. actual analysis. The goal is to set up a system that helps you move forward as things change.
SmallBizLady: Why should a business owner do planning?
Tim Berry: What? All the talk of don’t do a business plan, but doesn’t everybody agree you need to have some reminders of strategy? Priorities, objectives? Tactics to execute strategy? Specific steps, like major milestones? Business metrics? Tracking, with review and revise? And managing cash flow?
All that is what planning is supposed to be. Forget the formal business plan unless you really need it. And even then, for angel investors or banks, you probably only need a lean plan plus some extra summaries and explanations.
SmallBizLady: What’s most important in a plan
Tim Berry: What’s really most important is the planning process, not the plan itself. It’s like steering, or walking … running a business is a matter of destination, directions, and constant course corrections. What’s most important in a plan is the set of concrete specifics you can use to track for early alerts, and ongoing management.
In terms of components, I stick with what I’m saying for lean business planning: strategy, tactics, concrete specifics (dates and measurements etc.) and essential business numbers.
SmallBizLady: What are some of the benefits of lean planning
Tim Berry: Let me suggest just a few of the many benefits. This is management. This is running your business better. But here’s a quick list:
- Get what you want from your business
- Be proactive, not reactive
- Focus on priorities
- Track results and progress
- Develop accountability within your team
- Manage immediate short-term and long-term goals at the same time
- Metaphor: dribbling
- Metaphor: going somewhere. Ideally you have destination, a route, and real-time information so you can adjust quickly to traffic and weather. Does having reservations for a trip mean you’re totally lost if a flight gets canceled? Or does it help you adjust when a flight gets canceled, because you have all the other dots connected? That’s planning.
SmallBizLady: If it’s so simple, why not just keep it in your head?
Tim Berry: If you don’t write it down, you lie to yourself, later, about what you had expected. Having the simple plan written down helps you break it all down into steps, so you can see it better.
Without writing it down, you would miss the benefit of plan vs. actual, and management that comes from looking at where things went different from plan and how to react to that.
Hey, we’re all human. It’s better than way. Keeping things in your head is hard. And plans grow organically when they’re written and managed.
SmallBizLady: How often should you review a plan?
Tim Berry: I recommend you set a certain day to repeat every month. Choose one, like the third Thursday, for example. As I grew Palo Alto Software from zero to 50 employees we met every month on the third Thursday, to review plan vs. actual, reset assumptions, check progress on milestones, and go over the metrics. As the company grew, that meeting came to include the key managers, not all the employees.
Every business owner should do it. Even the solopreneurs, set the time. It helps you keep the practice of reviewing your plan at least once a month.
The key to the plan review is to focus on the management. What have you discovered? What needs to change?
SmallBizLady: What are some common mistakes in business planning?
Tim Berry:
- The worst by far is not doing it. Putting it off. Dismissing business planning as something only startups do.
- Second worst is doing too much, making the business plan too hard to do and too hard to maintain. You should keep the plan lean. It changes too fast.
- Most plans I see underestimate expenses. When businesses in the real world are lucky to make 10% profits on sales, the average startup business plan projects 30 to 50% profits on sales. That doesn’t mean you’re going to be that profitable. It means you are underestimating expenses.
- Avoid blue-sky showing off. Make sure everything important in your plan is something you can track progress on. Think dates, deadlines, tasks, responsibilities. Don’t use a business plan to show how much you know.
SmallBizLady: Don’t I need a real business plan to get investors? Or a bank loan?
Tim Berry: I think of what I call a “business plan event,” which is one that requires giving an outsider a document called a business plan. Loan applications and seeking investment are the most common, but also divorce settlements, new alliances, and in some cases modified business plans for new employees, vendors
But it’s 2015 now. A lean business plan is enough for almost every business plan event except on that has a teaching purpose, like a business plan competition, where judges are looking for the classic comprehensive business plan. For investors and bankers, start with the lean plan and add a summary memo, some descriptions for outsiders, maybe a market analysis. Do a slide deck. That will solve the need.
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