Wikipedia defines a Business Plan as: “A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.”
I believe in ‘planning’ since my childhood. That’s why I started my venture “HomePLANguru.com” where I do PLAN for my customers who wish to get their dream home.
When I started my venture, I also prepared a Business Plan. But even after 3 years, none of the ‘action items & outputs’ that I defined in that matched my ‘actual action items & outputs’. Even when my action items matched to some extent with the actual, my ‘planned output’ and ‘actual output’ didn’t match even 5%. Then I had this discussion in Twitter and hence this article.
I wanted to analyze this objectively rather than subjectively. Let’s start with the basics of planning.
Any plan has three things: INPUT , ACTION and OUTPUT. For a given input if you do some actions you may get some output.
During my college days, I used to first take the syllabus book and ‘PLAN’ how to go about reading. I’ll plan to read the ‘toughest chapters’ first and easiest at the end. In between I’ll plan for revision of completed chapters. This plan really worked during my college days because INPUT (i.e. syllabus) was very clear, ACTION (i.e. reading during the available time) was very clear and OUTPUT (i.e. marks in examination) was obvious. I got distinction in my B.Tech. ”UNKNOWNS’ were almost nil during my college days.
During my ‘regular job’ days, I used to plan my work with a diary. The inputs were almost clear, action items were also to a great extent clear and Outputs were 90% clear to me (the remaining 10% was dependent on many external factors which I didn’t have control over). I was successful in my ‘regular job’ (i.e. got promotions & increments at the right time) as I followed my plan. In a regular job, the ‘UNKNOWNS’ were very very less because almost everything was clearly visible even before planning.
During my entrepreneurial journey now, almost everything (i.e. INPUT, ACTION and OUTPUT) is unclear. One may be surprised and may ask me, “Why the heck did you start your business when everything is unclear?”
There are two types of business: “Predictable Business” and “Unpredictable Business”.
Having a grocery shop is “Predictable Business” (to a great extent). The reason is, you know what to buy and keep in the shop, what the customers are buying, change the inventory based on demand, sell the goods at a predefined price and get a predefined margin. Total success depends on location of the shop, how long you keep the shop open, how nicely you talk to the customers and understanding the inventory items which sells most. For example, a grocery shop guy near my locality is selling water more than grocery items because the demand for water is more now.
Many of my friends from ‘regular job’ who started their own venture are into “Unpredictable” business because ours are innovative concepts which doesn’t exist in the market. Many of us are changing all the three parameters (i.e. INPUTS, ACTION ITEMS and OUTPUTS) every now and then. There can be no single plan to which we can stick to for 6 months at a stretch. It changes almost every month. The reason for this, I believe is that, even though we can plan for the INPUTS and ACTION ITEMS, the OUTPUTS doesn’t match as planned. Because of this, we keep changing the INPUTS and ACTION ITEMS.
Then I realized one thing: Instead of spending time on updating/modifying the Business Plan, if I focus on action items; one day the Inputs, Action Items and Outputs will become more predictable and then Business Plan for such a ‘predictable’ business will make sense.
This doesn’t mean that we don’t have any plans and work completely in a random way. We have very short term plans. The model is different during this start-up stage and hence the “Business Plans” are not very helpful during this time (other than showing it to VCs for funds).
I can think of this curve which contains effort for preparing Business Plan on Y-axis and Stage of the Company in X-axis.
I believe that during start-up stage and ‘very-big’ stage, very less effort should be put in preparing the business plan (and NOT zero effort!).
PLEASE NOTE: I may be totally or partially wrong in my opinion in this article. But better to explain what is in my mind and get inputs from experts who read this, isn’t it?
