These 5 principles of business planning apply especially well to lean business planning and lean business plans. We focus on lean planning here but you can see, if you have experience with business, that they apply to all good business planning. Charles Darwin wrote:
“It is not the strongest of the species that survive, not the most intelligent, but the one most responsive to change.”
Do Only What You’ll Use. Avoid waste. Go forward with small steps. Start with a lean plan and grow it only as needed for business circumstances. Don’t build a big formal business plan unless you have a business plan event and need to show it to outsiders.
Good business planning Assumes Constant Change. Lean business planning helps to manage change. You don’t plan on long time frames and then stick to the plan regardless. Instead, your business planning process helps to manage change.
Good business planning Empowers Accountability. Good business planning establishes specific responsibilities, dates, deadlines, activities, and performance metrics. The process includes tracking and following up to manage.
Understand that It’s Planning Not Accounting. Financial projections in business planning are educated guesses, summarized and aggregated to optimize their use in decision making, tracking, and managing. They are not statements, but projections. A projected profit-and-loss table does look like the output of accounting, and that confuses people. It is never exact. It is predicting the future. It is guessing.
Keep these five principles of business planning in mind from the beginning.
Lean business means avoiding waste, doing only what has value. Therefore the right form for your business plan is the form that best serves your business purpose. Furthermore, for the vast majority of business owners, the business purpose of planning is getting what you want from the business – setting strategy and tactics, executing, reviewing results, and revising as needed. And that purpose is best served with lean planning that starts with a lean plan and continues with a planning process involving regular review and revision. You keep it lean because that’s easier, better, and really all you’re going to use.
Lean planning starts just big enough for management
Consider the illustration that follows. I put the lean plan at the center because the plan is about what is supposed to happen, when, who does what, how much it costs, and how much money it generates. It’s a collection of decisions, lists, and forecasts. It doesn’t necessarily exist as a single document somewhere. You use it to track performance against plan, review results, and revise regularly, so the plan is always up to date. I hope it’s gathered into a single place, as if it were a document, but it doesn’t have to be. And it’s only as big as you need for its business function.
The main output, and therefore the main purpose, of the lean business plan is better business, which means getting what you want from your business. That’s what your lean plan is for and that function determines what’s there. Forget the additional descriptions for outsiders until you need them. Wait for that until you have what I call The Business Plan Event. One of the appendices, called Sharing Your Plan, covers how to do summaries, business pitches, and even an elevator speech.
Know Your Market, Yes; Describe, Analyze, Prove – Not Necessarily
You have to know your market extremely well to run your business. Know your market like you know the back of your hand. Know your customers, what they need, what they want, how they find you, what messages work for them, what they read, what they do, and all of that.
What you don’t have to do, however, is include any of that in your lean business plan. A lean plan doesn’t need rigorous market analysis. It doesn’t normally include supporting information — at least, not until later, with the business plan event, when it is actually required.
However, your lean plan is about what’s going to happen, what you are going to do. It’s about business strategy, specific milestones, dates, deadlines, and forecasts of sales and expenses and so forth. It’s not a term paper. Yes, you should know your market. But you don’t have to prove it until you’re trying to find outside investors.
Form follows function: The function of the lean business plan is management, not selling something to outsiders.
You don’t need supporting information. It’s still a business plan without it. It still serves its business purposes. You don’t have to do a rigorous market analysis as part of your plan if you know exactly what you’re offering, and to whom. So what about market analysis? Think about the business purpose. Do you need the market analysis to help determine your strategy? Then do it. Are you ready to go with that strategy regardless? Then don’t sweat the market analysis.
This is ultimately your responsibility. You don’t gather all the supporting information and do a rigorous market analysis just because somebody said you should. You do it if you’re actually going to use it to make decisions, or if your business purpose requires proving that there is an attractive market opportunity. If you have any doubt, please skip ahead to Know Your Market and Know Your Competition, in Section 5, Additional Information. You do need to know; but proving your knowledge isn’t necessarily part of the plan.
So what matters, the point here, is that some alleged experts are telling people it’s not a plan unless it includes market data and market research. That’s just not true. Not for real business planning, and especially, not for lean business planning.
Good lean business planning process isn’t about a plan that you do once. Just like lean manufacturing and lean startups, it’s a business planning cycle of continuous improvement.
Lean Planning is always up to date
With lean planning, your business plan is always a fresh, current version. You never finish a business plan, heave a sigh of relief, and congratulate yourself that you’ll never have to do that again. Forget the use it once and throw it away plan. You don’t store it in a drawer to gather dust.
However, this kind of regularly updated planning is clearly better for business than a more static elaborate business plan. With this kind of business planning process, the plan is smaller and streamlined so you can update it easily and often, at least once a month. Your lean plan is much more useful than a static plan because it is always current, always being tracked and reviewed, frequently revised, and is a valuable tool for managing. You run your business according to priorities. Your tactics match your strategy. Your specific business activities match your tactics. And accountability is part of the process. People on the team are aware of the performance metrics, milestones, and progress or lack of it. Things get done.
Furthermore, even back in the old days of the elaborate business plan, it was always true that a good business plan was never done. I’ve been pointing that out since the 1980s, in published books, magazine articles, and blog posts. That’s not new with lean business planning. It’s just more important, and more obvious, than ever before.
It’s business planning cycle not just a plan
So a business plan is not a single thing. It’s not something you can buy, or find pre-written. You don’t do it and forget it, and you don’t find a business plan or have one written for you. If you work with an expert, consultant, coach, or business plan writer, realize that in real use a business plan lasts only a few weeks before it needs to be reviewed and revised. So your value added from the expert has to help you in the long term. If you don’t know your plan intimately, then you don’t have a plan.
One of the strongest and most pervasive myths about planning is dead wrong: planning doesn’t reduce flexibility. It builds flexibility. Lean business planning manages change. It is not threatened by change.
You are not locked in. Your plan will change.
People say, “Why would I do a business plan? That just locks me in. It’s a straitjacket.”
And I say: wrong. Never do something just because it’s in the plan. There is no merit whatsoever in sticking to a plan just for the plan’s sake. You never plan to run yourself into a brick wall over and over.
Instead, understand that the plan relates long term to short term, sales to costs and expenses and cash flow, marketing to sales, and lots of other interdependencies in the business. When things change — and they always do — the plan helps you keep track of what affects what else, so you can adjust accordingly.
Change does not undermine planning; actually, planning is the best way to manage change.
So running a business right requires minding the details but also watching the horizon. It’s a matter of keeping eyes up, looking at what’s happening on the field around you; and eyes down, dealing with the ball – both at the same time.
Which reminds me that dribbling is one of my favorite analogies for business planning. In soccer or basketball, dribbling means managing the hand-eye or foot-eye coordination of the immediate detail while simultaneously looking up and watching opponents and teammates, and developing plays. When I was coaching kids in soccer, I’d try to help them remember to look up and not just down at the ball. The best players did this naturally. Change does not undermine planning; actually, planning is the best way to manage change.
Why good business planning is like dribbling
Here are a couple of additional ways dribbling is like planning:
Dribbling is a means to an end—not the goal. Planning is like that too. It’s about results, running a business—not at all about the plan itself. Good planning is measured by the decisions it causes. It’s about managing, allocating resources, and being accountable. I’ve written this in several places: “You measure a business plan by the decisions it causes.” And this: “Good business planning is nine parts execution for every one part strategy.”
Think of the moment when the player gets the ball in the wrong end of the court or field. That’s either a defensive rebound in basketball, or a missed shot on goal in soccer. The tall player gets the basketball and gives it to the one who normally dribbles up court. Or the goalie gets the ball and gives it to a defender. At that moment, in a wellcoached team: 1) there is a plan in place and 2) the player knows the plan but is completely empowered to change it instantly, depending on how the play develops. Business planning done right is very much like that. The existence of a plan—take the ball up the side, pass to the center—helps the team know what ought to happen. But changes— the opponents doing something unexpected—are also foreseen. The game plan doesn’t lock the players in to doing the wrong thing or failing to respond to developments. It helps them make instant choices, changing the plan correctly…and when they do, the other players can guess the next step better because of the plan.
It’s much easier to be friends with your coworkers than to manage them well. Every small-business owner suffers the problem of management and accountability. Good business planning adds accountability via goals, metrics, and tracking.
Lean business planning sets clear expectations and then follows up on results. It compares results with expectations. People on a team are held accountable only if management actually does the work of tracking results and communicating them, after the fact, to those responsible.
What gets measured is what gets done
Metrics are part of the problem. As a rule, we don’t develop the right metrics for people. Metrics aren’t right unless the people responsible understand them and believe in them. Will the measurement scheme show good and bad performances?
Remember, people need metrics. People want metrics. You and your business need metrics. Good business planning adds to accountability.
Then you have to track. That’s where the lean business plan creates a management advantage, because tracking and following up is part of its most important pieces. Set the review schedules in advance, make sure you have the right participants for the review, and then do it.
In good teams, the negative feedback is in the metric. Nobody has to scold or lecture, because the team participated in generating the plan and the team reviews it, and good performances make people proud and happy, and bad performances make people embarrassed. It happens automatically. It’s part of the planning process. Besides, guilt and fear tactics are the worst kind of fake management.
And you must avoid the crystal ball and chain. Sometimes — actually, often — metrics go sour because assumptions have changed. Unforeseen events happen. You manage these times collaboratively, separating the effort from the results. Your team members see that and they believe in the process, and they’ll continue to contribute.
One of the most common errors in business planning is confusing planning with accounting. It’s planning, not accounting. This is true for lean planning too. Your projections, although they look like accounting statements, are just projections. They are always going to be off one way or another, and their purpose isn’t guessing the future exactly right, but rather setting down expectations and connecting the links between spending and revenue. Then when you do your monthly reviews, having made the original projection makes adjustments easier.
Planning not accounting addresses two different dimensions.
Accounting goes from today backwards in time in ever-increasing detail. Planning, on the other hand, goes forward into the future in ever-increasing summary and aggregation.
Understanding this difference helps you with the educated guessing involved in making projections. The reports that come out of accounting, called statements, must accurately summarize the actual transactions that happened in the past. For example, a proper and correct Profit and Loss statement in accounting is a report summarizing all the actual transactions recorded as sales, costs, and expenses for a specified period of time (month, quarter, or year).
Forecasts and projections are just educated guesses
But projections, unlike financial statements, are just educated guesses. They aren’t reports of a database of actual transactions. Where accounting reports on records in a database, for projections there is no database. We guess what the totals might be. So you don’t try to imagine all the separate transactions in your head, for the future, and then report on them. You estimate the totals. That’s not only easier, but better. It’s a better match to how the projections help you manage, and how we humans deal with numbers.
So you don’t try to imagine all the separate transactions in your head, for the future, and then report on them. You estimate the totals. That’s not only easier, but better. It’s a better match to how the projections help you manage, and how we humans deal with numbers.
In the example below, the reported sales of $36,945.00 for services in the month of April of 2014 is a database report. Every transaction recorded in that month is included in the database. The number shown is the calculated total of all the transactions that included sales of a service item. It’s accounting, not planning. It is not a guess or an estimate. It’s a calculated total. On the other hand, the projected sales of $30,000 for some future month is the business owner’s guess – an educated guess, or an estimate – of what the total will be for that future month. That’s planning, not accounting. Nobody imagines or guesses all of the individual transactions that will happen in that month in the future, and then totals them. We guess the total. The database report showing $36.950 is accounting. The projected sales of $30,000 is planning.