what you need instead of a business plan
Hi, I’m Jack Dunigan of thepracticalleader.com. This is another episode in lessons in superlative leadership. This is part of our series on things to know before you start a business.
I’ve done a lot of counseling, a lot of mentoring with new business owners and almost everybody that I talk to asks, “Do I need a business plan.” My answer is no, you do not need a business plan. At least not yet, not in the start-up phase at all.
But you do need this instead.
If you don’t need a business plan, what do you need? Now, every new business owner I talk to sort of has the idea they need a business plan and then they start to get nervous and afraid, I can see them tighten up, I can see them tense up, because business plans are complicated. They have all these numbers and charts and figures and all of these words and abound in a volume, and oh my god that’s scary. Well, you don’t need a business plan and here’s why you don’t need one.
First of all, business plans assume too much. Every business plan I’ve ever seen written is pie-in-the-sky. They write numbers that basically almost never have any chance at all of ever becoming reality. And they assume a growth curve that’s more or less direct. They assume that they’re going to find customers right out. They assume that they’re going to be the exception rather than the rule. So, they just assume too much, that’s why I don’t like them.
I also don’t like them because they’re really little more than a guess. No strategy, no plan, regardless of how thoroughly it’s thought out, ever survives contact with the real world without alteration, amendments, or complete abandonment. Because it is subject to unforeseen events and the independent will of others. Business plans are basically there for you to find investors. They are not there to guide what it is that you’re doing. They set us up for disappointment and disillusionment because being used to find investors and raise money they tend to be overly optimistic and unrealistic as to expected profits.
Now, there are the exceptions, of course, made by really experienced people who have had more than one business. But if you’re going into business for the first time the tendency to inflate how well you’re going to do, particularly right off, is almost unavoidable. So, I would recommend to you don’t do a business plan. I’m going to show you what to do later on here in this video.
They tend to disappear after creation. They’re not living documents like a guidebook that you’re going to refer to day-to-day. They are something that you’ve written, that’s soon forgotten stuck on file somewhere, seldom referred to. And they’re in that big stack of stuff called legal documents along with a note on things that you borrowed money for.
Now, I still think you need a plan, but it’s a little different, it’s a lot different than a business plan.
Because every destination needs a beginning. You’ve got to start somewhere. The problem with business plans is they typically are projections of where you want to go. But what you really need at this point, when you’re getting ready to start a business is not a clear definition of where you want to go, because that will alter over time.
What you need to do is understand and accept where you are right now.
If you’re looking at this video for the first time and you’re not familiar with thepracticalleader.com, I really encourage you to go there. In the upper right corner there’s a link that says free e-book. If you get that it’s Leadership 101. An interesting thing about that is the very first premise of effective leadership is that you understand exactly how things are right now.
You cannot get where you want to go if you do not know where you are starting from. And so, we need reality checks to say this is exactly the way it is right now. Upon that foundation we can build something effective. Business plans project too far ahead about where you intend to be, what you really need to do is understand exactly where you are right now.
Planning is more important than plans. Here’s a great picture of General Dwight Eisenhower the Commander of the Allied forces in World War II. And he said: “Plans are worthless, planning is everything.”
I say, planning is more important than the plans that come out of the planning. Planning helps you think concretely. Planning helps you look at things as they really are. Planning helps you make accurate, realistic, uninflated projections about what’s going to happen and how you’re going to make it happen.
So, I recommend this little document here that we put together. When I was a business mentor with SCORE and throughout the years that I’ve been mentoring loads and loads and loads and loads of people, we have them start with what we call a reality check. This reality check is to take an assessment of exactly what’s going on and exactly what needs to happen in order to get your business up and running. And it helps you think concretely. I’ve helped a lot of nonprofits go into business for the first time, and I recommend the same thing for them.
You need to think concretely.
So, let’s go through these point by point. At the end of this video and in the “See More” section down below this video on Youtube, or if you’re looking at this at thepracticalleader.com, there’s a link for you to go to the page to get this free. You can download this free of charge from our website, I’ll give you the address here in just a minute.
Okay, the introduction, the first thing, give a detailed description of the business and it’s goals. Forget about writing in legal language and all, just write normal, the way you would talk. If you were sitting here in front of me I would ask you tell me about your business and what you want from your business. This detailed description of its goals is more than projections of numbers.
It has to do with what you want from your business, what are you looking to get from your business? Fulfillment, security, happiness, wealth, all of which are valid? Tell me what you want from your business. Give me a detailed description of the business, how it’s going to work, what you’re going to sell, how it’s going to happen.
List the skills and experience that you bring to the business. Do not be embarrassed, do not embellish, do not enhance, be accurate and be honest here. This is not good or bad or indifferent, this is just an assessment. This helps you to know where you are going to need to get help.
Next point, discuss the advantages you and your business have over competitors. I don’t think there’s ever a business anywhere that goes in without competitors somewhere. And so you need to understand what’s your unique factor. How are you going to do things differently so the customers will come to you?
If you remember back early, early, early in this series, I asked you to define what problem you’ll solve, what question you will answer, what desire you will fulfill. You need to define that about your business. If you don’t know that, you’re not ready to start this business yet and you’re certainly not ready to begin the market. Because in marketing that’s the basis of how you’re going to propose that people give you money.
You’re going to solve a problem. You’re going to fulfill a desire. You’re going to answer a question for them.
Discuss under marketing, the products and services your company will offer. Talk about this. Explain what they are. Talk about the features of that and particularly talk about the benefits of your products and services to your customers. Benefits comes in terms of, if you talk about the features such as, well I’ve been in this business, I know all about air conditioning repair because I’ve been doing air conditioning repair for 20 years. Well that’s a feature which is okay. But to begin to define the benefit, add two words to the end of that. I have been in air conditioning repair for 20 years which means… and then fill in the blank after that.
After which means, then you begin to define why your business is important to other people. Identify the customer demand, who’s going to want this product. You remember early on in this series I talked about the client that I had for a very brief time who had spent $60,000 developing a product and not sold one in five years. Not one in five years, because he could not identify why somebody would want it! And neither could his customer. So, you may have a great idea, go back and listen to that video about qualifying your idea for a business in here, then you write this out.
What’s the customer demand going to be for your product or services.? Identify your market size and its locations. You may be very local, you may be regional, you may be national, you may be international. Let’s begin to look exactly who’s going to buy this and where are they.
And then explain how your products and services will be advertised and marketed. Do not go into detail. You’re not doing a strategic marketing plan, you are simply talking here about how you’re going to get the word out. Just because you hang a sign on the building, just because you put a website up on the web doesn’t mean anybody’s going to find you. So, you’re going to have to advertise and market for people to begin to know who you are, what you have to offer, why they should buy from you.
And then explain your pricing strategy. If you’re going to get a certain product and you’re going to resell it, what’s it going to cost, how much are you going to make on it? And this is a very good place to begin to see if you’ve got enough margin in this to make any money.
Finally, operations. How is this business going to work? Explain how your business is going to be managed on a day-to-day basis, who’s going to do what. You’re going to go at it alone? In some businesses you can.
But probably soon you’re going to have to hire somebody. Are you going to have business partners? Are you going to be a corporation? How is this going to work on a day-to-day basis? Discuss hiring and personnel procedures. Talk about the people you might need to hire and then begin to think about what that’s going to mean for you in terms of procedures with those personnel, including paying them.
Discuss insurance, lease and rental agreements. If you lease property somewhere, the landlord is going to demand that you have at least liability insurance which indemnifies him, so he doesn’t get caught in this if someone is injured on the premises you have leased from him. And you’re going to need insurance. What happens if there’s a catastrophe? We live in a hurricane zone here in Florida. What happens if a hurricane blows away your business? Are you going to be insured for that? What happens if there’s a fire? Are you going to be insured for that? What happens if there’s a flood? Are you going to be insured for that? What happens if there’s some sort of accident and you can’t open your business for several days? What are you going to do? Think about that.
And then account for the equipment necessary to produce your goods or services. And that may be something as simple as a computer, it may be as complex as an entire factory full of equipment. And account for the production and delivery products and services.
So, you begin to think about these things and write these things out and you really do need to talk to somebody, a mentor about it. You go to www.score.org, put in your ZIP Code and you can find a local mentor who will help you do this. If you are out of the country, or in an area where you don’t have this, score works nationwide by phone and by email as well. And you should be able to find a mentor somewhere around you who’s going to help you get this started.
Now, if you go to thepracticalleader.com, we have loads of other business startup videos there. And you can find them either on YouTube if you’re right here now, or you can go to thepracticalleader.com/business-startup/ and there’s a page full of business videos and the transcriptions thereof. That is also where you can find the link to be able to go and get this free reality check download, so you will have it to begin to work on your business. If you got any questions I want to hear from you, I can help you out on this, write me Jack@thepracticalleader.com. We’ll see you next week.