We as
How often does your
Now I'm not talking about proforma financials, because I will assume budgets are being prepared, but where talking about thinking about what your company really is today, it's strengths, and weaknesses, what opportuntites are available and threats that are hindering your success. Whether the core and/or peripheral business lines can changed, should change, will change.
One concept I have used for business planning is a rolling 5-year plan: the previous 2 years, the upcoming year, and the two years after that. Each year the plan is evaluated for results in the previous two years using the financial results to review what is working and what is not; projecting
Standard five year plans do tend to get low priority because of the fact that it is difficult to accurately forecast out that far for small to mid-size businesses. This concept helps keep the business plan and strategic direction in focus and allows for flexibility as conditions change.
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I wonder, because I've heard from others that SMB vs Large businesses have trouble forecasting out long periods.
Why is that? What makes Large businesses able to do a long forecast and for that matter how accurate could it be anyway?
Kirk,
Based upon what you said, you are essentially looking at the strategic/tactical plans, not the financial.
If this assumption on my part is correct, why is that?
Wayne,
From an investor standpoint, we look closely at the strategic/tactical plans, which typically are multi-year execution strategies. You take that thinking and couple it with the general financial assumptions for around 5 years and determine if the entreprenuers are realistic about the opportunity, as well as their ability to realize it. It also provides a starting point for the investor's evaluation if the market opportunity is large enough to provide the desired ROI. Assuming there is planning reasonability, and acknowledging that there is a decreasing accuracy of forecasting revenues out as far as five years, the operating plan with more specific benchamrks on how the Company will make progress toward that 5 year destination is crafted. My experience resides mostly in high growth, technology related business. Unlike larger businesses with established markets, many times these companies are creating new markets or sub segments of exisitng markets. Accordingly, assumtions based on nebulus information is the only data available to work with. I counsel entreprenuers to think of the process as planning a trip to drive from LA to New York. You have the broad plan (business paln), which may include general detail like a southern or mid america route, then a more granular plan (Operational Plan) that details how you get from LA to Phoenix as part of the drive. If you find yourself in SF, you have to be able to find out where it went wrong and correct it before you end up in Seattle, as your end goal was New York.
Regardless of whether there are near term intentions to approach a lender or investor, the business plan and process surrounding its creation/revision is invaluable provided all of top level management is involved. There are two kinds of plans, business and operating, with the latter being much more granular. Simply, the business plan is the strategic evaluation of WHAT the business will do and the operating plan is HOW that will be done. For companies in very dynamic markets, the strategic assesment of the competitive landscape, market opportunities and other market forces is at least an annual review. Perhaps less so for business segments that do not see as much change as the
What is most important to accomplish during the process is creation of a realistic plan with distinct metric driven benchmarks that afford the retrospective ability to measure, thereby providing insight into overall realization of the opportunity. Again, not the specifc nuts and bolts of the numbers, but a more global vision of how the company is progressing in relation to the market opportunity.
In my over 20 years expereince investing/working with growing companies, those that invest the time to adequately plan and then monitor those plans are much more likely to see their efforts rewarded than those that are less rigorous.
Playing the role of Professor (which I was), you wrote:
"... many times these companies are creating new markets or sub segments of exisitng markets. Accordingly, assumtions based on nebulus information is the only data available to work with..."
So taking this assumption (and lets use high tech, your bailiwick), and making a somewhat logical leap that they are creating new markets, how do you determine what that market is, what the growth may be and if even is the market can be created and grown.
What metrics are you testing to determine that the assumptions might even be true?
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Though a new market is being created, it is likely an offshoot or parallel market that has similarites exists. Think PC market and tablet market for example. You can make some assumptions about the tablet market based on the metrics of the PC market, like adoption rates, replacement rates, market penetration based on TAM, etc. Regardless of the metrics, it remains very much more an art than science when dealing with new markets. This is why most VCs place such a premium on experience. The ability to move quickly in response to market signals can be the life fo death of the enterprise.
Thank you Kirk. I appreciate te honesty ("...an Art...").
So it would seem we're the only people thy dust off our business plans....
