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Do business plans work?

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In my previous blog – ‘So what’s all this about business strategy’ I discussed the most effective way to produce a strategic plan – a POST plan, an acronym for Position, Objectives, Strategy, Tactics. This is the process I have developed over many years setting up and running businesses and developing successful strategies for stakeholders. But it is undoubtedly the case that, in most small/medium organisations, little thought is ever giving to the structured development of a strategic plan – a business plan. In many cases this is entirely understandable – what strategic planning would be required for a sweetshop for example. But, perversely, there is always a justification for a little time being spent in setting down a structured business plan – yes even for a sweetshop. And if ever you need to raise investment capital from a bank or VC, just try doing it without a plan.

Let me expand upon this point. No-one is likely to argue against the need for a fully detailed strategic plan for a large corporation or organisation. At least I hope that this is the case because producing and executing such strategic plans for big corporations has provided me with a comfortable living for the past few decades. In any case, it’s been my experience that big corporations and in particular, local and national government organisations are absorbed to the point of obsession with strategic planning – quite often ineffective. They have to resolve issues of delivering the objectives of the shareholders, the owners or the governmental officials. However at first site for a small start-up, if you’re going into hairdressing for example, you won’t initially be too bothered about a strategic plan. Why would you? But the key elements of the POST plan require consideration exactly the same in this example as with a multimillion dollar corporation.

Position -What is your financial capacity? What skills do you have? What’s the competition in your proposed market area.

Objective – To make a living? To develop a chain of salons?

Strategy – To offer a simple mobile service? To open a salon in the high street.

Tactics – When, How much. Staff requirements. Investors pay-back.

All of this leads to essential considerations such as; what equipment to purchase,  what premises are required, what staff requirements etc.

Some Case Histories.

Here are a couple of case histories from my own experience. I hope they illustrate my main point – that planning is a better option than not planning.

I was invited by one of the big banks to take over as an interim CEO of a medium sized company that manufactured domestic electronic components and industrial components mainly for the electricity generation, distribution and domestic control markets. The bank had provided investment funds over the previous 10 years, based upon a vastly over egged business plan and the company had reached serious default in meeting repayments – to the point that the bank was considering its options, of which liquidation was the most likely.  Using the trusty POST format, the management team were invited to develop a new plan.

The position was dire. The business was virtually bankrupt and its bank had lost confidence in the management team. There was a much greater level of overhead and non-income generating activity than could be sustained by sales revenue. But there was a good engineering skill set with a developing product that offered much potential.

The objective was easy – To generate sufficient revenue to pay off the bank’s investments, which realistically meant reconstructing the business to achieve a sale as a going concern.

The strategy to achieve this could only be based upon an ‘earn-out’ plan –(ie to develop the business rather than liquidate it, as the liquidated value was nowhere near enough to cover the outstanding debt) and to sell the business as a successful going concern. This flowed down into a strategy for developing sales and reducing costs and a single product development strategy was focussed on – an industrial component that served the newly emerging smart energy market.

Tactics (operational plans) were developed that focused engineering and marketing resources on the key product and divesting all of the activities that did not support this strategy. This involved shedding staff and investing exclusively in the marketing and development of the key product.

The result was that the business was reshaped in line with the strategy and, after a period of 4 years, was sold to an overseas competitor who wanted to get into the UK smart energy market. The bank recovered all of its investment, the business thrived under new ownership, I went off to my next assignment (with a bonus – a nice little earner in the words of Arthur Daley).

My second case history is a much smaller enterprise. Whereas the business above was a £100m enterprise, my next example is a business with a turnover much less than £100k – a hairdressing and beauty therapy service. This was more a helping hand assignment than a paying job but nevertheless involved the same trusted POST approach.

The position was interesting. A very experienced and popular hairdresser and beauty therapist who wanted to retire from salon work and branch out as a sole trader. Not a lot of money to invest. Need to hit the ground running with minimal start-up income gap.

The objective was to provide a good income for the ‘entrepreneur’ (I use the term in its broadest sense) as quickly as possible. This was not a business development undertaking but more a deliberately low-key objective.

So the strategy was easy, but worth being very clear on. Keep operating overheads to a minimum by ‘going mobile’. No investment in a salon – it could not be justified where the objective was limited to creating a regular albeit good, income for one person. Taking the service to peoples homes meant minimal overheads, minimal equipment, nearly all income was straight to the bottom line – ie profit/income.

The tactics dropped straight out from the above strategy: get a suitable car that doubled up as the family car, purchase home-suitable equipment. Advertise by letter drops and targeted email marketing.

The result of this plan was a very successful little business that generates a very good income. The problem now is that there is a great opportunity for expansion with additional staff and cars on the road – but that’s the second POST plan.


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