In Five Dysfunctions of a Team and most of his other works, Patrick Lencioni comes back again and again to the importance of cascading communication throughout the organization in order to gain buy-in, create clarity, and build trust. Leaders need to be intentionally transparent with employees and with each other. Read what happens when communication is happenstance in “When Leaders Play the Grapevine Game“
I’m a small business owner and although my company is growing rapidly, I am working on developing a comprehensive strategic growth plan as our goal is to expand our business into the entire Southeast region within 3 years.
I have recently completed (updated) my company’s ‘business model’ and am now working on the cost-profit model as it relates to my developed business model. I’m also working on documenting my company’s core processes in an effort to standardize our work and to serve as a training tool for future employees. My question is, are there any pitfalls or drawbacks to developing my cost-profit model at the same time I’m documenting our core processes? If so, which should I do first or which one is more important?
– Andrew R. (March 13, 2016)
Andrew, thanks for your question. First, let me say that the cost model (or cost-profit model as you referred to it) and documenting your company’s core processes are both critical components to developing and achieving a successful strategic growth plan like what you described.
Kudos to you as a business owner, as our small business consultants routinely see business owners or leadership teams with grand visions of what they want their company to become, however they’re lacking the key components to building and implementing a successful plan for business growth. The analogy we use with our clients is that you can’t build a large building (prosperous business) without first establishing a strong foundation from which to build it.
Otherwise, the structure will continue to collapse around you, every time you start building it higher and putting more stress and strain on it. The same analogy is true for trying to grow or expand a business without having the core pieces in-place with which to build from. So with all that said, our firm would recommend that you complete your cost-profit model BEFORE you begin tackling the documentation of your core processes. Our recommendation is based on the fact that you may need to tweak or refine a few of your core business processes based on the output or knowledge gained from your completed cost model (cost-profit model). Our analogy is: You don’t tighten down all the lugs on a wheel until you’re sure the wheel is on straight. We hope you find this information to be helpful to you and your company and appreciate you reaching out to us. If you reach a stumbling block or need additional assistance, please feel free to contact us to schedule a FREE initial consultation with an Affirm Consulting small business expert.
Dennis Hough – Affirm Consulting (March 14, 2016)
Some might think that a business plan is something the big corporations need, or an upstart entrepreneurial endeavor, but the reality is that business planning is for all. Whether yours is an existing concern or an idea that’s been rolling around in your mind, a business plan is a near necessity. Especially so if your original plan took you only so far as getting an entrepreneurial business off-the-ground. Once off-the-ground, you might need to ask: where now? That’s where the Plan can help guide the way forward, for you, and for capitalists, if venture capital is needed to grow. Okay so any going concern would benefit by a business plan, but how? What’s so important beyond convincing possible investors to fund your growth? Well a business plan is a gauge of the health not only of the business to be or the business as is but, of the clarity of vision for the business leader(ship).
In its essence a business plan need be nothing more than a back of the envelope written concept of an idea for a business, almost invariably ideas come from seeing a need or a gap in what people want or need and what is available. So beyond a basic idea for a product or service offering, what else should a business plan include?
Broadly speaking the Plan lays out the vision, or goals as some might be accustomed to seeing it stated, and the strategies of the firm. We’ll come back to some of the particulars when it comes to determining strategy but, for now, let’s take a quick look at what I see as bare-bones necessities for a business plan.
These come from personal experience over the nearly three decades. And what is to come is the result of some difficult lessons learned (shortcomings in planning) for a few entrepreneurial efforts that could’ve been measurably more successful had I taken more time to create detailed plans rather than broad brushed business plans. Alright now for some of those bare-bones requirements needed to make a good business plan. Keep in mind, the plan, like the business once started, needs to be a dynamic organism.
The Concept: this is more than merely stating the product or service you have in mind. The Concept needs to address how you see the organization (internal environment) being structured once up and functional. Remember at some point the entrepreneur needs to either hire a professional manager, or plan for the eventuality that s/he will need to evolve into manager more so than skilled technician. Providing a sense of this in the Concept tells you and others looking at your firm that you see beyond the horizon and thus an element of success to others is that you see and value the perpetuity of the firm.
The Customer: many talk about this component being the external environment or marketplace but, neither stresses what is of paramount importance (here’s where my academic training failed me in a prior construction business). Customers should be Priority #1. Without them, and without coming to a heartfelt understanding that no firm exists or continues to exist without them, the business (organism) will cease to thrive. Each of us can think of a firm, large or small, where we sense without needing volumes of research to convince us, that the firm has lost sight as to whom it serves. Some firms I’ve seen seem to have lost track of the very foundation of their existence. A good many firms begin to see themselves as the center of the business universe for which the customer “needs them” and not the other way around. And since the Customer is Priority #1, what then do we need to address in a Business Plan? To answer this question, we need to remember this is about the Customer, where s/he is? What her/his buying habits or needs are? And since this includes a broader view of the external environment, here we need to take an honest view of who is the “competition”. For the entrepreneur this can be an undesirable or unsavory part of planning, getting into such details. Along with having professional assistance in adding needed details to an overall Plan there are professionals who can take this step of the Plan and provide competence where far too many entrepreneurs haven’t the experience. In helping a friend get a small-town sandwich shop off and running, I made a mistake, which fortunately wasn’t costly for him but, for me came to be a real lesson learned. Consider not all sandwich delis are your competition if your vision is for providing artisan sandwiches no one else is offering, though there are some consumer substitution buying decisions possible. And for the purposes of this blog, I’d like to wrap-up by addressing what most will immediately see as the financials but, in keeping with the “C’s” of Business Planning, I’ll describe what follows in terms as the Currency.
The Currency: for this we’re looking to convey our plan for funding our attempts to establish, grow, and mature the business. For most this often comes about by individuals funding their own start-up. But what after start-up? How do you see yourself being funded thereafter? At what junctures do you see additional funding being needed? So in this part of the Plan we address the immediate-term (start-up phase), the near-term (growth phase) and long-term (maturity phase). Now because we’ve addressed Currency needs in phases we added depth and breadth to our Plan and for potential sources of Currency (funding) we have likely addressed potential investor concerns. As with any discussion of Business Plans and money, here to, a Plan needs to address how Uses of Funds as well as Sources of Funds will be handled. Often the start-up will employ the simplicity of a business draft account from a local bank but, the Plan needs to address growth in terms of more elaborate accounting systems; there are a number of satisfactory owner/operator and small business spreadsheet based accounting systems. At a minimum when evaluating a possible system, most recommend that the chosen software system include functionality for income statements, cash flow, user-defined, business specific financial ratio calculations at the click of a mouse, and for this Blog I will suggest that a superior software package will include a basic break-even analysis tool. For this final piece, there may be a need for some expert coaching for the sole proprietor to add a basic level of financial analysis competency to her/his natural capabilities.