Is a Business Plan Any Use?

>>Steve Macaulay: Are business plans of any
use? Now at one time that was considered an heretical question; something that you absolutely
needed if you were to run a successful business. However, in more recent times there have been
people that have pointed to very successful businesses, that have been successful without
a plan. So let’s have a look then, with the help of Professor Andrew Burke. Now, Andrew, you have got a lot of experience
in this area, you have done some research into business planning and you have seen a
lot of business plans in your time. So let’s ask this first question; are they any use?>>Andrew Burke: Well that is a very good question,
Steve, because as you rightly point out, a lot of people observe high performing ventures
that don’t have a business plan. In the joint research that we have done with Stuart
Fraser and Francis Green of Warwick Business School we have found that indeed a lot of
high performing ventures don’t write business plans. But what we do find is that if ventures
do write a business plan, whether high performing or low potential, that their growth potential
is increased by around about 30%. So it is quite a big effect.>>Steve Macaulay: So is it something to do
with the qualitative nature of a business plan? Andrew Burke Yes; well this is one thing
we can see from almost twenty years of looking at practice is that it is not whether you
have a business plan, it is very much what type of business plan you have. And there
is a false debate out there, and the false debate is that there are two approaches; a
very rigid sort of plan, where people can predict the future with great accuracy, they
write the plan and guess what the venture actually achieves this plan, versus another
approach which is to just go out there and start to trade, see where it takes you and
adapt the business as it goes along. In fact, the best business plans take both
approaches together. What they typically do is they go out and they try and sell, they
take that information, that becomes part of the research underlying the market prediction
and ultimately the plan is not so much about trying to predict the future with accuracy,
it is a plan about how to be adaptable, how to sustain the business and how to develop
it towards exploiting the target market opportunity that the firm has identified.>>Steve Macaulay: So, give me some practical
areas then that you would say if you can find a good business plan it needs to contain these
things.>>Andrew Burke: I think if there is one aspect
of a business plan that whether it is an investor, or somebody who is interested in earning some
sweat equity in the company will look at, it is that the link between the qualitative
story in the business plan – the text or the wording in terms of what that is describing
– and the financials. And what you typically find in Andrew Burke a weak business plan
is that these are two different worlds. In other words, the assumptions underlying the
financials don’t link up with the actual qualitative description. And unfortunately
when you see that, that reads an indication that whoever is putting that business plan
together really doesn’t fully understand the financial ramifications. What it also typically indicates is that the
link or really the assumptions underlying the revenue projections and underlying the
costs – if you ask yourself well, who is going to be a bit vague on understanding the
revenues and the costs? And the answer is somebody who is not really out there engaging
in a practical, real world sense in those because in terms of the revenue, what ideally
you want is the individual to have talked to customers to try and sell to some of their
target market, and therefore be confident of the volume of sales that they are likely
to get. Certainly in the near term – and as the venture grows, to have knowledge of
some companies that are similar to this one so that they know that similar firms have
achieved these. Likewise with prices. And of course, back with the costs, is that
they really should know their business and if they know their business then they will
be able to justify the assumptions on the costs.>>Steve Macaulay: So if we were to look at
any other characteristics of what makes the difference that actually achieves this 30%
difference, what would it be?>>Andrew Burke I think the key thing is if
when you look at successful ventures is that they are extremely agile; they are able to
let their strategy evolve, often they go into a market to sell one thing and then suddenly
discover that there is a new market demand in a different market segment and they are
able to change direction. And what this implies is that good planning
builds agility and that means that you don’t throw all your finances at the first iteration
of your business plan; you hold some back for the unexpected, you stage your business
– you phase your business – you de-risk it. And a really good example of the importance
of doing this is that if you look at most business plans they have at least five years
of financial projections and yet we know that in the real world most businesses have failed
before they reach their fifth year. So navigating to that fifth year is incredibly important.
If you have a business plan that just projects one scenario it undermines the confidence
of somebody else looking at the business plan in terms of financing it because it demonstrates
a naivety, because in many respects that is not how businesses evolve.>>Steve Macaulay: So in summary then, Andrew,
if we were to look at should we go for a business plan or not, what would your answer be?>>Andrew Burke: I am tempted to say that the
answer to that is yes, but I think the key message here is that it is not yes or no;
the key message here is in terms of what type of business plan you have. So in some ventures, yes, you may want to
write up a fully fledged business plan from executive summary right through to financial
projections. In others, you actually might want to have the business plan emerge. So
the first thing you might want to do is simply to go out there and try and sell the product
or service. If you find that there is a negative reaction, you might decide to do something
else and you might never complete that business plan. But I think the essence here is how
you approach your planning.>>Steve Macaulay: So, it is not what you do,
but it is how you do it.>>Andrew Burke: Absolutely.>>Steve Macaulay: Thank you.

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2 thoughts on “Is a Business Plan Any Use?

  1. e. You know that big bullshit businessman smile? And if youre a customer WHOAA daddy, that's when you get the really big smile! Customer always gets the really big smile! As the businessman carefully positions himself directly behind the customer, unzips his pants, and procedes to service the account. 'I'm servicing this account. This customer needs service' Know you what they mean when they say 'we specialise in customer service'

  2. Everybody should know by now that businessmen are completely full of shit. The vast majority, low-life criminals. Need proof? They don't even trust eachother. When a businessman sits down to negotiate a deal the first thing he does is to automatically assume that the other guy is a complete lying p***k that's trying to f**k him out of his money. So he's gotta do everything he can to f**k the other guy a little bit faster, and a little bit harder, and he's gotta do it with a big smile on his fac

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