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| business plan |
A business plan forces you to think hard about your competition and how
you are going to beat them in the market. It forces you to establish
whether your business idea is worth pursuing. Why start a business that
is going to fail? Isn't that stupid?
An online business is no different from an offline business, when it
comes to business planning. It needs a business plan! Yet, how many
newcomers do we see trying to make it online without even understanding
the concept of business planning? Is it then a surprise that too many
fail?
This article discusses 12 fundamental principles that you must understand and use in your business planning if you are going to run a successful business. The principles are as follows...
1. The Requirements Principle
A business plan must comply with the requirements of funding bodies.
This is particularly key when you are applying for funding, but is also
necessary when you are not applying because the compliance act itself
makes the business plan rigorous. Funding bodies always have
requirements that a plan must meet, and some of these are: technological
innovation, presence of technical risk, and presence of commercial
potential.
2. The Objectives Principle
A business plan must have clearly defined objectives and it must
accomplish those objectives. A business plan is a strategic business
document, and fundamental to any strategic planning process is the need
to have objectives which the formulated strategies must aim to
accomplish.
3. The Motivation Principle
A business plan must have clear motivations which highlight its
importance. The motivations of a business plan are the reasons for
completing the plan. These reasons tell us why the plan is important.
4. The Background Principle
A business plan must be the work of someone with a relevant background
(the founder, for a start-up business), and the plan must comply with
its author’s background. A business plan should be prepared by the
person or team who is going to run the business. For a start-up
business, this is critical because the planning process prepares the
owner for running the business. If the planning is delegated to someone
else then it is unlikely that the owner will understand the plan
sufficiently to be able to implement it. In these circumstances, the
owner abandons the plan and does his or her own thing with deleterious
consequences for the business.
5. The Detail Principle
A business plan must be sufficiently detailed to inspire confident
action when executing the business; yet it must be flexible. A detailed
plan is easier to implement than a superficial plan. A detailed plan
suggests that the plan has been thoroughly researched and thought over.
Detail inspires confidence in the owner of the business (assuming that
he or she prepared the plan). A detailed plan should be flexible to
accommodate changing times.
6. The Conservatism Principle
A business plan must be conservative. This means that it must always
underestimate revenues while overestimating expenses. The reasons for
this are underpinned by risk. A business is always executed under
uncertainty... we never have all the knowledge we would like to make
business success certain. An immediate consequence of this is the
tendency to underestimate cost, only to find that we run out of money at
critical times of a business's execution. We also have a natural
propensity to overestimate revenues... to dream!
7. The Cash Balance Principle
A business plan must always have a positive cash balance. A negative
cash balance means that you plan to run out of money... to be insolvent!
If you cannot realistically get the cash balance positive, without
padding figures, then this is a sign that the business idea is not worth
pursuing.
8. The Insolvency Principle
A business plan must guarantee against insolvency... against running out
of cash. There are four ways to do this: conservative estimates so that
the business always outperforms its plans, detailed cost identification
to minimise omitted costs, contingency planning to accommodate
forgotten items, and a positive cash balance throughout the plan.
9. The Risk Management Principle
A business plan must manage risks by convincingly dealing with
uncertainty, reducing it to as close to zero as possible. This is simply
stating that a business plan must be thoroughly researched, including
desk research and field research. The more thoroughly a plan is
researched the more it rests on sound facts, knowledge, and
understanding, and the less the uncertainty and risk associated with the
plan.
10. The Evidence Principle
A business plan must rest on supporting evidence, and guess work must be
minimised. Sound evidence increases the reliability of a business plan
and reduces the risk associated with it. And the less risky a plan is
the more likely it will guide a business to success.
11. The Rigour Principle
A business plan must be rigorous – complete, correct, and reliable. This
means that the plan must be derived from a systematic process that
attends to all the issues that must be addressed. In particular, the
plan must not be rushed. The issues must be sequenced and dealt with,
each at the right time.
12. The Collaboration Principle
A business plan must be founded on collaboration (not confrontation) –
it must satisfy the collaboration principle. This means that a business
plan must be based on the works of others. It must not be opinionated.
It also means that a collaborative, rather than a confrontational
spirit, must exist in any business planning team if the results of that
team are to be worthwhile.
Final Remarks
This article has discussed 12 killer principles of business planning
that any plan must satisfy if it is to be taken seriously. Five of such
principles are: requirements principle, objectives principle, motivation
principle, background principle, and detail principle. These principles
are a must for anyone running an offline or online business. If your
business is failing it is more than likely that your failure to comply
with one or more of these principles is to blame.
