The biggest piece of advice I can give to anyone looking to start a long-term company is to plan first. I see many blogs that advise you to not worry to much about a plan. However, you must look at the writers history, and what type of business they are dealing with, and how many businesses they have built.
As a consultant, I perceive the lack of a business plan to be a half-hearted approach to investing in your ideas.
Doing the planning work is the first leadership pillar for your company. Lets review how having a plan will help the future of a start-up.
The Study of Entrepreneurial Dynamics, a national generalizable survey of more than 800 people in the process of starting businesses, found that writing a plan greatly increased the chances that a person would actually go into business. "You're two and a half times more likely to get into business,". It makes total sense to have a higher success rate when you see the investment of time, research and understanding in your own idea. (* referance of study:https://www.entrepreneur.com/article/198618)
1. Having a plan will answer questions for many needs.
Have you ever been asked a question and you really needed to research the info to back up the answers? Building a product will have 1,000+ questions that all need answers. If there is no plan in place, it can create a very tangled mess of answers, direction, overspending, and legal ramifications. For example...
1. Is the item you want to make under a patent?
2. How will you be selling the item?
3. Where is the item made?
4. Who wants to buy your idea? What is different and special?
5. What is the brand identity?
6. Does someone own that name in copyright or patent? Who are the competitors?
7. Is the website name available?
8. How much capitol is needed?
9. What do investors need to know?
10. How do you want your brand to exist over time or evolve?
Every person you will hire will have questions. If you don't take the time to learn these before hand, other people may not be willing to help you create your company. A great example was a vendor I spoke with in Texas. They were a sewing manufacturer and the founder had asked me about 10 questions outside of the information I gave and asked of her. She had said that it was really nice to discuss the project with a person who knew all the aspects to the project. She was tired of talking to people who have no plan, and no idea about the work needs. She stopped taking on the person who didn't plan. She said more people in the factory community have been turning away projects due to the lack of formal business plans. "It makes them unreliable and emotionally risky" was the standout comment. The stress of not learning before hand makes them stressed during the process, and communication is one sided due to the inability to understand. Below is a chart I provide to any consulting I do for a beginner. This shows all the sectors that will need to be addressed and thought about.
2. Having no plan disrespecting others time & efforts.
How many times have you worked with someone who came unprepared, and more time was spent getting them prepared than executing the project? How did this make you feel as a collaborator or participan?
As a founder you are also a leader. If you can't take the time to ensure every person you will work with has the same set of tools and planning, how can you expect results?
As a brand builder, there are so many questions surrounding consumers, pricing, identity of brand, laws, and etc. We need these pieces of information in order to outline a plan of deliverables, and goals for the client, and also a schedule that will work with all other client needs.
If a potential client does not have this well researched, I will not do business with them as it inevitably ends up in wasteful processes and systems. Basically to many ideas, and not enough planned approaches. This will usually put the founder into a role of follower, rather than leader. So in essence it can also cause the founder to feel disrespected as they can't lead without proper plans. The lack of a plan will create a disruption in team building.
3. High Fail Risk
I won't ever bring on a client without the plan in place. If they don't want to create a plan, that is fine, however I know many other factories and suppliers that have found the people who won't plan, are also the ones on the high fail spectrum. They lack the understanding of success, so when they fail, they also will lack the understanding of why they failed, because they didn't plan for success. So what makes success happen? In many cases its a stable consistent schedule. Delegation of tasks for each persons work center. If someone is crossing lines into another work center because they don't plan the week out, or get unfocused, it can create wasted work, disruption in another teams process, and lack of accomplishment in the needed work centers. I love Herman Sui because he teaches that success is born of personal habits and this will carry over into work. If we are balanced in home habits and close cycles, we will do the same with work. He also speaks to the habits being helpful to long term inspiration rather than short term motivational plans.
For example, lets say we have the social media person that needs to post 3 time a week on a specified subject, but no one has reviewed this with them. They want to be productive so they will ask others for help because the lead isn't getting back to them. People are left to fumble through the persons needs and their own work can be falling short. Maybe two or three areas that are falling short, because one person isn't getting their plan. It costs more money and time as a result. The employees or advisors are left feeling like their performance has failed. This leads me to my next topic of sanity.
4. Brand Identity and Emotional Sanity.
As you can see the above example isn't a very happy environment. People want to be helpful so they offer up thier time to help. Yet their own responsibilities fall to the side. Or they end up taking on additional projects that make the schedule overwhelming. This is a direct reason for identifying your vision statement and company culture in a plan. If you don't know what this looks like, how will you catch it when it's a small problem? Do you want people to walk away from your company experience feeling as if the founder was lacking work ethic, by not living the culture? This probably the biggest aspect I see in founders. If task management and people management are weak areas for you, I would suggest a coach that can help you learn this skill or study personal awareness and set small goals. Follow the links for additional learning material...
1. Personal Development Coach- https://www.hermansiu.com
2. Personality Typology used by several successful businesses in the hiring process https://www.16personalities.com/personality-types
3. The 5 Chairs communication technique for better company culture: https://www.the5chairs.com/managing-across-cultures/
5. Secure Funds:
Securing funding almost always requires a formal plan. Companies funded by friends and family may not need a plan, if you go to venture capitalists, commercial banks, government-backed lenders and most angel investors, you will need a business plan. Its nice to think you will make tons of money, and shoot for the stars, but tight financials that are really conservative are always better. We know that you can't really have a business without the money. I review plenty of financials and am able to see a very detailed story that comes across in the accounting. I can see when someone is sugar coating numbers, to hide loss.
For example, I had a fiscal plan that had all products being carried every month of they year, yet the products wouldn't be shipped in until may. So why was the accounting showing sales on a product that wasn't releasing until later? A banker or VC will call this out right away. The pattern is unusual.
I was also able to track money laundering by looking at a sales persons return to sales ratio. It was borderline out of balance to the average rates. I researched the paperwork and found over $10,000 in theft by the sales person in 1 year. The person also happened to be the friendliest person on staff. This was considered grand theft, and required law enforcement to come into the problem.
Bankers and other investors can also see the same story. If you dont understand accounting or numbers it will help you to hire a numbers person. Having a honest show of accounting will give more traction, than a dishonest set of financials.This is another area I see many people fall short. It will also keep you from owing more to the IRS.
Hopefully this has given more detailed information behind the WHY of planning. If you have a concept and need some general direction before you start, please make an appointment. I provide a 1 hour consultation for $40.00 this may help you save time and money.