Winning Business Plan

1959: “The world potential market for copying machines is 5,000 at most.” IBM told the eventual founders of Xerox.

One of the entrepreneurs I enjoy studying is Sir Richard Branson. The media portray him as a fun loving guy. I can’t say if that is true or not because who can believe anything the media say? Having sampled his brands, however, I certainly get the impression that the element of fun runs through the core of his companies.

If you are not enjoying your business then why bother? Of course there are going to be frustrations and challenges, but the true entrepreneur enjoys that. Problem solving as the CEO of a non-employer company is a bit like being a lone detective in someone’s murder mystery.

One has to like puzzles and to enjoy the thrill of solving them. We have to think on our feet, make quick decisions and come up with unique solutions. It is a blast when it works out.

Any customer of the many Virgin® brand services can feel that sense of joy in their work. In their staff I saw the joy of solving problems for the customer. When I fly to Europe or Asia on commercial airlines I am usually just glad to get to my destination. When I am able to fly Virgin Atlantic, however, I am actually sorry when the journey concludes. The difference? With most major airlines everyone is doing a job. With Virgin Atlantic everyone is in the entertainment business. Branson’s sense of fun pervades every detail even though he has very little to do with the airline anymore. Sadly, after all the buy out’s by Alaska and Delta I fear the brand may fade away. I for one will be sorry.

How Branson got into the airline business is a story of problem solving on the spot. Sir Richard Branson never intended to start an airline. But 30 years ago, when American Airlines decided to cancel his flight to the British Virgin Islands, where “a beautiful woman” was waiting for him, he became incensed.

“I went to the back of the airport, hired a plane, borrowed a blackboard and wrote ‘Virgin Air, $39 single flight,” he recalls. “I walked around all the stranded people and filled up the plane. As we landed, a passenger said to me: ‘Virgin Airways isn’t too bad – smarten up the service and you could be in business’.” Branson eventually married the beautiful woman, Joan. Branson got mad about something, worked out a fix, and it eventually became a famous, profitable airline. There was no business plan at first, and certainly no real desire or intention to start an airline. His motivation was the love of a woman who he feared would feel jilted.

In an interview with Entrepreneur.com in 2011 he stated “When my friends and I started the first Virgin business 40 years ago, we had no master plan – especially not one for a group of companies that by 2011 would number more than 400 businesses around the world and employ 50,000 people. Had we tried to plan for such a future, we would certainly have messed it up.

In 1970, my friends and I weren’t planning to do anything other than make some money and have a good time. We loved listening to music, so we tried to sell records to other kids who wanted a fun place to hang out while deciding which ones to buy. We had no marketing plan or budget – our goals were simply to make enough money to pay the rent and our suppliers, and to have some cash left over at the end of the month. Our launch was really no different from that of most small companies, since few entrepreneurs start thinking about their business’s culture and future until it is already well established.”

My main point in using Sir Richard Branson as an anecdote is that I meet too many entrepreneurs who are obsessed with their business plan. They spend months, even years, trying to get it so finessed that it could win MBA awards. I am not saying a business plan has no place. In fact I think a business plan is essential, but the purpose of the plan has to be understood.

The critical starting point is not a mission, vision, objectives bunch of MBA speak (I have a MBA). It is to find something to fix and set immediately about fixing it… before someone else does. That establishes that there is in fact a market need and that your attempt at fixing it has potential.

Only then does one concern oneself with creating a business plan. A business plan should never be created ahead of starting the actual business but alongside it as it starts to grow legs. Then it becomes a very important tool. As we have mentioned already the business you think you are getting into changes quickly once you start. You need to know what you have gotten yourself into before spending time on a plan. Once you figure it out, a properly prepared business plan can catapult you to success.

A Business-Plan is a Tool for Adaptation.

In the early 1990s, a team of Italian researchers discovered individual neurons in the brains of Macaque monkeys that fired both when the monkeys grabbed an object, and also when the monkeys watched another primate grab the same object. This led to a new field of neuroscience that proposes we humans have a group of neurons, now called ‘mirror neurons,’ that allow us to observe and mimic the actions and feelings of others without having to learn through the same experience. Hence, if someone stabs a toe on a raised paving slab, we grimace with empathy, but do not suffer the same injury when we later remember to step over the stone.

While it may seem like pseudo-science to link this to the world of the start-up entrepreneur, one of the purposes of a business-plan is very similar to that of our mirror neurons. It is to help us avoid making the same mistakes as others who went before but failed, while also helping us mirror the best practices of those companies that got it right and survived.

I doubt any entrepreneur guide has ever linked macaque monkeys and start-up entrepreneurs before.

The ability to adapt to changing circumstances is a matter of survival for all species. Companies are no different, especially in these days of rapid technological change when a new invention can make whole industries obsolete in a short time. What is a company but a grouping of people? As an entrepreneur your ability to adapt to the constantly changing conditions in any business is proportional to the depth of knowledge you have of the market and the insights you have of your customers. Depth of knowledge improves the quality of decision-making and going through a business-plan process gets you that understanding.

For instance, one time I was able to significantly raise the price of a product when I discovered that a larger company had recently increased its price of a product tenfold. I was interviewing a prospective customer for a business plan review (I do them annually) who was hopping mad about the competitor’s decision. I was able to do a deserved increase, well below the competitor and avoid any backlash.

Another time I interviewed a potential customer about my prototype product. She just happened to comment that she had seen something similar at a local pharmacy. I doubted her memory but had to check it out. With a little detective work I found a competitor had illegally entered the market despite the patent protection around my invention. Before that company could create too much market damage, I was able to use my strong patent position to get an injunction on their marketing. Eventually they withdrew from the market altogether and agreed an out of court settlement for patent infringement (money I really needed at the time). Without the business-plan process I might not have discovered the competitor until much later when considerable damage would have been done.

Talk to People

The business-plan process requires you to interview or survey customers who have been dealing with other companies in your space. Learning what they like and what they would want to see improved can shortcut you to better design and value. Customers have given me some of the best ideas for product improvements and marketing campaigns.

Social networks and various web-based analytical tools can provide basic data for customer profiling, but by themselves they rarely provide the deeper insights you need. The information is 2-D. You want a 3-D (or even more) opinion, one that includes the real emotion level. If you search this topic online you will find dozens of articles that explain how to determine a digital profile, but hardly any that recommend getting away from your desk and actually speaking to people. It is disconcerting to me that this suggestion to actually meet and greet real prospective customers is suddenly a revolutionary idea.

When I describe what is critical in a business-plan, I am not advising how to produce a MBA thesis, but what you need to comprehend before you can grow your venture with self-confidence. Anticipating a business-plan process can be daunting, but the secret to getting it done is just to start. Jump into it by starting in the middle.

Scientific Evidence for Business Plans

A producer of business plan software did a survey that asked thousands of its users questions about their businesses, goals, and business planning. The responses showed that those who completed business plans were nearly twice as likely to successfully grow their businesses or obtain capital for growth as those who didn’t write a plan. 64 percent had grown their business.

The University of Oregon Department of Economics assessed the validity of the data and wrote a report under the supervision of Professor Joe Stone. Regardless of the type of company, the growth stage of the company and the intent for the business plan, they found that writing a business plan correlated with increased success in all of the business goals included in the study. These were: obtaining a loan, getting investment capital, making a major purchase, recruiting a new team member, thinking more strategically and growing the company.

The authors concluded: “While our analysis cannot say that completing a business plan will lead to success, it does indicate that the type of entrepreneur who completes a business plan is also more likely to run a successful business.”

I am not an advocate of business plans for their own sake. I am, however, a big advocate of an entrepreneur going through the process of producing the business plan. The benefit is the knowledge gained by an entrepreneur through asking and answering all the questions expected of a typical business plan.

When surveyed, however, only 40 percent of the founders of companies on the Inc. 500 had bothered to write a formal business plan prior to starting. Over half of those admitted that their business had strayed significantly from the original plan. Only 12 percent said that they had conducted formal market research before launching their enterprise… and people wonder why such a high percentage of start-ups fail?

Conversely, a SBA study of firms found that 85 percent were still in business after three years—if they had developed a business plan.

This statistic is often used on websites to convince entrepreneurs to pay for some “expert outsider” to write a business plan on behalf of the company. In my opinion, that is a huge mistake and a waste of money. Business plans produced by third parties have no impact on survival. Never pay a third party to write a business plan. It is the experience and knowledge an entrepreneur gains though completing a comprehensive business plan process that makes the difference.

Additional Resources:

‍

What are your views on business plans? When I receive them I read the executive summary and then look for evidence of stakeholder interaction and potential customer feedback. I cannot think of a case when I found that data in a business plan.

‍