On the table in front of you in a stack of papers 4 or 5 inches thick.
It’s everything. It’s your bible.
For the past 5 months, you’ve anguished and agonized over this document. You’ve worked late into the night and on weekends, pouring over each word and phrase, tweaking your financial models, and researching competitors.
This is your business plan. You’re finally done.
Well, actually, no, you’re not done. And you probably spent too much time working on the wrong things, at least according to one entrepreneur and angel.
“For eight out of ten companies, we dismiss them based on their summary alone,” says Tim Berry, a world-renowned business plan expert, angel investor, entrepreneur, and author of the 2015 book, Lean Business Planning. “The other two, it comes down to the pitch and how well they know the numbers.”
He spoke with us about the role of the business plan in the modern world of funding and venture capital.
According to him, you don’t need a big, fat business plan to get in front of investors. And if you have one, most of them won’t read it anyway.
Having a plan is important for companies to raise capital, but a leaner, more-agile form of business planning is the right choice for most companies (and for investors, too).
A Look At the Lean Model
In Berry’s book, he outlines the tenets of lean business planning, why organizations should embrace the model, and how to execute.
According to Berry, a Lean Business Plan contains just four basic sections:
- Strategy – A list of bullet points that outline the specific strategy that the firm will pursue relative to competitors and defines the target market
- Tactics – Another list of bullets that define the tactics that roll up into the overall strategy (e.g., sales activity, marketing activity, etc)
- Concrete specifics – Milestones, metrics, and responsibilities that will be used to hold managers accountable and provide a basis for comparison versus actual performance
- Essential business numbers – Financial projections, marketing spend, sales forecasts, and other specific figures that show financial competency and give you a look at the actual business in dollars and cents
All told, these sections add up to a 4 or 5 page plan that can tell the story of your business. But there’s no room for fluff– everything is hard-working content that requires precision.
“When you need more, add more,” he notes, saying that some businesses may need to eventually create a more detailed plan to show outsiders (note: not all investors are interested in a heaving business plan, but more on that below).
Monthly Reviews Required
The other core aspect of Lean Business Planning is how the plan is used within by the business.
For many companies, business planning is done once and quickly forgotten. Or perhaps it’s a process that gets revised once every 1, 3, or 5 years. But the business plan isn’t being constantly reviewed and edited. And that’s bad business, says Berry.
“You never finish a business plan, heave a sigh of relief, and congratulate yourself that you’ll never have to do that again,” he writes in his book. “You don’t use it once and throw it away. You don’t store it in a drawer to gather dust.”
His model emphasizes the importance of revisiting your business plan as often as once a month. Managers should review it and the information inside to see what’s changed and what hasn’t. Are goals met? Are you on track for the milestones that you set forth?
This process is known as PDCA or Plan, Do, Check, Adjust. It’s iterative and repeatable. Rather than trying to get everything right on the first go, you lay out a set of assumptions and projections, see how things go, and then adjust those plans as needed.
This lean model requires that the business plan be living, breathing, and fluid.
Lean, But Strong
“Focus is essential to real business,” says Berry about the elements comprising his lean model.
All of the information included in the plan should define that focus and provide a level of accountability. The rest– thousands of words and dozens of pages that make up many business plans– is really just filler.
“The pitch– the summaries– have substituted for that text summary part of the traditional business plan,” he explains, recalling how business plans have gotten much shorter since his early days as an investor and entrepreneur in the 1980’s.
To Berry, the role of the business plan has always been to provide a foundation for your business — “a dashboard with knobs to turn,” as he calls it.
It gives your management team a way to see what’s changed and what factors can be changed.
Any variance can be cross-checked with the numbers to see where things went wrong or right.
And those numbers can be tied back to the specific responsibilities, tactics, and individuals.
What Investors Look For
Just because your plan doesn’t need to be extensive doesn’t mean you shouldn’t have a business plan.
Berry warns entrepreneurs about skipping the business plan altogether, calling it a “great fallacy” that you can raise money on the power of a pitch alone.
“The lean business plan does pretty well for angel investors these days, too,” he says. “[But,] you can’t really do an effective pitch unless you know those numbers.”
Anyone who’s watched the show Shark Tank has probably seen this scenario play out in all of its spectacular, uncomfortable glory. A passionate person steps on stage to pitch a visionary idea. They finish and you can tell the investors are interested. But as soon as they ask a single question about the business itself — the hard numbers — things start to fall apart. They can’t tell you what the cost per acquisition will be or what kind of profit margin the company will earn on products sold. Ouch. How can an investor trust you with money if there are no numbers behind your idea?
“We would never consider investing in a company that doesn’t have the essential numbers thought through,” says Berry of his own activity as an angel investor. “We never believe them.
They’re not accurate. But we need to see that you’ve thought them through.”
His philosophy is one for expecting and managing change. And to create a business plan that can do that, you need to strip it down to the basics. The more specific your plan is, the more rigid your business will feel.
And that’s really the crux of Berry’s philosophy.
Your company doesn’t need a massive business plan to outline the workings of a mighty business. But writing a business plan– lean or otherwise– and then sitting it on the shelf for the rest of eternity is just wasted effort. In the lean model, business planning is a process of constant learning and change.
“Keep it short. Keep it simple,” says Berry. “Review it and revise it often.”
Listen to our exclusive interview with Tim Berry