So – Why a business plan?
By Roger La Salle
My last business insight drew a huge response. In essence everybody was agreeing with what I was saying but asking the question – so why bother with a business plan, or better still, how can we avoid the common failures?
Without doubt the biggest problems with business plans are the rubbery figures used to support the business case.
For certain, market forecasts, margins and diffusion rate (the rate of market penetration) are the common failings. However, a well prepared business plan not only makes forecasts but also outlines strategies for achieving these forecasts and the means for building the business. The logical thinking and documentation that underpins the business plan is important to potential investors as it assists in demonstrating the qualities of the entrepreneurs. Indeed it is often said, investors invest in people not ideas and thus a well-structured logical business plan is one way to build investor confidence.
The “maybe” known space
In reality the only business plans that may inspire some confidence in their forecasts are the ones where a clear unambiguous cost benefit can be shown between an investment and a return. For example, a power tool compared with a manual tool. But even then, things can go wrong.
In recent times we were being inspired to install solar panels to lower power bills and even receive power company rebates, but now of course that is all changing and the economics are now nowhere near as good, and will no doubt further deteriorate. So even a clear cost benefit can be compromised as the business or environmental landscape changes, often even before the product is on the market.
A good business plan needs to lay out the cost benefit and at the same time present a sensitivity analysis as to the effects of a changing business and investment landscape. Clearly there is no certainty in any business plan, it is really a best educated guess, but a guess whose accuracy can be heightened with a clearly demonstrable value proposition.
The “Unknown” Space
When it comes to developing a business case for something where it is virtually impossible to estimate sales, this really is guess work.
For example who in their right mind would have invested hundreds of thousands of dollars in tooling for a “Rubik’s cube”, a product with an indeterminate value proposition? Of course somebody did, but what a fluke to get that right.
So too with Twitter, who in their right mind would have predicted the success of Twitter, a system that by its very nature limits the amount of information you can send? But what an amazing success.
How about an improved Twitter, let’s call it “Twitter Plus? A system that uses the Twitter model but removes the character limit, or maybe simply enlarges it to 500 characters. Any investors?
Business plans are important, but the real message they carry is about the people much more so than the wonderful forecasts of great success.
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Roger La Salle, is the creator of the “Matrix Thinking”™ technique and is widely sought after as an international speaker on Innovation, Opportunity and business development. He is the author of four books, Director and former CEO of the Innovation Centre of Victoria (INNOVIC) as well as a number of companies both in Australian and overseas. He has been responsible for a number of successful technology start-ups and in 2004 was a regular panelist on the ABC New Inventors TV program. In 2005 he was appointed to the “Chair of Innovation” at “The Queens University” in Belfast. Matrix Thinking is now used in more than 26 countries and licensed to Deloitte, one of the world’s largest consulting firms. www.matrixthinking.com
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