Badges? Badges? We don’t need no stinkin’ badges. And so, I paraphrase from The Treasure of the Sierra Madre. 1948.
I am a killjoy. How do I know? Because my wife told me so. Actually, she told me that many years ago. And believe it or not, it was in reference to business planning of all things! I’d like to believe – to this day – that my status as a killjoy was limited to the topic of business planning and didn’t extend to every other facet of my personal and professional life.
Why a killjoy? In this case, it was because she asked me to provide her some help in starting up her new business. This was over 35 years ago, so, of course, I told her we needed to start with a detailed business plan. I discovered that I took all the fun out of the project for her. Why the need for detail? Why do we need to do projections? Who cares? I just want to have fun running my business. Well, if you are running your business only for yourself, then I guess no plan is needed. So long as you can measure fun outside the parameters of profit and loss, then have at it! On the other hand…
If your business is to thrive for the long haul, build customer relationships, have a supply chain with active vendors, hire employees, and maybe even raise outside capital – via banking or investors, then we need to examine the necessity of business planning.
For some reason, I sense that in the past ten years or so in the startup space, more attention has been given to effective pitching than effective business planning. You can’t have one without the other. The refinement and delivery of a pitch for funding is essential, but it needs to be built upon a foundation that includes effective business planning. Your business plan needs to be a living, breathing thing. Your sales projections, your hiring projections, your cost of goods sold – everything – needs to be in there. And if you are in a position to build that off of accurate historical numbers all the better!
When I was running a company that had product in 40,000 retail outlets, we did our business planning on an incredibly detailed basis. Sales were projected for every month out ahead of us – not just on a store-by-store basis, but on a door-by-door basis. What does that mean? It means that we projected sales on the known “sell-through” we expected to achieve at every single store (or door) of huge retail chains. One of those chains (you can figure out who) even provided us week-by-week actual sell-through on a store-by-store basis in real time!
Why was that so important? Why was it so accurate? For instance, if I knew that I was averaging one unit sold per month for every two stores I was in at a 500-store retailer, I knew I was good for 250 units per month there. The actual averages generally stayed true and we could plan marketing campaigns at specific retailers to increase those averages, at least temporarily. If actual averages dropped or even if they increased, it was an alert to us to investigate more fully to determine the source cause. Was it the retailer’s change in advertising? Was it an unknown change in product placement in the store? Or was it something more fundamental – like a change in technology that was competing with ours? We gave ourselves a chance to figure it out.
But from a planning perspective, the beauty was I could create variable-based assumptions in the plan, see my projections in real time, and then toggle in different scenarios to immediately see the impact. This may sound complicated, but its not. We simply built our plan – and kept it constantly updated – to reflect the reality that change happens constantly.
Why bother? Here’s why…another quick story.
Our commercial banker is calling. We are at the absolute top of our credit line and we have several huge orders that we need to get built out and shipped. I need more credit. A lot more credit. Time to go visit the banker. During times like these, I made it a point to be absolutely available to the bank – in fact, in times like these, I usually set up a weekly in-person meeting with the bank to be sure that we were tracking. So, anyway, the banker is calling and wants to know how and when we will be paying down the credit line. I can’t, I explain, until I get these pipeline fill orders out the door. In fact, I explain, I actually need more credit to do that! The room grows more crowded as the banker asks his credit managers to come in to hear this. Tensions rise a bit. If I don’t get the credit expansion, we may be looking at an ugly result. They start asking questions: What happens if you lose 50% of your largest account? What happens if you don’t ship the pipeline orders? What happens if…if…if?
In every single case – in answer to every single question – we were able to toggle in the changes they asked about into the variables table and provide them an answer. And the answers we gave them were in the dollars and cents impacts on monthly profitability. Confidence in our ability to manage the business soared! Our credit line was expanded! We lived for another day! (This was no small thing and actually occurred in the banker’s ornate offices on LaSalle St. in Chicago).
So, yes, a great pitch is essential. But so are the details behind it. Build your business plan the right way. Design your future. You do need a stinkin’ badge! And I am a killjoy!!
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