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Entrepreneur's Toolkit: Step 1 - Plan Ahead

Monday, July 07, 2008

A flexible business plan is vital to the health of any business

Provided by Inside Business Magazine
Written by Ken Krizner

As Gabriel Torok transformed his consulting company into a software company in 2002, he knew drafting a business plan would keep him on the right course. What Torok didn’t realize was his stringent plan left his company with little wiggle room, setting unrealistic goals and making it hard to follow.

So as Torok, president of Preemptive Solutions in Mayfield Village, rewrote his plan, he learned a valuable lesson: His new business plan needed to be realistic and flexible to account for an ever-changing market.

“The plan had to have the things that I thought were important to help us stay on course, while at the same time allowing us some flexibility,” Torok says. “We started answering and documenting important questions in terms of finance and budget, competitive analysis and potential expenses. ... I was ultimately more successful making a course correction, but I didn’t have that in my original business plan.”

It can be a daunting task for a company at the beginning stages of product development and market analysis to write (or in Torok’s case, rewrite) a business plan, but it is an essential tool for a startup. Its purpose is to help a business look ahead, allocate resources, focus on key points and prepare for problems and opportunities. This includes a detailed, bottom-up approach to how the company is going to get sales and deliver those sales, advises Anita Campbell, editor ofSmall Business Trends in Akron.

“You have to be honest and realistic,“ she says. “Most people don’t do detailed planning, so there are wild estimates of sales. Without a level of detail, you won’t have a good handle on what your business is all about.”

Fundamental business information should be included in the plan, such as the feasibility of the company’s idea, ramp-up time to the first sale, the number and cost of a sales force, expected expenses, milestones and deadlines for tracking implementation.

“It should be simple, specific, realistic and complete,“ says Tim Berry, president of Palo Alto Software in Eugene, Ore., and Bplans.com, which contains free sample business plans online. “Even if it is all these things, a good plan will need someone to follow up and check on it,” he says. “The plan depends on the human elements around it, particularly the process of commitment and involvement, and the tracking and follow-up that comes afterward.”

Torok recommends reviewing a plan at least quarterly — and says not to be afraid of altering a plank when appropriate, but not if the course of the company is continually changing.

“A business plan needs to be an organic document reflective of your intentions today,” he says. “If you learn from customers that there are certain features your product needs to have, then you might want to add those features because you can monetize them. The business plan should reflect that flexibility.”

And while a business plan is necessary to attract outside capital, Torok is a firm believer that it must be written for the company first, investors second. When he created the Preemptive Solutions business plan, it was for the benefit of his management team. Later, with some adjustments, he presented it to outside investors.

“The view that a business plan is just to convince potential lenders or investors for financial backing is shortsighted,” he stresses. “That won’t help you as a business. Then it is not something you believe in. Once you get the money, you’ll put the business plan in the drawer and forget about it.”A good business plan needs to be detailed, realistic and flexible. It also should be better thought-out than something on a napkin.


Don’t need a biz plan? Think again.

Is it possible to arrive at a specific destination without a good map? Sure — just be sure to allot extra time for wrong turns and to stop and ask for directions. Similarly, a startup company could reach profitability without the benefit of a business plan, but that trip will be much harder. A plan is the map that gives a steady company direction.

Think about business: The process of writing a business plan is a great exercise because it forces entrepreneurs to think through the process, says Lynn-Ann Gries, chief investment officer for JumpStart Inc. “You are forced to explain [your company’s product and goals] to somebody else,” she says. “It forces you to do your homework and substantiate your claims.”

Develop and communicate a course of action: A business plan helps a company assess future opportunities and commit to a particular course of action, says Tim Berry, president of Palo Alto Software in Eugene, Ore., and Bplans.com. The plan can assign milestones to specific individuals and ultimately help management monitor progress. Once written, it can be disseminated quickly and will also prompt further questions and feedback by the readers.

Secure funding: A business plan can help entrepreneurs convince potential investors that they have a solid business idea and a strategy to eventually transform that idea into a profitable business, Berry says. Especially for a small business with few employees, a well thought-out plan will help owners scale the company’s size to ensure that the business grows, but at a steady and profitable pace, says Gabriel Torok, president of Preemptive Solutions, a software products company in Mayfield Village.

Give direction: Entrepreneurs can think of a business plan as a road map to get from where they are now to where they envision their company in five or 10 years and to plot the steps needed to arrive at that destination. “The plan gives you direction,” Torok says. “Without a plan, you are just flopping in the wind.”