Tag Archives: business plans

Live for the Future but Act in the Moment

If it’s not possible to predict the future, why do so many business people try to?

One staple of the business world is the ubiquitous “business plan.” These “plans,” in effect, are a detailed attempt to predict the future by anticipating the environment, actions and results of a company for the next one, three, five or even 10 years. Tell me this: Have you ever met a business plan that has not been reforecast, ignored or forgotten by the time the future it was supposed to predict arrived? Neither have I.

It’s not like these business plans are a broad narrative of the intent or vision of the BusinessPlancompany. No, the typical business plan endeavors to predict the most detailed minutia of the company’s future operations. Right there printed in black and white are the specific prognostications for such things as sales, revenues, taxes, expenses and profits. And then each of these categories is further broken down into specific details. Things like the number, timing and average sale size; employee count, cost of capital, facilities size and overhead are all there down to the last dollar. Right alongside these numbers are extrapolations for what the internal rate of return on invested capital, total return, shareholder equity and something called EBITDA will be years from now.

I don’t know about you, but it seems to me that if a rational person steps back and objectively looks at this effort they have to ask: Are you kidding me? Who in their right mind would waste their time or put any credence in this type of fortunetelling? (It has been estimated that the cost in time and money wasted on annually developing business plans is greater than the entire GNP of Norway.)

To my way of thinking these business plans are the Tarot cards of the business world. And yet, these concoctions of numerals are used – indeed relied on – by (supposedly) highly intelligent individuals when deciding to invest millions in the operations of a company. Private equity firms are famous for basing a significant part of their investment decisions on the “due diligence” of a company’s business plan. When it comes to start-up companies, venture capitalists have nothing to base their investment decisions on except an out-of-whole-cloth, pie-in-the-sky business plan presented by the entrepreneur. Despite this hocus-pocus sleight-of-hand, investors go forward because the Tarot cards look good and are aligned in the right order. (Or maybe it’s because the PowerPoint presentations are so pretty.)

The Wrong and Right of Business Plans

The real weakness in the traditional business plan process is the failure to acknowledge that getting to the future requires dealing with a multiplicity of possibilities. The only thing static in the business world (other than business plans) is that the world is not static. It is impossible to anticipate what possibilities might become reality and even if that could be done, they do not lend themselves to control.

It is much like the chance of picking a specific set of numbers that will emerge from an infinite number of numbers. In the real world that is called a lottery; in the business world it is called a business plan. No matter how many variable possibilities are planned for, there are an infinite number of possibilities that are not able to be anticipated. This means that the failure of even the most thought out and detailed business plans is about the only thing preordained in the plan.

So what’s the point here? It’s not that you shouldn’t have a plan, but the plan should not be to predict the future, it should be a plan to shape the future. You see, even though it is not possible to predict the future, it is possible to influence and shape it. And that should be the real intent and focus of a business plan.

The best business plan starts with a clear vision of what the company seeks to look like Futureand achieve in the future. This vision must above all be concise, coherent and plausible. Once established the vision must be consistently communicated and staunchly adhered to.

At its founding, the five-year business plan for my company – LifeUSA — was: “In five years LifeUSA will be a national company competing effectively against the largest companies in the industry.” This plan allowed those associated with LifeUSA to live in the future while operating in the moment. Each year the planning process would be predicated on responding to two questions:

  • What can we do better this year to improve on what we did last year?
  • What can we do this year that we didn’t do last year that will get us closer to achieving our plan?

These questions were not answered by plugging wishful numbers into an evanescent future, but by targeting ideas and actions for the present moment in time that would ultimately produce the numbers. This approach to planning offered the flexibility to deal with emerging possibilities – both good and bad – that could not have been anticipated.

At the end of each year those involved in the management of the company were asked to list five specific actions they would take during the next year that would help LifeUSA move closer to its long term vision of being a national company. Once the numbers for the current year were finalized, that same group would be asked to develop specific actions that could be taken to simply make the numbers better in the upcoming year. Other than for budgeting purposes, there was no specific targeting of numbers; only that they increase from the previous year.

The philosophy behind this approach was simple. If the company consistently improved its performance in the moment at hand, the future would always be better than the present. This type of approach to business planning allowed management to quickly adapt to the multiplicity of possibilities that could emerge at any time, but that never can be predicted. In effect, any unanticipated changes – good or bad – played into the strength of our business plan; rather than destroying it premise and credibility. Unlike other company business plans, we didn’t have to worry about trying to predict the unpredictable. Instead, the LifeUSA business plan process allowed the company to concentrate on doing what we could do in the present, so that we could shape the future.  

The Best Way to Plan for Business Success is to Can the Business Plan

The better plan is to plan to get better

It may strike you as the utmost heresy and against the grain of accepted thinking, but the most over-hyped, over-sold and over-rated concept in business is the need for, and the value gained by,  expending time and effort creating a business plan that seeks to project specific, quantifiable business performance goals. Conversely,  setting and reaching goals – both in life and business – is a critical element to achieving ultimate success. The reason for this seeming incongruity is simple: Few understand the difference between a goal, a plan and a prediction.

The accepted – indeed required – principle of any business is to systematically, meticulously and consistently set specific performance goals, most often referred to as a “business plan.” Countless companies allocate precious resources and time  to create the perfect business plan. The depth of messianic belief that many have in the criticality of developing a quantified business plan cannot be exaggerated.The problem is that these plans are virtually worthless; they do little or nothing  to determine the success of an organization. Worse, they provide their creators with unwarranted confidence that these plans actually work.

What Plan? We Have no Business Plan.

The lunacy of the business plan charade was brought home to me when I was involved in the start-up of LifeUSA as a new life insurance company. Needing financial support to launch the company, we approached Transamerica. After countless meetings, working our way up the bureaucracy, we finally received funding approval from the corporation’s board of directors. But, there was one condition.

While we had convinced all those in authority as to the veracity and potential of our ideas and concepts for growing a successful new life insurance company, we had failed to do one thing:  submit a business plan. And Transamerica would not release the funding until we delivered a business plan.

Here was a start-up company being asked to forecast (predict) what the specific performance and results would be for the next five years. We rushed back to our office, sat around a table picking numbers out of a box like letters for a Scrabble game and committed to our plan “proving” that we would be successful. The “business plan” was submitted to Transamerica and the funding was released. I kid you not!

Once this happened,  our mercurial “business plan” never again saw the light and Transamerica never asked us about it. Of course, the reason for this was because LifeUSA became more successful than even our make-believe business plan had prophesied.

Look to Your Own Experience

Anyone who has ever worked for a large company knows the pain and pestilence of the business plan process; and that once it is completed and approved, it is seldom seen again. But the pervasiveness of the business plan ritual infects all sizes of companies.

Recently, I was approached to counsel an individual with a dream to open a retail store. At the first meeting I was presented with a beautifully bound, detailed business plan. This plan, diligently prepared, purported to present a full five years of sales, expenses and profits. Ninety percent of the “plan” dealt with the numbers in a way designed to convince the reader that success was virtually preordained. Ten percent of the “plan” offered the vision, passion and ideas of the entrepreneur who felt they would differentiate her store from the competition.

You can’t fault this person for approaching her dream this way, because that is the way it is “supposed” to be done. It is de rigueur. But the truth is that success – both for start-ups and established companies – will ultimately be based on the vision, passion, ideas and efforts of those owning and involved in the effort. In short, their success will be based on the ability to make the future, not predict it.

Don’t get me wrong. It is important to have goals and a plan for success. The problem is that typical business plans are a waste of time and and about as prescient as a deck of Tarot cards. The biggest fallacy of the business plan process is that, like a battle plan in war, they are developed in a static vacuum—not in the changing dynamics of the real world. No battle plan for war has ever survived the first shot and no business plan has ever survived the first quarter. (I would love to have a $1 for every business plan that is “re-forecast” during its term.) The fact is that the projections made in every business plan ever developed have proved to be wrong. Why on earth, then,  would you want to put time and effort into something that you know, from the start, will be wrong?

The Smart Way to Approach the Planning Process

First, one has to understand that business, like golf, is a game that can never be won. You may be able to win a golf tournament by beating the other golfers, but you can never beat golf. Professional golfers understand this concept and for that reason you will never see a golfer start a year with a “golf plan” for success that attempts to predict how many shots they will take, how many birdies will be made, what their “market share” of the prize money will be, or how many tournaments they will capture. They recognize that you can’t control the environment or what the other golfers will do, so they focus on what they can do to get better. They know that if they do the things they need to do to improve their performance, they will ultimately be successful. This is why you see the greatest golfers in the game – no matter how many tournaments they have won or no matter how old they are – in a constant search and effort to simply get better at playing the game.

The game of business is much the same. You can win at the game but you can never win the game. There will always be a changing environment and new challenges; you can’t control what the others are doing in the game. All you can do is get better at playing the game and that is the “business plan” you should develop. Just like the professional golfer, if you constantly improve your ability to perform in the game, you will achieve success, even if you can’t predict the specifics of that success. The Japanese have a word for this process; it’s called Kaizen. And it means a business philosophy that focuses on continuous improvement in product, procedure and service.

Let me give you an example.

At LifeUSA, our original “Five-Year-Plan” was simple: At the end of five years we will be a national insurance company competing effectively against the largest companies in the industry. There was no effort to predict how many agents would be recruited, how many applications would be received, how much premium would be collected or how much profit would be made. Instead, like the successful professional golfer we focused on what we could do to get better and had confidence that the numbers (whicht we could not predict or control anyway) would take care of themselves. This freedom allowed us to focus on and plan for what we had to do to constantly get better and make our plan happen.

Thus, the LifeUSA business plan was a 180-degree change from what is considered “acceptable” in that 90 percent of the plan dealt with how we planned to do business and why; and 10 percent on the numbers. (The numbers were used – not as a goal – but as a base for budgeting and expense control.)

To measue the progress of the company during this period we developed a simple list of critical performance activities. This list included things like, agents recruited, applications received, premiums collected, expense per application and premium per employee, etc. We knew that if each month, quarter and year these numbers and ratio continued to get better, then we were on the path to success. And guess what? At the end of five years LifeUSA was a national company competing effectively (and profitability) against the largest companies in the industry. LifeUSA had recruited thousands of agents, was producing billions of dollars in premiums and had become the fastest growing company in the industry. The truth is that no “business plan” could have predicted these results and nobody would have believed had they been promised. Instead, our simple plan to consistently do better at what we do could be believed — especially by those working with the company — and as a result it created remarkable results.

And the Moral of the Story …

Traditional “business plans” are a fabrication, fallacy and fool’s gold. The premise of such planning is false on its base, intimidating and often counter-productive. It starts with the premise that the business environment will not change, that competitors are a standing army rather than a constantly improving force,  and that it is possible to predict the future. The plans can become intimidating because everything is focused on the end, rather than how to achieve the end. They can become counter-productive because if the targets are missed – even if the company has dramatically improved – the year is considered a failure. Even if the numbers are achieved – and everyone feels good about the results – it masks the potential that the numbers could have been even better.

It all comes down to the fact that if your plan is to consistently get better at what you do and plan to do that, then the end result will always be better than what you could have ever planned for.