In Defense of Business Planning

I just got back from the annual Global Consortium of Entrepreneurship Centers conference held this year at Rice University in Houston.

Once again this year I heard a lot of chatter about business plans.  Many who teach entrepreneurs now question the utility of teaching our student using business plans.

My take?  I think one of the biggest problems is not business plans themselves, but how people use them, when they write them, and most importantly how they develop them.

We set business plans up on a pedestal as if it is the holy grail of entrepreneurship. It is as if we are telling aspiring entrepreneurs that once they
unlock the secrets of the business plan, the world of entrepreneurial
wealth will come pouring out at them.

Are business plans all you need to know to unlock the door to success? Of course not.

Is writing a business plan a complete waste of time? Also, not true.

So why do we teach about business plans? It is because they are a
way to help organize what can be a complex and overwhelming array of
issues. It is because it forces us to integrate our marketing plans, or
operating plans and our financial plans into one, coherent story. It is
because we need to put it all down on paper to make sure that we have
thought of all of the important stuff that goes into a successful
start-up. It is because business plans have become the standard for
communicating about a business to those with money.

Will a formal business plan make you richer and more successful?
Probably not. I know many entrepreneurs who never wrote a formal
business plan for their ventures who have made a lot of money.

But they
all understood the importance of business planning. They just
never took the final step of writing it down. While the business plan
itself may not always be necessary, effective business planning always is.

Understand that the business plan is just a map. It is a map into an
unknown territory. Our actual path in our business will likely look
very different than our plan. But the plan got us thinking. It made us
think about all the details. It helped us understand how all of the
parts of a business fit together to make a whole venture. It helps
prepare us for our journey and makes us better prepared to adjust to
all of the surprises that we will face almost every day we’re in
business.

Success will not be determined by the plan. Success comes from implementation and execution. 

Bootstrapping Legal Services

I wrote a post earlier this year on how bootstrapping entrepreneurs are getting on-line bids to help choose a graphic designer to develop their logos.  This business model is seeing more applications, including legal services at a website called LawBidding.com. 

“Entrepreneurs and small businesses often need legal help on many issues and often do not know where to start in their search for an attorney,” says Nick Cronin, founder of LawBidding.com.  “Unfortunately, in addition to the time it takes to find the right attorney, many time entrepreneurs are working with tight budgets and thus often feel they cannot afford an attorney.  LawBidding.com aims to remedy these problems by making it more efficient and more affordable to find the right attorney.”

Not sure how well this particular site works, but it is a fascinating business model that will find more and more applications for connecting service providers with small business owners via the Internet. 

No Recovery without Jobs

Economists never seem too bothered by the realities of what they study.

To most of us, the purpose of an economy is to facilitate commerce and create jobs.  So it follows that a recovery should include increases in employment.

However, we continue to hear that this may be a “jobless recovery.”

The latest poll from the NFIB suggests that any recovery including jobs is still not in sight.

In September, small business owners reported a decline in average employment of 0.83 workers per firm during the prior three months, a substantial improvement from May but virtually no change from July and August and historically the sixth largest loss per firm in the 35 year survey history (the record is negative 1.26 in May, 2009).

Only seven percent of the owners increased employment and 23 percent reduced employment, yielding a seasonally adjusted net negative 16 percent of owners decreasing employment in the last three months, unchanged from August.  The job generating machine is still in reverse.  Sales are not picking up, so survival requires continuous attention to costs, and labor costs loom large.
 
This is not a recovery to those of us who care about small businesses on main street.

Accidental Entrepreneurs Look to Franchising

My column in this week’s Tennessean looks at franchising as a path to business ownership for accidental entrepreneurs:

Franchising is a path to business ownership that many of today’s accidental entrepreneurs find appealing.

“For
those in career transition who are considering business ownership,
franchising may be a viable option, primarily because most have spent
their entire career in corporate America and are used to structure and
following processes,” says Dan Aronoff, Nashville franchise consultant
with FranNet.

“Franchising
provides that structure through well-established and proven systems.
For the right person and right fit, following the franchise’s ‘recipe’
can lead to success. Why reinvent the wheel if you don’t have to.”

One
of the downsides of buying a franchise, though, is that many require
that the entrepreneur put up a significant amount of funding to start
the business. However, many franchises may be eligible for Small
Business Administration loan programs, too. Here is a Web site that
offers more details.

Just
like any new venture, developing a business plan is a must. It’s
essential to determine the feasibility within the local market where
you plan to open the franchise. Make sure that you temper any financial
projections with current economic conditions. Be realistic.

Also,
look for franchise opportunities that create value for the customer, as
this will be the best business model for some time to come.

There
are some sticky contracting issues with buying any franchise. Make sure
to work with an attorney who has experience in that arena.

Monthly fees add up

One of the biggest sources of
frustration among franchisees is that, over time, they begin to
perceive that the value added provided from the franchisor or the
parent company becomes less valuable.

A franchise will charge a significant monthly percentage fee (this typically ranges from 4 percent to
7 percent of sales).

This
fee covers business systems, marketing support, purchasing power for
inventory, and so forth. As they gain experience in the business, many
franchisees believe that they can be at least as effective on their own
without the support of the franchisor.

Another
concern expressed by franchisees is that with all sorts of rules and
standardized procedures, they tend to feel more like an employee than a
business owner. Those who try to break away from the predetermined
model can face the wrath of the franchisor. Larger franchisors have
entire staffs dedicated to franchisee compliance.

The
SBA offers comprehensive information on buying a franchise at its Web
site, 

Hi, My Name is Jeff

Hi.  My name is Jeff.  I am an entre-holic.

As I talk to business groups about our book, Bringing Your Business to Life, I find myself spending much of my time talking about the virtue of temperance. 

In the world of entrepreneurs, temperance is an understanding that we are more than what we do in work — more than just entrepreneurs. We are
spouses, parents, friends and citizens. We need to take actions that
lead us to be good in all that we do. That may mean that we temper our
ambitions to make sure we have time for family and friends.

Temperance is hard for entrepreneurs.  It is finding that balance in life that is so elusive for most of us who love to pursue opportunity.

I have wrestled with temperance most of my working life.  I am addicted to opportunity seeking.  I am addicted to deals.

This never was clearer to me than the time after we sold our company. I was ready for seize that next opportunity.  I was ready to move on to the next deal right away.  I had the plan.  I had the funding. 

Luckily for me I have a very wise purchase topamax wife.  She said to me, “Your are in time out.  No deals for six months.” 

She recognized what I did not — that I had let the “pursuit of the deal” consume me.  It defined who I was and left no room for all of those other things that we are called to be in our lives — a parent, a spouse, a friend.

My “time out” forced me to slow down.  It forced me really spend time to discern what I should do next.  And eventually I realized it was not that next deal.

Now I need to be clear that entre-holism is a disease of relapse.  Even as an academic I find myself slipping — of pursuing too many opportunities rather then leading a life of moderation.  Just this past year I had three book projects going — and all at once.  Why?  Because all of them seemed too good to pass up.

But once again my wife was there to rescue me.  When New Years rolled around she gave me my resolution for 2009  — “You will only read books in 2009!”

Hi.  My name is Jeff.  I’m an entre-holic. 

How Can You Raise Too Much Money??

I have received a few e-mails asking how in the world can you raise too much money, as I talked about in the interview in the American Express OPEN article.  This is a fair question, especially if you are a start up trying to pull together funding in today’s environment.

I actually do see some start-ups raise too much money, but not many.  They are almost always backed by venture capitalists.  VCs usually have a pretty high minimum investment, which can lead some entrepreneurs to “fit” their deals to fit this artificially high number.

But more often, I see successful companies raise too much money.  Success can make attracting money much easier.  Investors want to tag along on your success, and bankers love to lend to companies with rich cash flow.

Raising too much money can be much worse than not raising enough money.
I know those of you struggling to make payroll think I am nuts for
saying this, but it is true.

Too much money in a new venture leads to
poor decisions on unnecessary overhead, wasteful spending on
non-productive assets like opulent offices and furnishings, over
staffing, inflated salaries, and just plain mischief.  If sales don’t build quickly enough the entrepreneur has a business a high level of overhead that just cannot be sustained.

Too much money put into a growing venture can lead to unsustainable growth and chasing too many opportunities too quickly.  The influx of money is spent, but the now fast growing company has operating cash flow that just cannot keep pace with the expansion created by the infusion of money.  It is like a rocket that runs out of fuel before it ever gets into orbit — it just comes crashing down to Earth.

Passing of the Torch?

There is a new group trying to focus the discontent of the Millennial Generation — it is called the Year of Youth.  Their focus:

The message of liberty, localism, and the decentralization of power are ideas
whose time has come.

I have sensed a strong libertarianism in this generation.  It will be interesting to see if this group can gain traction and achieve their goal of mobilizing the Millennials into political activism and fundamentally redefining policy beginning with the election of 2012.

Experience is the Best Teacher

My students learn very quickly that my favorite source of material to teach from comes from my missteps and mistakes.  Gregory Go and Glenn Stansberry have pulled together a collection of 101 mistakes from a multitude of entrepreneurs at American Express OPEN.  Here is how they describe their motivation for this this effort:

Let’s be honest: running a small business is not an easy task. Especially in an economic downturn. Small business owners are keenly aware that mistakes can be very costly at this point in time.

Yet in order to have success, at least a few mistakes have to be made along the way. It’s a part of building and growing. Oscar Wilde once said ‘experience is the name everyone gives to their mistakes.’ And even the most successful business owners have had their fair share of blunders.

Indeed!!  I shared a couple of my own mistakes — or should I say “shared my experience” — with them for this collection.

We’ll Take Any Good News Right Now

Though overall unemployment has reached 9.8%, hiring by small businesses is up almost 2% year to date according to SurePayroll’s Small Business Scorecard monthly survey.  It is important that we clarify this glimmer of good news by clarifying that the increase is largely due to the fact that independent contractor hiring is up 14% year to date. But we will take any good news right now. 

Click here to view the full SurePayroll Small Business Scorecard.