From time to time I receive mails from MBA-students asking me some more or less specific questions that are related to management and strategy. Normally, I reply to such mails with only a few sentences since I am not going to help them out with significant parts of their MBA assignments. However, the last one was lucky enough to ask me some questions that make a nice blog post. So here are some thoughts about business plans:
The first question is easy enough to answer – What makes a good business plan? I wrote an article with exactly that title some years ago.
Than he asks: How do you develop a business plan when change in the industry is imminent? How does innovation fit into a business plan? I firmly believe that a good business plan should describe a good strategy. This in turn should be developed on the basis of a thorough internal and external analysis.
Such an analysis would reveal, for instance, if change in the industry is imminent. If this is the case, the business plan has to consider that. It should at least describe the expected change and suggest some course of action for this scenario (scenarios). Depending on how certain or uncertain the expected change is, the business plan has to be more or less flexible. If the outcome of the industry change is unclear, scenarios are a good tool. The strategy and business plan can than take the form of a decision tree – if the industry takes a particular development, the strategy will be adapted to a respective direction too.
The innovation issue is very similar. Your external analysis will reveal the extent to which the industry is driven by innovation. Your strategy will implicitly make a statement about innovation as well. If your industry is highly innovative, you should be too. Otherwise, you could choose the strategy to outmanoeuvre your industry peers by being far more innovative than the rest of the industry. In any case, your business plan has to take this into account. It has to describe what you plan in the field of innovation (directions, activities, objectives etc). Moreover, your financial plans have to consider the cost of innovation. Thus, a business plan addresses innovation almost automatically. Even if it does not mention innovation at all, this is a statement too. It implies that innovation is not an issue for your business. As long as this decision is the result of a thorough analysis, this is absolutely fine.
The last question was: What distinguishes a good business plan from a great one? I am afraid I don’t have a satisfactory answer on that. A great business plan is that one that works out and leads to the expected results. Unfortunately, it is almost impossible to distinguish the plans that will work from those that won’t in advance. So you will only know the difference in hindsight. Nevertheless, you can do some things to increase your chances to develop a great business plan: Take it seriously. A business plan is nothing you write down in two hours. Take your time and think it through in every detail. Think in options and alternatives. Don’t go for the first option that comes to your mind. Think about alternative paths and than deliberately decide which one you want to follow. I can only repeat myself – a thorough internal and external analysis is the starting point of everything. Make sure to do something with the results of your analysis. Make your business plan precise enough that it really tells you what do, yet flexible enough to react to new developments.
All this may read like common sense. Well, to me it is. Unfortunately I have seen more than one business plan that obviously did not follow this common sense advice. So I love to repeat myself with this. If one follows this advice, he at least has done a great deal to develop a great business plan.