5 Things Business Owners do Better with Lean Business Planning
Original posted at SBA.gov
By Tim Berry
Don’t think of a business plan as a formal document that’s hard to do, useful only for startups, bank loan applications, and seeking investment. Think of it as a lean plan that’s just lists and tables and is vital for optimizing business management.
1. Manage strategy
Strategy is focus. Most small businesses have trouble setting and maintaining focus on priorities because there’s always a new crisis interfering, or a new opportunity, real or perceived, distracting them like a shiny new thing.
Not that opportunity is bad. But a lot of the shiny new things that seem like opportunities are just distractions. Pursuing them dilutes the focus and weakens the business. Trying to do everything is too often a quick path to failure.
What to do? Manage strategy with planning. Set strategic priorities thoughtfully and use a simple planning process to manage them. Have a monthly plan review. Take time to reflect on results and assumptions and change and adapt carefully.
That starts with a plan that sets the key points of strategy. Make it a lean plan, just bullet points, extreme summaries. You do it for yourself, not outsiders. So keep it simple.
2. Align strategy and tactics
It happens so often. You set back to develop strategy, but get back into the routine and don’t follow up with real tactics, real business decisions and activities, to execute strategy. For example, the computer store decides to focus on small business owners who appreciate service, but continues to advertise low prices, doesn’t insist on installing every system, and doesn’t offer good training and frequent upgrade reminders. The tactics don’t match the strategy.
To manage strategic alignment, do a lean business plan that lists tactics in simple bullet points. Tactics include pricing, channels, messaging, product and service mix, and so forth. Make sure the tactics execute the strategy.
Then review tactics and compare plan to actual results every month in a planning review meeting. Check strategic alignment as strategy, tactics, and assumptions change. Expect to revise often.
3. Manage execution
Thing of ongoing business management, and strategy and execution, as a process of taking steps towards goals. Goals include short- and medium-term goals you can call milestones. In your lean plan, you set the milestones you can see for the near future. You list important milestones for the team. You assign dates, deadlines, budgets, performance expectations, and responsibilities.
Then you manage progress towards milestones during the monthly lean plan review meetings. Bring up the milestone schedule, discuss progress, revise as necessary, and manage the ongoing flow from plan to meaningful activities to results.
4. Manage people
People work better when objectives are clear and measurements are specific. People like to control their own performance numbers (also called metrics) so they can see their own progress towards goals and level of performance. Which would you rather have for yourself: an objective numerical goal you can see and share, or the subjective approval and review of your supervisor?
With lean planning, you have the regular review of expectations and results. It’s an easy forum for reviewing performance of team members, revising expectations, and applying both management and, where appropriate, peer pressure. Once a month you review results and compare them to expectations. Sometimes the plan was too ambitious and expectations too high, so you revise the goals. Sometimes the review turns up problems in execution and poor performance.
That’s where management comes in. Make expectations explicit, review results, and make people accountable for performance. All of which is built into a healthy planning process.
5. Manage cash
Cash flow is critical to a healthy business and it’s not always as simple as profits. Businesses that manage products and inventory can be profitable on paper but have all the working capital tied up in inventory. Businesses that sell to other businesses can be profitable on paper but have all their working capital tied up in Accounts Receivable, waiting for their business customers to pay their invoices.
A good lean planning process lays out expectations for money coming in and money going out to manage cash flow. Each money you have a plan vs. actual review to highlight developments, re-allocate spending as the need comes up, and make sure the cash flow is running as expected.
Conclusion: Planning is Management
Forget the myth of the big formal business plan that makes most business owners grateful they don’t have to have one. Instead, think of business planning as a simple lean business plan – bullets and tables for strategy, tactics, milestones, metrics, and essential projections – with a process that includes regular review and revision.