Why you need TWO Business Plans in Small Business (and why the one you have will probably never work)
We've all heard that
you have to have a Business Plan to survive and prosper in small business. And it's
true. You do.
But here's the stark reality:
- In a survey of almost 20,000
small businesses conducted by the Australian Small Business Network over the past
four years, fewer than 5% of all small businesses actually had a formal, WRITTEN
Business Plan (see below).
- Of those we see in our consulting work at The Profit Clinic, more than 95% are not just a boring, useless, discouraging waste of time, money and resources... they're downright DANGEROUS – they actually INCREASE your risk of failure!
- More nonsense is written and taught about Business Plans than almost any other aspect of small business (except, perhaps, marketing – but marketing is usually part of a “proper” Business Plan, so it's really all part and parcel of the same subject).
- Of those we see in our consulting work at The Profit Clinic, more than 95% are not just a boring, useless, discouraging waste of time, money and resources... they're downright DANGEROUS – they actually INCREASE your risk of failure!
Fact? Or Fiction?
In the Australian Small Business Network survey, conducted during seminars
for up to 750 people at a time, small business owners were asked if they had a Business
Plan. Typically, between 15% and 30% said "yes".
This corresponded with the range quoted by the Australian Bureau of Statistics
in its 1997 Report on Australian Small Business, which claimed 15% of businesses
had a Business Plan, and by the chairman of one of the professional accounting bodies'
small business group, who disagreed, claiming it was closer to 30%.
However, when we qualified the response further, by asking "is your plan a FORMAL,
WRITTEN DOCUMENT – because 'I've got one in my head' doesn't count… it's just
wishful thinking!" – the response dropped dramatically to between 3%
and 5%!
In other words, 85% of those "Business Plans" existed only between the
owners' ears!
The real question we need to ask is this: What questions produced those statistics
from the ABS and the accounting profession?
I suspect it was nothing more than "do you have a Business Plan?"
Why do so few small
business owners have ANY kind of Business Plan?
There are three main reasons why people don't usually plan:
- They don't know how to create
a Business Plan.
- They don't have the time, money
or resources.
- They don't think they need one.
The first reason is the only
valid one. The second is a fallacy, while the third one is lethally dangerous.
The reason is simple: even people who think they know how to do one usually
don't. What they create, instead, is a BIG Business Plan – and BIG business methods
rarely work in small business. This is certainly true of Business Planning.
To say that you don't have the time, money or resources to do a Business Plan is
to fail to understand reality…
- If you don't have the time, money or resources to do a Business Plan NOW, where will you find the time, money and resources you'll need to solve the constant problems (and disasters!) you're probably already suffering because you DON'T have one?
It's simple cause and effect.
You spend far too much time stomping out spot fires that keep breaking out all around
you, because you're not in control of your business.
And that's all a Business Plan is – a strategy for staying in control.
People who think they don't need a Business Plan are skating on thin ice. They usually
think like this because they're good at what they do IN their businesses –
plumbing, selling, hairdressing, etc.
That's a bit like someone who knows how to drive – but knows nothing about maintaining
their vehicle. Sooner or later, the vehicle will grind to a halt, no matter how
skilled a driver they are. It's plain, dumb ignorance... the single biggest
killer of small businesses, world-wide.
The problem for people like this is that they don't even know that they're so
incompetent as managers. They can't distinguish between working IN their businesses
and working ON their businesses.
They're the classic "self-employed" person who wants to be "their
own boss". (The most disastrous mindset any small business owner can have.)
They make reasonable employees. They make lousy entrepreneurs and managers.
When faced with a MANAGEMENT decision, they think like EMPLOYEES. It rarely works.
What's wrong with
BIG Business Plans?
The Secret of Small Business Success is simple: do only the right things, only
for the right reasons. If you do that, you won't make too many mistakes.
The problem for most small business owners is that, even if they know the right things
to DO, they rarely understand the right reasons for doing them. So things inevitably
go wrong. They can't repeat their occasional successes, because they're due to good
luck, not good management.
Since BIG business has a complete different set of motives and values (and
standards) to small business (EVERYONE involved in BIG business is an employee,
for a start – even the board!), the reasons underlying a BIG Business Plan are
very different to those of a small Business Plan. So creating a small Business Plan
based on the BIG Business Plan model is not only the wrong thing to do – it's
the wrong reason for doing it.
It's not that it WON'T succeed... it CAN'T succeed!
Then there's the fact that imitating BIG business confuses cause and effect. The
reality is this: most of what BIG business does, especially in the critical areas
of innovation and marketing (the true essence of any business), is designed
to SIMULATE what small business actually has in real, live, flesh-and-blood reality.
But small business is so focused on imitating BIG business that it rarely recognises
that reality.
So we have this absurd, vicious circle, aided and abetted by small business "advisors",
"trainers", "consultants", etc. (all of whom have been trained
in BIG business methods and concepts, and gained their degrees and experience in
BIG business and colleges teaching BIG business!), where small business imitates
BIG business in its poor imitation of small business!
It's about as rational as BIG business borrowing a $100 note from small business,
making a reasonable counterfeit of it – then offering small business a colour
photocopy of the counterfeit in exchange for its REAL money!
As ludicrous as that sounds,
the tragedy is that small business BUYS it, continually!
Is it any wonder that, at the Profit Clinic, we're winning international acclaim
for our strongly-argued assertion that the REAL competitive advantage that BIG business
has over small business is nothing more than small business IGNORANCE?
The simple truth, proven over and over again, is this — when small business knows
what to do (and why to do it), BIG business literally can't compete with it.
What are the wrong
reasons?
In the same survey of almost 20,000 small businesses, the Australian Small Business
Network also asked people to nominate their reasons for going into business. A
staggering 98% stated one or more of these four reasons:
- To make more money than they
did in a job.
- To enjoy more financial security than they did in a job.
- To be more independent than they were in a job.
- To enjoy more satisfaction than they did in a job.
- To enjoy more financial security than they did in a job.
They seem reasonable enough, don't
they?
But then we asked the following questions:
- Are you actually making
more money than you did in your last job? Or are your EMPLOYEES taking home more
money than you are?
- Now that you have your personal and family assets (your home, retirement/ retrenchment/ redundancy package, savings, etc) at RISK*, are you more financially secure than you were in a job?
- Are you less dependent, now that you have your employees, customers, suppliers, bankers, advisors and others all depending on you, than you were in a job?
- Are you less frustrated, annoyed, confused (by government policies, regulations and red tape, union demands, employee attitudes, etc, etc, etc) and generally dissatisfied than you were in a job?
- Now that you have your personal and family assets (your home, retirement/ retrenchment/ redundancy package, savings, etc) at RISK*, are you more financially secure than you were in a job?
The overwhelming
truth was that THEIR EMPLOYEES enjoyed MORE money, security, independence and satisfaction
than they did.
And, since 90% of all small businesses FAIL* within ten years of start-up (75% in
less than half that time), hoping that it would improve over time was pretty pointless.
So the conclusion's obvious… NOT ONE of those four reasons is a valid reason for
being in business!
Frightening, isn't it?
So what's the answer?
There's really only one answer: do only the right things, only for the right reasons.
And you either know what those right things and right reasons are, or
you don't. There's no point guessing. And there's little point doing what
everyone else does – remember, 90% of them are going to FAIL!
So let's examine the right things to do and the right reasons for doing them when
it comes to creating a small business Business Plan.
First, your reasons for doing one:
If you're doing a Business Plan because your banker wants one to support a loan application,
or because your accountant or legal advisor says you should have one, or because
everyone says you should have one (including me), you're doing it for the wrong
reasons!
The ONLY valid reason for doing a Business Plan should be to define your business
and create strategies, structures and systems for gaining and retaining control of
it. That's it.
If your Business Plan is designed to obtain a loan or other investment capital for
your business, it's not really a Business Plan at all. It's something else.
The fact is, that "Business Plan" is a SALES PITCH FOR MONEY!
It's actually a marketing tool! So it really falls into one of the sub-plans
of a REAL Business Plan.
Think about the real reasons why you need it:
- You have to provide a “Proper”
Business Plan" (a BIG business Business Plan that can never work in small
business) because your banker needs it as an emotional security blanket. He
or she is an EMPLOYEE of a BIG business. So is the Loans Manager. So is everyone
else up the chain of command, including the person who can ultimately say "yes"
to your application. Every one of them is trained to be familiar with a BIG business
Business Plan. Give them anything else and you'll rattle their cages. Your loan
application will be in peril.
- This is why this kind of “Proper” Business Plan" isn't a REAL Business Plan at all. It can't work in your business because it focuses on all the wrong things for all the wrong reasons. It's going to end up like all those other “Proper” Business Plans created by or for small businesses for the wrong reasons... gathering dust in a filing cabinet or desk drawer.
Which brings us back to the title of this article.
Why you actually
need TWO Business Plans
- Your REAL Business Plan
– the one you'll use for the day-to-day control and direction of your small business
(the right thing done for the right reasons).
- Your “Proper” Business Plan – the one you'll show everyone who needs to see a monolithic, expensive, cumbersome, wasteful, irrelevant, BIG business-style "Business Plan" in order to reassure themselves that you're "in control" of your business! (Again, the right thing done for the right reasons... but ONLY when it's done with this purpose in mind! Don't even think of trying to use it to actually control your business, or this "Business Plan" will end up in control of YOU!)
It's hard to deny reality once
it stares you in the face, with the mask off. The myth of the small business "Business
Plan" based on BIG business planning has gone on for far too long.
I don't have room here to discuss what your REAL Business Plan should contain. If
you're really serious about effective Business Planning for small business, watch
for our exciting self-help program, "How to Create a
Small Business Plan That Actually WORKS!"
You'll discover startling new insights like…
- Why traditional marketing
is a dangerously inadequate concept in small business – and what you need instead.
- Why almost everyone in small
business confuses their "Basis for Business/Basis for Business Growth"
and "Sustainable Competitive Advantage" and ends up missing the point
entirely.
- Why traditional Business Plan concepts like "Industrial Relations" and "Production and Supply" are so misleading – and encourage you to do the wrong things for the wrong reasons.
- A simple, powerful, easy-to-understand-and-use model for creating a lean, clean, effective small business Business Plan.
© 1998
John Counsel. All rights reserved.
©2000. The Profit Clinic. All rights reserved.
This page updated 23 August 2002.
