1. Dr. Mark T. Schenkel Belmont University
Business Planning
Dr. Mark T. Schenkel
Belmont University

2. To Plan or Not To Plan . . . ? Pros Cons
Illuminates & clarifies the value proposition
Facilitates resource acquisition & credibility in the marketplace
Creates common “cognitive infrastructure” among key internal people that allows for synergistic efforts to develop
Cons
Irrelevant
Can lead to dysfunction
Researchability often inversely associated with financial attractiveness (Bhide)
Traditional tools (e.g., discounted cash flow analysis) difficult to employ with confidence (i.e., lack of cash flow predictability, impact of small assumption changes) (Bhide)

3. Reasons For Plan Failure
Unreasonable Goals
Goals Not Measurable
No Total Commitment
Lack Of Experience
No Understanding Of Threats Or Weaknesses
Customer Need Not Established
Underemphasis on market & investors in favor of producer as constituency

4. To Plan or Not To Plan . . . ? Is This Really the “Right” Question?
The evidence suggests no How planning is conducted is a far more important question than if focus should be on the role of planning.
Key issues: information and implementation
Implication: quickly screening out losers
Is an idea worth researching (e.g., does it meet or exceed the entrepreneur’s income requirements; low capital requirements; high margins for error; options for cashing in; sustainability of business model)?
Example: Levi Strauss
Creativity & “Me” needs
Capacity for execution
Competition Implications for sustainability

5. A Basic Conceptual Framework
Venture
Goals &
Values
Resources &
Capabilities
Structure &
Systems
Industry
Environment
Competitors
Customers
Suppliers
STRATEGY
STRATEGY 5

6. Discovery-Driven Planning Approach
A process for systematically unearthing the implicit, and potentially dangerous assumptions and testing them in a series of “experiements” before freezing a strategy that may prove to be fatally flawed McGrath & MacMillan

7. Common Platform-Based Planning Errors
Proceeding as though assumptions are “fact” even in the absence of hard data (e.g., Euro Disney admission pricing)
Have data, but fail to see implications (e.g., UPS – need for overnight delivery)
Have data, but make implicit or inappropriate assumptions on ability to implement (i.e., form of overconfidence) (e.g., Estes – labor market)
Start off with right data, but implicitly assume static environment and thus fail to notice key variable shifts

8. Discovery-Driven Planning Approach
Core premises . . .
Degree of absolute risk can be offset with “proper” planning and control tools
Future results cannot be extrapolated from well-understood and predictable platforms of past experience (i.e., knowledge); rather, the process inherently relies upon assumptions
In short, the core premise of DDP is to build a reasonable model of the economics and logistics of the venture and assess the order and magnitude of the challenges, rather than attaining perfection in terms of plan accuracy (i.e., the platform-based approach).

9. Discovery-Driven Planning Approach
Plan alone is neither necessary nor sufficient!!!
Emphasis is on integrating analysis and action (McGrath & MacMillan); “systematically thinking about how the risk reward ratio can be managed (Sahlman)
Staging analytical tasks just enough to justify next action
Plugging holes quickly to minimize risk
E.g., people, opportunity, external context, deal (Sahlman) – dynamic / multidimensionality is key!!!
“Evangelical” investigation (i.e., gaining sense of, and commitment where possible on future sales)
Flexible perseverance (willingness to shape core strategic approach as necessary)

10. Discovery-Driven Planning
Key Question from the Business Plan: What do you need from your business?
Reverse Income Statement
Aspirations: income and wealth
Target profits to reach income and wealth
Estimate required sales
Calculate unit sales I O

11. Discovery-Driven Planning
Operating Specs
Sales and COGS activities
Operations
Distribution
Equipment

12. Discovery-Driven Planning
Track assumptions
List all assumptions used in planning
Identify measures of assumptions
Create assumption list to test progress
Gather data to track assumptions

13. Discovery-Driven Planning
Test assumptions
Based on time
Based on sales growth
Based on other key events
Allows for adjustments on “the fly”
Keeps focus on key issues

14. Types and Uses of Business Plans
Internal
Debt financing
Equity financing

15. Business Plan: Internal Use
Blue print for the business
Organizes key issues
Serves as “check list”
Includes detailed marketing, financing, and operating sections

16. Business Plan: Debt Financing
Used for bank loans, landlords, and vendors
Built from internal plan
Narrative sections of the plan are summarized and condensed
Financial sections in full detail
Clear financing plan included: equity & debt

17. Business Plan: Equity Financing
Built from internal plan
Only operating plan is condensed
Financial and marketing plans in full detail
Expanded industry discussion
Clear financing plan included: debt & equity

18. Key Plan Components Mission Statement The Marketing Plan
Should identify stakeholders, values, competitive advantage, competitive market, product / service
The Marketing Plan
Know your customers!!!
Think like your customers
Identify a clear target market
Know your competitors
Inventory all competitors
Inventory customer needs
Create a competitive grid and/or strategic group map
Know your marketing strategy (4-P’s)

19. Key Plan Components Financial Plan Operating Plan Income statements
Balance sheets
Statements of cash flows (Direct method)
Break-even analysis
Operating Plan
Map out flow of business
Mgt Team, Advisors, & Staff
Don’t forget space plan and costs!!!
A cash flow statement is important to your business because it can be used to assess the timing, amount and predictability of future cash flows and it can be the basis for budgeting. A cash flow statement can answer the questions, " where did the money come from?" "Where did it go?"
A loan officer will use cash-flow analysis techniques to evaluate the firm's ability to generate cash to repay a loan.
Since 1987, the Financial Accounting Standards Board the rule makers of the accounting community have encouraged the use of the direct method. However, most companies continue to report operating cash flow by the indirect method. ***under the direct method, it is necessary to reconcile net income reported on the P & L statement to net cash flow from operations on the cash flow statement.

20. Using the Business Plan
Gives last chance to fail on paper
Used in financing
Used to establish supplier and customer relationships
Used to recruit key employees
Used to build commitment among team members
Creates consistent blueprint
Keeps focus during growth

21. Updating the Plan Significant changes: Additional financing
Business model
Market
Key assumptions
Additional financing
Sale of business
Continuous team building and re-energizing commitment

22. Some Planning Do’s and Don’ts
Involve entire management team
Short, logical, comprehensive, and readable
Articulate critical risks, assumptions and why tolerable
Disclose and discuss current or potential problems
Be creative, but spell out how the investors will win
Let realistic market and sales projections drive the assumptions underlying financials, rather than reverse
Don’ts
Unnamed, mysterious people on the management team
Make ambiguous, vague, or unsubstantiated statements (e.g., estimating sales on what you would like to produce)
Using jargon – limits the plans usefulness
Spend money on “sizzle,” (e.g., fancy brochure development) instead, show the “beef”

23. Key Takeaway Points . . .
Analysis and critical thinking are the beginnings and ongoing foundation of good business planning.
Business plans should be comprehensive, yet facilitate an ease of understanding for participating members and investors in the venture so as to promote action!
If a stakeholder is unclear on a point in the plan, then you have missed something redouble your efforts accordingly.