1. Business 16 Stanford Department of Continuing Education Class # 7, 11/9/09 Business Plan to Operating Plan

2. Business Plan o Defines the Business & Strategy o Overall goals o Major milestones o Overall headcount o Overall spending plan

3. Operating Plan o Defines Tactics o How do I accomplish my strategy? o Logistics o Resources o Critical paths o Contingencies o Sensitivity analysis

4. To start an Operating Plan oDefine milestones oBack track events leading to milestones oDefine interdependencies oDetermine what resources are required oDetermine when resources are required oAlso known as GANTT charting oMicrosoft Project

5. Tweaking the Operating Plan o Now comes the hard work o Now you need to ask, “what happens if this step takes 2 extra weeks?” o You need buy-in from your partners or the people actually doing the work o You need to consider how much extra money you will burn if you have a failure along the way o You need to take into account that it takes a long time to hire good people o You need to establish failure and success criteria

6. Tweaking the Operating Plan o You need to establish failure and success contingencies o If you have higher than expected demand, can you grow fast enough to keep up (AOL, Google, Facebook, Intuitive Surgical) o If not you leave money on the table, and leave room for a competitor o If you have a failure, can you isolate the pathway from other critical pathways (everybody else) o Especially important when deploying expensive assets, like sales people, clinical trials o Fast action may save your company

7. Using the Operating Plan o Weekly or regular meetings to compare progress with the OP o Track where you are o Make sure you are measuring the right things o Technical devt progress o Sales o Cash management o Margin o Focus on the things that can kill you first o Failure analysis o Why are we failing? o Where are we consistently high or low? o Is there a pattern? o Do we understand the process? o Is it the plan or the people?

8. Using the Operating Plan o A key is always buy-in on milestones o It may become clear that certain milestones are impossible o Bad economy? o Seasonal effects? o Adoption issues? o Management? o Motivating people to stretch yet not demoralizing them is the essence of management o Don’t give up too easily o You can often still hold people to overall goals o Don’t be afraid to re-plan and change out irrelevant milestones o Keep your eyes on the prize

9. Using the Operating Plan o The Operating Plan should rule the lives of everybody not concerned with the strategic direction o It swaddles line employees and gives reassurance that even in chaos there is order o It defines what is really important o It is often the source of evaluations for compensation o People will do what they are compensated for o Compensation requires measurement o Measurement leads to results o You can’t change what you don’t understand o It is defined by completion of projects, not their beginning

10. The Operating Plan defines when you need to raise money o It shows you when you have achieved significant risk reductions in the business (when it is attractive for others to invest) o Perceived risk reduction is risk reduction o Comps are commonly known in every industry o Don’t get trapped into a plan that has no real risk reductions for long periods of time o It tells you when you are going to need big infusions of capital o It tells you when you should consider mergers (before embarking on big capital infusions) or other outside help o Execution or planning failures may force a Plan B

11. BUT Operating Plan Reality Check): o A great operating plan may only result in the perfect execution of a stupid business plan o You can still execute well and fail o A good operating plan will still not tell you if it is a good investment

12. Re-plan o Don’t wait too long o Make sure you get it right this time o Be conservative o Sandbag o Make sure it is not an annual occurrence o See previous class on hiring and firing