This is a guest post written by Ed Johnson, tech entrepreneur and co-founder of social networking start-up Tempry.
Writing a business plan is relatively straightforward. Do the research, understand where the gap in the market is, understand how your business addresses the market gaps and put it together in a well laid-out and thoroughly thought-through format.
When I say straightforward, what I really mean is, it’s straightforward in comparison to sticking with it once your business has launched.
With the best intentions in the world, planning how your business will operate will never be as effective as how your business really will operate. Why? Well, simply put, markets are rarely consistent, consumers are generally rather fickle and there are many unpredictable factors that cannot be accounted for. Planning on opening a coffee shop? Perhaps you didn’t plan for the competition to open across the road. Mapping out your growth and expansion? You might not have considered a large corporate breaking into your space.
The examples are endless and even the best thought-out business plans don’t take everything into account. They can’t. But don’t despair; if you asked the majority of CEOs out there then I highly doubt their business has grown the way they had originally planned. Some might, but I suspect they are the exception rather than the rule.
Why bother with a business plan?
The truth is that there are lots of businesses out there who don’t have a business plan. For whatever reason, they never got around to actually mapping out their business. Maybe they were too busy building their products, or delivering their services. Or maybe they knew what they needed to do and had the financial means by which to carry out the foundation work for their business.
So why might you bother with a business plan, if it’s unlikely to be something you stick with once you launch? There are a number of reasons. The two main reasons are 1) for your own understanding and insight and 2) for investors.
Even if you’re not seeking investment and you know exactly how you’d like to launch, run and manage your business, it’s often extremely valuable to write out a business plan. It will give you further insight into the market you’re entering into (even if it’s not the first time you’ve worked in that market) and challenge you to think about scenarios you may not otherwise have considered.
Why might my business not go to plan?
A big portion of your business plan will involve forecasting – both customer and cash flow forecasting. It’s likely that you’ll over-estimate cash flow and underestimate spend. It’s the mind-set of the average entrepreneur! “Think big”. And while that’s great, it can be a downfall when writing a business plan. Unexpected costs might come up and bite you. Changes to a market, legal requirements and/or a whole host of other factors might reduce sales.
Try taking away 25% of your sales and increase your spend by 25% – if you’re still okay, then keep it at those figures. If you’re not, then think carefully about where you can spend less and take a slightly smaller risk to start with.
What can I do to minimise risk?
It’s vitally important to be honest with yourself. It’s easy to write a plan that looks golden and estimates profits after month three, with a second member of staff being hired by month four. Take your ego out of the equation and be strict with yourself. It is okay to make losses initially, as long as they aren’t too great and you can manage them.
As time goes on, you’ll have a good idea of how on-track your plan is. If your financial forecast is way off, then it’s worth going back to the drawing board. The key is not to get into debt – at least, not too much debt that you know you can’t get back to zero and work up from there, into profit.
Ask yourself what expenses you’ve factored in. Are there expenses you can do without, at least initially? Are there others that you’ve overlooked, such as insurance, tax, legal advice, etc.? Make sure you factor all these things in at the start – then you’re far more likely to be able to stick with your plan after you launch.
What happens if the customers don’t appear?
You did the work: you put in the effort to build your business and got ready for the launch. Day one came and went and you had a few customers, but not as many as you were hoping for. Slightly anxious but generally upbeat, you kept focusing on looking forward. Before you know it, the first month is over. Your sales are half what you’d expected. What next?
Don’t panic. It’s far easier said than done, but don’t let the disappointing results get you down. Take stock of where you’re at, comparative to your spend and required revenue generation. Now you’ve got through the first month, you can re-plan months two, three and four in your cash flow forecasting.
Tweak the numbers, and if you’re not breaking even then it’s time to look at cutting costs. What expenses did you have in month one that you can do without in month two? Act quickly and make those cuts. Then, start exploring your reach. Where are your customers? Why haven’t they been using your services? Once you’ve worked these points out, have a look at what marketing you’ve done so far. With digital marketing it’s a lot easier to track performance and conversion rates. Tweak the campaigns, look at testing some new marketing campaigns and drop the more expensive campaigns that haven’t been bringing in the business for you.
Another effective thing to do once you’ve launched is to work out exactly where your existing customers have come from. Ask them. Send out a survey and really understand who is using your business – it will be extremely helpful to know this moving forward.
What happens if the market crashes?
Picture this – it’s 1999 and you’ve set up a website design agency. You understand that more and more companies need a website and you are there to help them get online for the first time. Smaller companies realise they need a website but don’t have the expertise to code a site and are willing to invest big bucks to have an online presence, with a corporate email address and state of the art call systems. At the time, it seems like an amazing business.
Now, wind forward the clock to 2017. Everyone can create a website. There are now dozens of systems out there offering cheap (or even free) website design and there are, quite literally, hundreds of thousands of templates. Some agencies will even develop a custom build for you for less than £1,000, and this can easily be done remotely and internationally.
In the space of less than 20 years, your website design agency has crashed. Or perhaps it’s evolved? For those website design agencies set up in 1999, they either had to adapt or die. A lot of them died because they didn’t think far enough ahead. Others have flourished by growing into marketing agencies. They took their insight into the digital world and understood that digital marketing was a growing set of channels, becoming more and more complex. With that knowledge, they could offer something that their customers likely needed but couldn’t buy online at a fraction of the cost.
They succeeded because they adapted, and you have to be willing to do that also. Always think ahead and never become complacent.
So, in summary: think ahead, act quickly and don’t get disheartened when things don’t go the way you thought they would. Have an understanding of the bottom line and adapt to keep it stable. Don’t be afraid to take your business in a different direction from the one you envisaged it being. It’s okay to move away from your business plan, far better that than to stick with it religiously and realise you’re in too much debt by month six. Adapt and grow.
About Ed Johnson
Ed Johnson is co-founder of Tempry.
Ed has an informed insight into effective online growth, digital marketing communication strategy, web and app development. He has managed and worked on marketing campaigns for the likes of Zoopla, John Lewis, easyJet, HSBC and many more.
He now spends his time working with technology start-ups and dot-com companies and is developing his own social networking start-up Tempry, launching in May 2017.