In this episode, Tim talks about how to plan your business and get ahead of the competition.
Peter and Jonathan spoke with Tim Berry, the creator of Palo Alto Software, about lean company planning, strategy, tactics, details, and the outlook for week.
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Listen to the 9th episode:
Notes on the show:
- What is Lean Planning, and how does it work? – (:25)
- Strategy, tactics, details, and projections – (11:45)
- Tim Berry’s Lean Business Planning – (31:21)
Transcript of the audio:
Jonathan: Hello there, Peter. Today is a big day for us. Tim Berry, the creator of Palo Alto Software, is here with us. Today’s guest is a business planning expert.
Peter: Without a doubt. Here to discuss the idea of lean planning, which is something that we at Palo Alto Software have certainly embraced. Bplans includes a number of excellent articles on it, some written by Tim and others by members of the Bplans team.
We simply need a clear overview, a strong fundamental knowledge of what we mean when we say lean planning, I believe. What exactly does the term “lean” imply in this context? What does it mean to be lean?
Jonathan: Tim, thank you for coming. Perhaps you might provide an answer for us.
Tim: That’s right. I’m delighted to be here. This is a thrilling prospect. I want our viewers could see all of the devices and equipment, as well as the accoutrements. It’s a pleasure to be here.
Peter: It reminds me of a science fiction studio.
Jonathan: I’m afraid they’ll be shocked.
Tim: They’re lacking in the visual department. That is something for which I apologize. No, the image is a disaster. Don’t worry about it. There’s nothing you’re losing out on.
Let’s start with the word “lean.” Lean began in the 1930s and 1940s. The primary proponent was W. Edwards Deming. An academically qualified American who was living in Japan at the time. Initially, lean meant “try it, test it, and modify it,” with tiny steps in between. As a result, lean manufacturing was born. They also dubbed it the Toyota method, since Toyota moved from “Oh, look at this, the Japanese have automobiles, how cute,” to “Oh my goodness, they’re much better than ours are” in the 1950s and 1960s. What are we going to do about it?” That was the first time I heard people speak about lean in a business environment.
From then, in the past ten years, Eric Ries’ book The Lean Startup and Steve Blank’s following work on the subject have adopted lean. Take a modest step, evaluate the outcomes, adapt and modify, and keep altering in small increments is how Lean was adopted. That is the core of the lean startup, which is now very fashionable. Every new business must be lean. There’s a lot of mystery around the lean startup model.
Peter: That’s fantastic. I believe it’s important to explain that. I believe that when people hear the word lean, they automatically assume it means not spending a lot of money, as in a slim budget. This concept of testing, receiving input, and then looping around to change the product or the process is very intriguing.
I believe that, as Tim said, many people nowadays associate lean, lean startup with tech startups and app development. It’s fascinating to learn that it all began in the industrial sector. Certain of it, I believe, relates to some of our readership, namely, main street companies that may not know how to apply lean. Let’s take a closer look at it. Some of the previous stage concepts can certainly be used even more than these more app-centric versions of lean. Do you think that’s correct?
Tim: Without a doubt. PDCA stands for plan, do, check, and adapt, and it dates back to lean manufacturing 50 years ago. PDCA. Then there’s the minimal viable product, which is discussed in the lean startup.
As I’ve thought about it through the years, I’ve taken away the concept of tiny steps. Small steps, then a turn around to assess what you’ve done and evaluate the outcomes before moving on to the next stage.
Peter: It’s amusing. It jibes with my own experience as a software newbie. When I first started, the major event was the launch. Everyone is getting ready for launch day, go live day, or whatever you want to call it. Nowadays, it seems to be lot more like what you mentioned, where it’s all about putting something out there, receiving feedback, and improving it. That’s really intriguing.
Again, when we think of a baker or a frozen dough business like Jonathan wants to create, I believe you should consider releasing two distinct versions, or an A/B test, as we call it online. A/B test a new cookie you’re testing with two different kinds of sugar. Take a look at the feedback. Let’s see how things proceed. There are ways to apply these kind of ideas to virtually every sort of company, as you said. It’s simply a question of being a bit more inventive from time to time.
That’s fantastic. That gives you a decent idea of what we’re talking about when we term lean. So, how does this relate to the idea of planning? Because you’re all doing lean planning at the same time?
Tim: It begins, in my opinion, with a basic strategy. It’s just the right size to get the job done. Lean emphasizes the need of keeping the plan brief, clear, and to the point. Expect to go over the findings a lot. A planning procedure that includes a monthly review is expected to keep that strategy alive. Because of the way the process works, you have to keep it small in 2015. You don’t make a list of things you’re not going to utilize. You execute just the strategy that you want to use. Review and modify it often.
For me, that’s where PDCA, or plan, do, check, and adapt, came into play in lean manufacturing. For lean company planning, I recommend PRRR, which stands for plan, run, review, and revise.
Peter: Jonathan, which is simpler for you to remember?
Is that going to be in the show? Peter: Is it going to be in the show?
Jonathan: I’m not sure. So far, that’s the only sound I’ve produced.
Peter: With just one sound, I believe we lost a hundred listeners. Thank you very much. It was fantastic, yet it left a lasting impression.
Tim: On the other hand, there is an internet of cats, which Jonathan’s voice…
Jonathan: That’s all I’m doing, dude. I’m just hitting a demographic.
Tim: Maybe working in kitties simply boosted our traffic.
Peter: That’s an excellent point. Photographs of kittens
Jonathan: I like Tim’s presence here. He supports me and defends my decisions. It’s a wise decision.
Tim, there’s an article in Forbes this week that says you shouldn’t create a business plan. Starting small, testing, and tweaking is something I’m getting into. What would you respond to those who argue that “even the concept of lean business planning is unnecessary?” Just get started on it right away and learn as you go.” Why do you need to plan at all?
Tim: Every one of them, I believe, I’ve dealt with the experts and the “Don’t do a business plan” advice. I believe you should approach any of the people who are saying that and ask them, “How do you feel about establishing priorities?” “Absolutely.” “How do you feel about focusing your approach on a particular identity and target market?”
“Absolutely,” they’ll say. “How about techniques that are in line with the strategy?” “Absolutely,” they’ll say. “How about anniversaries?” “You do need milestones,” says the narrator. “How about revenue and expenditure projections, as well as comparing planned to reality to manage cash flow?” They’re going to say yes every time.
We go into this weird magical world of language, so if you describe a business plan as a lengthy, formal, conventional document that you’ll spend too much time on and then forget about and never look at again, then don’t make one. It’s the same as if I define regular exercise as getting up one day and jogging 50 kilometers. If I define it that way, then don’t bother.
The people who say you shouldn’t write a business plan are defining it in such a manner that it’s useless by their definition. Meanwhile, in the real world, business owners who are attempting to manage a company may greatly benefit by jotting down a few bullet points. “This is where we’ll be concentrating our efforts. Here are our strategies.” As a result, they can observe how well they complement one other. Then they’re told, “Here are our milestones,” and they have to work around them. “This is our forecast,” says the narrator. Then review and modify once a month for a couple of hours. That approach may help anybody who is concerned about their company.
Why do we have this aversion to writing a business plan? Don’t waste time creating an out-of-date formal business plan that you won’t utilize. Make it tiny and lean, and utilize it to help you operate your company more efficiently. That concludes my response.
Peter: That’s fantastic. Yeah, and the pitch episode, where we spoke about the notion of a fast pitch, which is related to the lean plan concept. We spoke about how you can use the effort you put into the plan as a method to manage your company. Whether it’s assisting your workers in understanding how their objectives fit into the broader picture, or conversing with strategic partners, new recruits, or prospective buyers of your company. For all of these reasons, having a strategy in place is beneficial.
I believe what Tim is saying here is that it’s not only about the money; it’s also about the language, the bullet points, and the reasoning. As a lean element, it’s a pretty sturdy unit, as well as a fairly strong plan document.
Perhaps Jonathan and I could demonstrate what a good outline looks like, or what some of the most important components of a link or clickable link are. On the internet, how do you guys do it?
Jonathan: When we advise folks to go to a link, they have to follow through. They’ll have to type it in themselves.
Peter: After that, I send them a PDF.
Jonathan: We’ll have episode notes available on iTunes, SoundCloud, and Bplans.com, among other places. We may provide a link to The One Page Business Pitch Template, a free Bplans resource. That is available for download. That motivates you to write down your company ideas on one page and follow the lean model’s bullet points.
Peter: That makes me happy. Tim and I will create a HyperCard deck and send it to everyone who need a copy.
Jonathan: I don’t believe I said anything like that.
Peter: Do you think you’re too young to play with a HyperCard deck?
Jonathan: Without a doubt.
Peter: Thank you for the links, Jonathan. I’m certain that people will go out and download some of those things. If they want to become serious about a lean plan, they may download LivePlan for free at liveplan.com and read certain Bplans articles at any time.
Tim, the concepts we’re discussing here seem to be a bit abstract. Is this a strategic strategy we’re talking about? Are we talking about putting this into action? How do the two come together? What’s the difference between having a concept of where you want to go and really getting there?
Tim: That’s right. Let me elaborate on that with some suggestions based on my experience with company planning. What I believe almost every company need should be included in a lean strategy. I’ll begin with an overview. It’s all about strategy, tactics, and details like milestones, as well as a prediction of how well you’ll run plan vs reality.
There are four of them. Is it okay if I go through each one?
Sure, Peter. Is that STSF? Do you want to say it out loud, Jonathan?
Jonathan: Let’s skip the abbreviations. STSF.
Peter: All right, that’s OK. Excellent and unforgettable. Thank you very much.
Tim: There aren’t any vowels.
No, Jonathan, it’s not feasible. It’s simply a sound that escapes.
Tim: I’m talking about strategy. What exactly is strategy? Not the entire intellectual nonsense, just real-world strategy. For me, strategy entails a three-dimensional perspective. The first is one’s own identity. What makes you unique? Strengths and weaknesses, that kind of thing. You’re more than a restaurant; you’re a Thai eatery that serves organic fare. You’re not simply a website; you’re the website for individuals who have something in common with you. Typically, such identity is derived from the founders’ identities: core culture, core competence. There’s a lot of lingo in there, but you understand what I’m talking about. That is the concept of identity.
Then there’s the market. That’s two out of three completed. Market. What is the demographic of your target market? Who isn’t in your target demographic? If you’re a Thai restaurant that uses organic ingredients, is your target market couples, people with better incomes, students, or something else? The second element of strategic emphasis is this.
The third is a company’s offering, whether it’s a product or a service. If your restaurant is going to be for premium events for people, and the cuisine is excellent, and it’s farm to table or local, the product you provide has to match the promise you’re making and the people to whom you’re making it.
Simply stated, I’d define strategy as those three ideas. It’s all about concentration in every instance. Make a list of bullet points for the strategy section of your lean business plan. Because what happens is that the entrepreneur, and we’ve all been there, wants to do everything for everyone. That’s how we feel. “Oh, you want to go via the drive-through? So I’m going to take that expensive sushi restaurant and turn it into a drive-through.” We want to be able to accomplish everything.
But if our lean strategy just has a few bullet points, this isn’t long text, it’s not an explanation; it’s simply a reminder that “that’s not our emphasis.” Then we’ll be in a better position to make a choice later. Maybe we’ve come up with a brilliant new concept for expanding into a new market, or maybe we’re simply trying to satisfy everyone, which is a recipe for disaster. There is a plan. I’m thinking of a page of bullet points to serve as a reminder.
Peter: A plan of action. That seems to be an excellent idea. Isn’t it one of our responses, Jonathan?
Yes, Jonathan. What’s the next one going to be? I’ve lost track of time.
I believe it was S…T, Peter.
Tim: That’s right. From strategy to tactics, we’ve come a long way. For decades, I’ve been fascinated by the interaction between strategy and tactics. People may often go off on tangents, attempting to define which is which, which I am uninterested in. “Look, without tactics, your plan is a waste,” I remark. There is no plan if you don’t have tactics to execute.” I appreciate tactics as a secondary component of a lean business strategy because it forces you to consider alignment. Tactics are just another set of bullet points, but your tactics will be what the marketing strategy, or product plan, was decades ago in the comprehensive business plan. Pricing, conversion techniques, SEO, launches, features, and perks will all be tactics. Tactics will be what I need to do on a daily basis to make that plan a reality.
Peter: That’s fascinating. A key point in the Thai restaurant example could be, “We are going to be competitive on pricing.” We’re going to be the most affordable in town.” But saying, “We’re a moderately priced Thai restaurant,” isn’t exactly strategic. You’re going to need something else. As you said, some part of your personality, your DNA, is what distinguishes you in that area.
Tim: That’s where the strategy comes in. You’ve just turned my high-end Thai eatery into a low-cost Thai joint. Take note of how the strategies might vary. If you’re a high-end Thai restaurant, your strategies will revolve on price and menu sourcing. The same may be said for the low end. Daily discounts are available on the lower end.
It’s possible that where they advertise and what they advertise are two distinct things. The low-cost Thai restaurant’s marketing strategy may involve a lot of newspaper discounts. You’re not discounting at the upper end because it attracts a different audience. You’re working on reviews and other things.
Do you see how they have to line up? The details of price, channels, and what you’re providing, or what’s on your menu, are your strategies. The entire approach is referred to as the strategy. With a minimalist strategy, plan, and methods.
Tactics may also be reduced to a single page or two of bullet points. We’re not writing for strangers, only as a reminder. It will assist us in keeping them in sync if we do so.
Peter: That’s all fine. There’s a bit of a chicken-and-egg situation here. Is it a fair assessment? What if I have a slew of strategies but have never considered the big picture? Or I believe I have a pretty clear concept of my strategy, but the tactics begin to drift away from it. Which of you has to make a change? Are we going to meet in the middle? Is this a bargaining situation? How are we going to figure it out?
Tim: Peter, that’s why we take the time to create our lean business strategy in bullet points. That is all there is to it. Because we’re all going to do the same thing as company owners. When we’re alone in the vehicle, the shower, or elsewhere, we’re contemplating strategy and tactics. This is the thing; we wouldn’t have started the company if we didn’t enjoy it and weren’t thinking about it. This is something we’re all doing.
Then there’s the preparation. Because when you write down a few bullets for strategy and a few bullets for tactics, what happens is that normal people will conceive of them as a unit, as if they were operating together. The process of putting it down, not to mention the fact that we’ll review and update it once a month, gets us thinking about how they connect and whether or not this approach is appropriate for that market and that company offering. That’s one of the reasons we still need preparation if we want to get the most out of our company.
Jonathan: Okay, that’s how strategy and tactics work together. What was the next item on the to-do list?
Tim: I’m talking about concrete details, which are truly milestones. Because we’re all human, you just need milestones. You must be able to see far enough ahead to say, “Okay, if we go here, we’ll be able to get there six months from now.” That’s a component of development, and it’s how we operate.
Of course, what that point is will vary depending on your industry. It might be the next version launch, the next item in your bakery that we discussed, a new restaurant location, another website, a fresh approach, a relaunch, or anything. Milestones assist us in moving from theoretical to particular company planning.
We’d want to make a summary of our assumptions in addition to the milestones. There’s a reason behind this. If we write down our assumptions, we may ask ourselves, “Have our assumptions changed?” every month as we evaluate and update. “Do we alter the plan, or do we simply execute better?” we ask. This is a step in the lean business planning and execution process. You’ll be asking yourself, “Do I alter it, or do I simply execute better?” on a regular basis.
There are milestones and assumptions to consider. You must have metrics or measurements, which I believe is one of the most important aspects of excellent innovation and management. It’s not simply about dollar sales and dollar expenditures. It’s about visits, calls, presentations, closures, how many people were serviced, how many people walked in, and where you rank in Google.
There are several things you can include in your business strategy to assist those in charge of execution. Keep an eye on them while they’re doing well, and be concerned when they’re not. You’ll need such items, and others will like them as well. Internal measures, especially when they’re objective and not subjective, are important.
Every morning, I go to work, and if I have more Twitter followers, that’s great; I’m doing my job. I’m not if I have less Twitter followers. There is a way to measure anything objectively.
Jonathan: Is it conceivable, and maybe you have some typical milestones that people set up, that these milestones aren’t really helpful? They may seem to be important milestones, but when you get there, you discover that they didn’t assist the company objectively.
Tim: Yes, of course. I’m thankful for your inquiry since it allows me to bring something up. They must be concrete, precise, and quantifiable. Over the years, the world of business planning has been replete with non-measurable, hypothetical, and meaningless milestones. “We aim to provide the world’s finest customer service.” That’s fantastic. What method will you use to assess this? As opposed to something like, “We expect resolutions at 0.95 of calls,” or anything like. Or, “We want to do something with returns,” like in “Our customer service.” It’s not very helpful for management if you can’t quantify it.
Milestones have historically been filled with phrases like “Be the greatest,” “Be the best,” and other similar phrases. It’s pointless if you can’t quantify it.
Peter: That’s fantastic. Are you ready for the F word, Jonathan?
Jonathan: What if I fail? That was the other episode, right?
Peter: Didn’t we already do that?
Jonathan: Yes, we did it. Is there another F word in here?
Peter: I believe this one is scarier for some individuals than failure. Financials, I’ll tell you, is not a pleasant area for me personally.
Jonathan: Yeah, that’s when my eyes start to glaze over.
Yes, Peter. I prefer to delegate the task to someone else. Is that reasonable?
Jonathan: I believe that is reasonable. I’d want to see it done for me by others.
Peter: Do you agree with my way of life?
Peter: All right, that’s fantastic.
Jonathan: That’s all right.
Peter: Tim, what does a person like me, what does a person like folks out there, when they see those financials, those P&Ls, not their favorite thing, they feel frightened, their stomach twists. What are our options for dealing with the F at the end of this sentence?
Tim: Forecasting is beneficial to management, and it’s not frightening if you realize it’s just informed guessing with assumptions to connect things together. A company owner who understands her industry is a better forecaster than the most sophisticated, econometric PhD predictions ever made.
Second, you’re using it because you’re going to manage, not because you’re trying to make a theoretical prediction about the future. You go through your sales estimate, not just estimating as a percentage of market share, but saying things like, “Okay, we’re going to have this many stores, this many units per month per store.” You go through your sales estimate, breaking it down into assumptions, knowing well well that you’ll be incorrect. Every business strategy is flawed. All predictions are incorrect. We’re human, and we’re making predictions about the future.
Having the forecast provides you the ability to analyze how things are going each month, improve management, and make course adjustments. “OK, we were incorrect, but hey, product A sold a lot better than we anticipated.” We can now manage expectations because we have a projection and say, “That implies we can put more marketing money into product A.” “OK, we’ve got a forecast,” she says if product B doesn’t sell as well as expected. This is a managerial issue. We couldn’t care less if we were correct or not. Now that we know where things went wrong and in which direction, we can make the necessary corrections. We’d best cut down on this, or examine our marketing and find out why it’s not selling as well as before, and make changes.”
It is impossible to establish a corrective mechanism without a financial projection. It doesn’t have to be a difficult prediction. You don’t need to be a CPA or an MBA to work here. You must flow through a series of assumptions, step by step, and complete your lists and tables while being patient. It’s something that anybody can do. You can predict if you know how to manage your company.
Peter: That’s OK. I am convinced. I’ll give it a go. I’ll keep my word.
Jonathan: I’m feeling good now. Yes, I’m going to do it.
Peter: That’s all fine. There was something intriguing you said there. This notion that the plan is flawed. The presumption that the plan will be incorrect in some manner, whether it’s the financials or some of the market assumptions in general. There’s an intriguing metaphorical overlap there, in my opinion. When you read Eric Ries’ book on the lean startup, you get the impression that you’re presuming the product you’re putting out there is flawed. You’re ready to take user input because you believe the consumer is, on some level, wiser than you are about what they want. You’ve come to terms with the idea of being incorrect about the strategy.
It seems to be very important. It’s important to have this mindset in the lean plan because you may be incorrect about some of these assumptions or claims about how you’ll perform over time.
Is it all about letting go of the ego? How can you begin to accept that even your greatest efforts will always be somewhat off, and just return to operating the business? Is there any advice there?
Tim: Without a doubt. Vacation preparation is my favorite metaphor for this. Obviously, you’ll have some notion about airline tickets, reservations, seat reservations, and the rest of it before you depart for the three-week vacation with the family. When you go on vacation, though, you know that things aren’t always going to go as planned. You’re not going to get worked up over it. When you’re heading to a restaurant in another town, you’re not going to spend too much time deciding whether to turn right or left when you come to this street. You’ll have a solid basic strategy in place, and you’ll keep an eye on it and manage it so that you can get the most out of the situation.
With a business plan, you’re not laying out everything that will happen in the next 12 months, no matter what. You’re always searching for what’s expected of you, and then you’re monitoring, evaluating, and adjusting when those expectations fall short or change. Then you have to deal with the discrepancy in order to keep your journey going. If your flight is canceled, you know you have a hotel reservation for that night, so contact the hotel right once. It’s a matter of coping with reality.
Reality is business. It will never happen precisely as planned. However, having a strategy allows you to consider what you’ll alter and what you’ll have to embrace. “Okay, I should contact the hotel and let them know we’re going to be late,” says a vacationer.
Peter: That’s fascinating. There’s also an aspect of some of America’s great historical business pioneers, all these tales of people who overcame adversity, went against the grain, and overcame all odds. Is there any validity in thinking that you are the most knowledgeable person and that your customers, strategies, and financial projections are all incorrect? Is it worthwhile to test it out, to put that cap on? Is there a happy medium? What is the best course of action?
Tim: I believe we’re all guilty of it. We’re all making educated guesses. The value is in the lean: taking little actions and evaluating them is preferable than waiting for something huge to happen.
“I’ve been working on this business strategy for six months,” I tell them. “Oh god, don’t,” I thought to myself. No, no, no, no, no, no, no, no, no, no, no Work on the business strategy for four hours, and life goes on in the interim. Always evaluate and edit, and always refresh.”
That is something I fight for because that is the way things are in reality. If we spend too much time on something, the benefits decrease. There’ll be chaos if we don’t attempt to chart a course ahead and keep track of what we anticipated and how it differed.
Peter: It’s fascinating. I believe that for many of the companies I’ve seen at events like startup weekends or more high-level angel investment conferences, the concept is excellent, the market seems attractive, the experts are there, and the company is ready to go. Frequently, it is your financial situation that reveals you.
A simple financial forecast will show you that it may not be worth it to start a company, or that it could be because it’s such a fantastic concept that no one has tried it yet, since it’s not even that sustainable. Even if you get everything up and running, the market will not bear enough to keep the lights turned on. As previously stated, the failure of many companies is due to their inability to produce the revenue they need to remain afloat.
That is my personal endorsement of the F in STSF.
Jonathan: You’re never going to get it. It’ll never be pleasant to listen to.
Peter: That was a remarkable moment for me.
Jonathan: No problem.
Peter: There’s a scene with a movie star guest when we display a trailer for the forthcoming picture. Is that what you’re saying, Jonathan?
Jonathan: Usually, yes. The majority of the time, our celebrity visitors have some kind of audio clip. You’re no longer a movie star, Tim, but you are an author and an expert. I believe you have a book coming out shortly, correct?
Tim: Thank you very much. “Lean Business Planning,” published by Motivational Press, is the title. The book will be released in September. Leanplan.com is the website for that.
Peter: That’s fantastic. leanplan.com. Get the book and have a look at the website. Also, as I’m sure everyone knows, Tim Berry is a regular contributor to bplans.com. The reason LivePlan exists is because of the founding father. Today we have a big visitor.
Jonathan: Yeah. Thank you so much for taking the time to come on the program. Thank you for contributing to several of our podcast conversations so far. Several of Tim’s articles have been discussed in prior episodes.
Tim: Okay. Thank you very much. Especially the colossal visitor. Let’s make it big but not fat.
Peter: He’s big, but he’s slim. In idea, it’s massive, yet it’s short in stature. Everyone, Tim Berry.
Tim: That one, too, I’m not sure of!
Send us an email at [email protected] or a tweet at @Bplans if you have a question you’d like us to address on the program.
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