Watch this video to learn how you can use Lean Business Planning with Tim Berry’s 5-step process to help plan your business. You will also get a free downloadable worksheet.
Tim Berry, the creator of Palo Alto Software and a business planning specialist, recently presented his newest advise on lean business planning to our Bplans audience. He is a well-known guru in the field of business planning, specializing in small businesses, startups, and entrepreneurs, though he has also worked with Fortune 100 and Fortune 500 companies.
Lean business planning is a simple, powerful, and effective method to structure your company around what matters most, establish the appropriate priorities, monitor outcomes, and complete the tasks that need to be completed.
It’s all about making your company life simpler by doing what works best, monitoring what works, and always improving.
On the ninth edition of The Bcast, Bplan’s official podcast, Peter, Jonathan, and Tim discuss lean business planning: Subscribe to The Bcast on iTunes by clicking here »
Read the following transcript:
Tim: Sabrina, thank you very much. I’ll begin by explaining what a lean business strategy is. How do you go about doing it? What is it made up of? Then I’ll go through how you can utilize lean business planning to develop your company on a regular basis. After that, I’d want to respond to queries as they arise, and we have moderators. After that, I’ll discuss how you communicate with people when you have a need for what your company will do. I’m going to get right into the content. I’m not going to go into detail about the history, advantages, principles, what lean is and how it began in the 1930s and 1940s, lean startup, and so on. I’m just going to speak about what we do, which you can see in this graphic.
There are four parts to it, and I’ll go over each one one by one. We’re looking at our lean business planning, which includes strategy, tactics, precise details such as milestones, KPIs, tasks and schedules, and critical company statistics, all of which contribute to cash flow management. That is the cash flow forecast, the sales forecast, and the spending projection.
That’s a nimble corporate strategy. It isn’t a legal document. You don’t have to print it out. It’s not something you’re writing to help others understand your company. Its goal is to improve internal management. Its goal is to keep strategy and tactics aligned, as well as to have details that you can control so that you can manage change. Your company is continuously evolving, and one of the most important aspects of business planning and management is handling money.
Which I just said you can’t optimize without some kind of plan, but it’s the lean business plan that’s part of the lean business planning process. Let’s begin with the approach.
I have a Stanford MBA, so I can strategize. I’ve been watching this for years. We could all write a Ph.D. thesis on strategy, but we don’t, do we? As a business owner, I’m talking to other business owners. When you talk to an outsider about your approach, nearly every effective functioning plan I’ve seen looks apparent.
Of course, we’re concentrating on this and that, and you may spend as much time as you want with frameworks or anything, but I say it doesn’t matter. You live on concentration in small businesses and startups, and my favorite shortcut to strategy is to think about identity, market, and business offering.
Identity refers to who you are as a company, what you excel at, and what your key competencies are. What taglines do you use to set yourself apart from other individuals or companies that are comparable to yours? Who is your primary target market, in my opinion? What is the primary emphasis of your efforts?
The restaurant’s identity, for example, is that it serves Thai cuisine and that its chef is unique; she has been on Iron Chef or something like. Okay, are we looking for university students, couples, high-end, is it an expensive two-hour dinner, or is it quick fast food? That’s who we’re after: the market.
Even as I say this, you’ll see that the gift becomes entangled, which is great. That is tactical. If we’re aiming for a high-end market with the Thai restaurant, the offering will inform us what we have on the menu and what hours we’ll be open. Those are the companies that are selling pieces of it. They come together in a lean business strategy, and this is simply a list of bullet points to help you remember. They’re present because we’re all aware of the phenomena, right?
We aim to make everything possible for everyone. “Oh, why not drive-through?” someone suggests as we operate a high-end Thai restaurant. And as entrepreneurs and company owners, our initial impulse is to say sure, let’s go drive-through.
The strategy component of lean business planning serves as a reminder. “Of course, we can’t have a nice restaurant and do drive-through quick food.” Now, I’m not a restaurant entrepreneur, so pardon me if the comparison isn’t quite right, but concentration is. Focus is very effective.
As you consider company strategy, I’ve compiled a list of just a few suggestions. What exactly is identity? What exactly is marketing? What do you have to offer? I’m not going to read it to you, because swat, core competence, and so on are concepts, and the objective is focus, regardless of the framework.
I’ve worked with a variety of frameworks. I was at McKinsey, as I had said. I’ve seen a wide range of frameworks. It’s great if you use it on a regular basis and it works for you. Here’s an example from LivePlan; the pitch is basically strategy, and you can see that the bike store caters to families and ordinary people, not just gear nuts.
Take note of how that identifies a market and a company proposition. There’s more regarding the solution after that, as well as a plan. If a strategy isn’t straightforward, it won’t work. Your approach in company planning includes bullet points that you will utilize as reminders.
Sabrina: Tim, I have a short question for you; I know this is valuable information for everyone. What is the overall idea of what you’re talking about, and then in terms of financing? Many individuals want to know whether you can use a lean plan to be financed, if you can obtain a loan, or if the lean plan isn’t suitable for that. Because so many of our webinar participants are in the process of obtaining funding, I thought it would be a nice question to establish the context for lean planning and when it should be used.
Tim: Thank you for that, and I’ll tell you that this is where I’ve been for the last several months. I’m currently in my seventh year as the head of an angel investment group, and we just announced an investment last Thursday, so I’m quite acquainted with how angel investors operate.
I’d want to put this in perspective for the whole group. We’re all company owners, and we’re not all going to receive angel financing, so one of the lean business plan’s tenets is that you utilize what you’re going to use. If you’re not seeking for angel funding, you won’t complete the angel investment-focused business plan.
Having said that, if you are, what I find in our group is that the lean business plan is first and foremost a script for your film. It’s your strategy that you stick to while you work on your synopsis and pitch, and, more importantly, I witness a hundred pitches a year since I judge for other angel groups.
There is no dogma here. There are no hard and fast rules, but what I’ve found helps is to start with a narrative. We’re talking about the synopsis and pitch here. Tell a narrative about a need to your angel investors. Your angel investors will use their imaginations to evaluate your narrative. You want to express what you need to say in order for people to be inspired by the possibilities.
Your figures aren’t going to convince them. They’ll want statistics at some time, but numbers aren’t going to drive this. You’re going to use the narrative of the necessity to propel it forward. As in here, there is a problem, a solution, a reason for our being, and a call to action. That isn’t your business strategy yet.
One of the most common misunderstandings about angel investing is that no one I know would ever make an angel investment without first reading the company plan. I mean, our organization has forty-five members. The company strategy isn’t meant to be a sales pitch. We’re already intrigued when we view the business plan since we appreciate the individuals, the background, the synopsis, and the pitch.
You create a lean strategy and include the narrative in the pitch or synopsis, as well as a market study. I say as required because if your narrative piques the interest of angel investors, you won’t need as much formal market research. Some investors want more, while others want less, depending on who they are. This will depend on the situation. You add that now that they’re intrigued, you’ve given them the narrative, they’ve seen the market, you’re demoing the product, you’ve shown traction, and they’ve understood. Then you offer your lean company plan to them, which includes strategy, tactics, and precise details. Investors are enamored by traction. They adore anniversaries.
You want to demonstrate that, and investors want to see the size of a company that is relevant to your sales projection. The sales prediction will be the first thing they look at. They’ll look for strong, but credible, growth, and then they’ll look at your spending to see if you know more about the business than you’re planning to spend.
You’ll add descriptions that weren’t in the lean business plan since you didn’t need them there as you move through the process. You’ll assemble the squad. You’re going to include the market. You’re going to add the exit. At some time, investors must leave the market.
All of them are added if you’re in a bank environment, which wasn’t the question, but that’s where you’ll have credit history for banks. Your lean business plan is lean at first, but you may expand it as required to suit the needs of the company.
With just one inquiry, I’m going to take you back to where we were at the time. The second step is to plan your strategy. Consider strategy and tactics. No disrespect to Ph.D.s, but we’re company owners, and they can speak for hours about which is which and so on. What you believe to be strategy and tactics are correct. You are the proprietor. You’re in charge. The emphasis is on strategy. It’s all about execution when it comes to tactics. You can view the price and the product…
Sabrina: Please accept my apologies. Hello, we had an issue with the audio, and it seems that we are still experiencing problems with the audio. Tim was just thrown out of here, but I’m hoping you can hear me. I know a lot of folks are complaining that they can’t hear me. Sabrina is my name. Palo Alto Software’s CEO is myself. Please accept my apologies if you were unable to hear me. I’m going to speak a little bit about some of the other things that folks are asking as Tim gets tuned back in.
There are a lot of concerns regarding what information you really need if you’re going to predict, and how to put up a revenue projection if you’ve never launched a company or if your firm is brand new. It’s a very tough task.
If you have a running business, you must use lean planning techniques. You should definitely put it into practice, but it’ll be a lot simpler if your company is already up and running since you’ll have something to work with. It may be a really tough task if you’re beginning from scratch. A lean strategy will help you stay on track, concentrate, and accomplish just what you need.
One of the things that people don’t realize is that if you know who your customers are, if you know who your target market is, and as you consider Tim’s business tactics brainstorming, if you can define the marketing and offerings, if you can really understand who you’re selling to, revenue forecasting becomes a lot easier.
If I know I’m Garrett’s Bike Shop, and Tim gave you the Garrett’s Bike Shop pitch page, the pitch page is from liveplan.com. It’s a planning application for us. Many individuals have inquired about the program. If you actually walk in and observe what Garrett is doing at Garrett’s Bike Shop, you’ll see that Garrett is selling to families, and he’s selling to families that are put off by expensive bike stores.
He lives in a tiny town in Idaho, therefore he may use Census.gov to find out how many families reside there. He can find out what those families’ demographics are, as well as how many of them earn a particular amount of money. Suddenly, he has a large number of prospective clients to sell to, and he can make some informed assumptions while putting together that prediction.
We understand that it’s a frightening prospect, and figures may be intimidating if you’re not a numbers person or dislike spreadsheets. The unknown, on the other hand, is terrifying for all of us. It may be frightening to have to cope with forecasting the future on a regular basis. If you think about who your customers are, where they reside, and how many of them there are, you can go through and start with basic things like what happens if 5% of them come to my shop, and you obtain a figure, put it into your prediction, and see what happens to your income.
Now that we’ve corrected our audio, I’m going to go back to Tim and ask him to continue.
Tim: I’d want to continue since I believe this is a crucial issue. If you do a sales forecast and do plan versus reality, you’re planning, I’ve frequently stated on the side with lean business planning and any business planning. I’m going to jump forward from where I was at strategies and get right into an illustration of what Sabrina is saying. Magda is my name. She’s establishing a tiny deli in a Silicon Valley business park. She understands her company well as an employee, but now that she’s on her own, she’s having trouble figuring out how to predict this, much like this query.
“Magda, let’s obtain some figures we can get our hands on,” I suggested, since I’d never done it before and didn’t have any data. What am I going to do if I don’t know? Look for something to do with your company. I’ll show you an email marketing version or a web version in a minute, but this is a basic restaurant.
A restaurant has six tables, each with four chairs. It has coffee and down below it has how many average she can sell from seven to eight a.m., eight to nine a.m., and so on, and so she just gets over the nervousness, “How will I know?” and breaks it down how many drinks per lunch, how many drinks to go, and she gets into assumptions, and once she has these assumptions, she can generate, all right, Sunday, Monday, Tuesday, Wednesday, Thursday, Friday, Saturday, Sunday, Monday, Tuesday, Wednesday, Thursday,
Some people despise and fear number layouts, but think of them as your friend because they break down big uncertainty into small uncertainty. For example, Magda’s capacity is twenty-four at any given time, plus to go, so she works out the days of the week and what she thinks a normal month would be, and then she goes into, “I’m starting, so I’m not going anywhere.” She progresses from a normal month to percentages before arriving at this, which is a compilation of informed estimates.
We previously stated that the purpose of a forecast is not to accurately predict the future because we can’t, but to tie these things together so that as time passes, she can manage these numbers and see that these units were going to be this, this, and this for that month, but because she’s using lean business planning, she’ll be able to review what they were and change this plan and manage this.
She makes some educated guesses. How did you come to know these facts? Magda, the new business owner, is familiar with the deli office park industry, so she can roughly estimate how much each cup of coffee and lunch will cost her. She’s also average, as you can see. When we look at the categories, we see that she isn’t eating ham or turkey sandwiches.
She isn’t choosing between lattes and cappuccinos; instead, she is averaging since this is the future. This isn’t a calendar, by the way. This is the process of planning. She provides these estimations, and it should be reassuring to individuals to know that they are not obligated to follow them. This isn’t like, “Oh my goodness, it turns out I was incorrect eight months from now.”
You go through this once a month. This is true leadership. This is business management, not a business plan for a business professor. This is the material you’ll utilize. Her deli’s sales estimate suffered as a result of this. If you’re working on anything related to email, for example, you should start with the basics.
How many emails do you plan on sending? How many will be available? How many of those who are open are going to click on the link? How many people will visit the website? How many of them will purchase, and you can see that we have unit sales from a hypothetical email campaign without spending a lot of effort on it.
If you’re in a startup, this will help you answer the question, “How do I know?” Is this a new company? “How will I be able to tell?” You deconstruct it into assumptions. Last but not least, a web prediction. How many website visits do you think you’ll get? One hopes, and this goes back to what Sabrina said before, that planning is about knowing what you need to know in order to plan, but you don’t need to explain or define it in order to have a plan; you just need to know.
I’m not suggesting you don’t know and make educated assumptions; rather, I’m suggesting you record your informed predictions so you can monitor the outcomes. You’ve gotten a lot of visitors through organic search engine optimization. You have visitors who you believe came from social media clicks. You have visits that you believe come from pay per click, giving you a monthly total of visits.
Then there’s the assumption of a conversion rate. Remember that as your company grows, you will be continually improving these figures so that your forecasts become more accurate. We all live in a black swan’s world. You’ll never be able to foresee the future with certainty. That isn’t the intention.
Tracking what went wrong and what went well is a goal. Then you have a budget, and then you have your unit sales, which are thirteen, fifteen, and nineteen. That is a sales projection. This is crucial in terms of planning. Because of the way we operate, I promise you’ll be conducting business planning if you just do that.
I’ve been operating a company for many years and have been engaged in many companies, as Sabrina said. Because of the way our brains operate, if we come together every month to monitor plan vs real sales, we’ll be thinking about bigger issues, such as focus, what we need to do next, and what’s working and what isn’t.
I’m going to return to where I left off, tactics, and propose that tactics are what you’d find in a conventional business plan, divided into subcategories like your marketing strategy, product plan, finance plan, and management plan. We’re entrepreneurs. We’re doing it for company management purposes, so we’re not detailing everything for ourselves.
We’re going through what our price is in bullet points. Are we on the high, low, or middle end of the spectrum? If at all, how essential is packing to us? What is our social media strategy? What difference does it make? Is it a gems distribution or a web distribution? Are we raising money in the business offering, features and advantages, launches, versions, sourcing, pricing, and administration and finance?
Is this a commercial loan? Is this simply a boot stop? What are our funding strategies, banking policies, and employment policies? Do we have any openings? Who are we looking for? All of them are strategies, and what we’re looking for is a system that allows us to monitor progress and metrics so that we can manage them. Including them in the lean business plan ensures that strategy and tactics are aligned and that we follow through.
We don’t have time to go through every technique in this example scenario, but here is how it would appear in your plan. It isn’t a large document. It’s about keeping track of your own activities. From the example strategy, here are some product strategies. As soon as feasible, start offering online courses. Finish the ebook. These are product marketing strategies. As we move through the lean business strategy, we’ll get to point three: clear details.
That’s my favorite element of a business plan, and only a few weeks ago I wrote an article about milestones for the B plans blog, titled “What makes your business plan real?” It’s not enough to be well-versed in strategy and tactics. You must execute, and planning include keeping track of outcomes, managing adjustments, and making course corrections. You’ll need these details to begin answering a question we discussed earlier, so I recommend that the first thing you do with your business plan is create a review schedule.
All of our team members knew that they should be at that meeting on the third Thursday of every month, and if they had a trade show or something that prevented them from attending, it was all known ahead of time. Throughout all of those years at Palo Alto Software, the management team knew that there would be a meeting around lunchtime on the third Thursday of every month. We would seldom spend more than two hours to evaluate what was going on, what had occurred, our assumptions, and what needed to change, and we would rarely take less than an hour. That is a component of your strategy.
Then there are your missed assumptions, which I won’t go into here since I simply want you to grasp the picture. You make a list of your assumptions at every review meeting since the purpose of the meeting is to decide whether to stick to the plan or alter it. Is our assumption still correct? is one of the ways you assess that important strategic choice.
Have our expectations changed at a time when we most likely need to alter our strategy? Are the assumptions still valid, but the outcomes are different? Then there’s the execution. Good execution equals good news, poor execution equals likely terrible execution, and then we evaluate and handle the issues.
Another essential consideration in tangible details is how people operate. Have some significant anniversaries. When will the next version be released? When will the next version be available? When will the promotion go place? When are we going to recruit that new employee? When are we going to enter the other market? When are we going to open the new location?
We’re all human, and we need details for which we can work, and the whole group has to be able to see the specifics because then there’s peer pressure, and what we get from precise milestones is a greater probability of execution, which leads to better company.
Here’s an example of a milestone; it requires some thought. This isn’t a computer problem; it’s a human one. To run the company, you’ll need adequate milestones, but if you go into too much detail, everyone’s eyes will glaze over.
In practical terms, as our company grew from five to ten, twenty, thirty, and forty employees, some of the groups began to have their own milestones separate from the main meeting, resulting in a cascade downward, but determining how thick, how granular our milestones required critical math, good human judgment, and leadership from the people responsible. Because we’re all human, you’ll need metrics.
I really liked the book; Patrick Lencioni had a list of three ways to make your workers unhappy, and one of them was not allowing management to view their own KPIs.
Some of that is dollars spent or sales, but it can also be phone calls, leads, seminars, tweets, Facebook likes, engagement, and retweets. As much as you can as a business owner in your lean business plan give people metrics that they can see, people naturally want to have their own scores that they can see every day so they can manage them, and that g
That leads to what I refer to as “ownership,” which is defined as “caring about your portion of the company, your duties, and your tasks,” rather than “stocks and shares.” This is derived from measurements that consumers consume, which is crucial to a lean company strategy. I don’t want you to read this, as you can see. It’s all about the picture.
I’m not referring to anything major. I’m referring to the fact that if you understand your company, you can create a lean business plan. Knowing is limitless. You might spend an eternity learning, but creating and preparing the first lean business strategy could take just a few hours at most. It’s not a comprehensive text; it’s simply a way to keep track of things. With that, and before I go on to step four, I’ll take a moment to double-check that we’re…
Sabrina: Thank you, Tim. We’ve got a lot of questions. There are a few of concerns about strategy and current companies that I believe you’ve addressed. One of the things to discuss is how someone could start with the business model canvas and then go on to the lean strategy. There seem to be many inquiries.
Someone mentioned that they thought this was going to be about that, and as you know, we use the business model canvas and a number of accelerators alongside the business model canvas, the business model canvas being the first step to some high level strategy by LivePlan, and the lean planning methodology being more of the actual implementation plan once you figure out what your business should be.
Maybe you can help people understand because they hear so much in the market about lean startup and business model canvas that they don’t do a business plan, but the reality is, and we’ve worked with the business model canvas and lean startup guys, but what they’re saying is figure out your business before you go to the planning stage. Don’t bother with a business strategy. Perhaps you could elaborate on it in the context of lean planning.
Tim: Of course. These are many types of data, as well as various types of values. The lean canvas is an excellent tool for determining the overall picture.
The comparison of a trip, or a holiday, appeals to me. The lean canvas is that we want to travel someplace warm with a beach, or we want to go to the mountains with a nice walk, or we want to go somewhere in between. Then we may decide if we want it to be in the summer or the winter. The idea, that structure of the lean canvas, is excellent. I said before in strategy that I prefer this framework, but frameworks don’t matter as long as you use them regularly.
After you’ve chosen to travel to Europe or the beach or someplace warm, a lean business strategy absorbs you into making the execution happen. The lean business plan’s first section connects to and works well with the lean canvas.
That’s the high-level picture; the lean business plan’s job is to guide you toward details that you can monitor. It was going to be how are we going to fly in the vacation model. Where are you going? What hotel will we be staying at? What will our actions entail? What excursions should we take if we’re on a cruise? We put everything up, and then the vacation begins, but in business, the management begins, and what were the results? How are things going for you? What isn’t working.
Consider the lean canvas. It does not allow you to monitor management outcomes in the future. A lean business strategy will use the lean canvas to delve into the details. Milestones, progress monitoring, and statistics are the details. Is it true that we’re making sales? What’s to stop you? Is our price effective? Is the amount we’re spending appropriate? Did we underspend because we didn’t do the marketing promotions we planned, which is wonderful because it means we’re more profitable, or did we underspend because we didn’t do the marketing promotions we planned? What’s going good for you? What isn’t there?
The slim canvas provides little information regarding execution. It’s all about strategy, and it’s very useful, and it fits well into my framework for lean company strategy planning, so you fill in the blanks with bullet points and then go on.
This is followed by a monthly evaluation of the outcomes, since what company owners miss out on when they don’t create a business plan is monitoring, course corrections, modifications, and change management. None of this is accomplished by using a lean canvas. With that, I’m going to go; I haven’t presented this slide yet, but I’m going to put us back to square one.
We’ve been discussing four important elements. There’s strategy, excuse me, tactics, concrete details, and now I’m into four, the key figures, which begin with the sales projection, which we’ve already discussed, so I’ll go over Sabrina’s cycling shop example. This is where I demonstrate how it looks in practice.
For the record, for those of you who use LivePlan, LivePlan makes this a lot simpler. We’re talking to everyone, so there will be a lot of people on the spreadsheet. You have a better interface for accomplishing this if you utilize LivePlan. In the end, it’s all about setting out your preconceptions. There’s a cycling shop nearby. These are the ones I went through, and now we’re on to direct cost.
When it comes to companies with substantial direct costs, such as product enterprises, a sales forecast should incorporate direct costs. Because many service companies have low direct costs in relation to revenues, it isn’t as important. Another example is this. There are our direct expenses, which we estimate, and we’re not too concerned about those estimates since we’ll evaluate them every month and monitor outcomes, and then I went through this.
Then we begin to budget expenditures and expenses. Here’s an example of how I handle employee expenses. This is that bicycle shop again; there are a few employees inside, and you can enter your monthly gross income estimate; the idea is that it’s theoretically easy. You do not need the services of a CPA. These basic calculations do not require an MBA. You will need these basic estimations in order to effectively run your company. If you think forecasting is difficult, wait till you try managing cash flow without one. You’ll want to be quick to respond.
A part of the money is spent. Here’s another round of spending. The idea is conceptual simple lists, and you’ll see a spreadsheet since we’re attempting to communicate with everyone, not just LivePlan users. For the record, a LivePlan interface is much more user-friendly. Finally, you’re estimating the costs of leased equipment, utilities, rent, and payroll taxes per row.
We use a simple algorithm to make payroll taxes a function of your salary and other factors. Then there’s other expenditure, which includes things like purchasing goods, buying assets, and repaying debts that cost money but don’t go into your profit and loss.
Because we aim to operate your company better, the lean plan needs to keep track of that. We may assume that since it’s called a lean company plan, you won’t be monitoring sales costs or cash flow. That is not something we endorse. You’re operating a company, therefore you need to keep track of your finances. These crucial figures are included in a lean strategy. There’s also the cash flow, which I won’t discuss since it’s a spreadsheet view. The LivePlan view is more appealing.
Then we come to the next four stages, which are strategy, tactics, concrete details, and critical business statistics. Always have a plan. Plan, execute, evaluate, and modify. The purpose of all of this is to manage. There’s nothing here about executive summaries, market analyses, demonstrating your market, or defining your management team since this is about better operating your company.
I’m going to take a break for now.
Sabrina: Tim is taking a break to consider the logistics. We’ve got approximately twenty minutes remaining in the webinar, just so everyone knows. Actually, Tim, there have been some very excellent questions, as well as some really nice responses from individuals who say that this is giving them a lot of confidence to establish and manage their companies. I’d want to make it clear that we’re not here to sell you LivePlan.
We’ll email you a link to a webinar where we’ll offer you thirty days of LivePlan for free so you can try it out. If you think it’s great, you can purchase it, but thirty days is plenty of time to go in there and pay for it properly and do anything you want with it. We don’t keep your information hostage if you go into LivePlan and start doing stuff with it and then decide you want it back.
You’ll be able to save it as a Word document or print it as a PDF. That is something we do not believe in. We believe in developing high-quality goods that people desire, need, and can utilize. We won’t accept your money if you don’t agree with us, so I want to make sure you understand that. Seriously, follow Tim’s advice and leap over the cliff.
If you’ve been trying, thinking, and wanting to accomplish this, Tim’s lean planning approach is for you, and we’ll offer you free access to his book or a thirty-day trial of LivePlan. Jump in and start working out the viability of your company.
One of the wonderful questions Tim, and I’ll pass it over to you for the final twenty minutes, is from a Kazakhstani entrepreneur, who says, “Thanks for doing this.” It’s fantastic that we have so many foreign individuals on this webinar. This webinar is fantastic. I really want to start a company, but I’m not sure where to begin, and I’m afraid I won’t be a successful entrepreneur. How do I get rid of these self-defeating ideas and start living my life? Although I am from Kazakhstan, I believe that business is business worldwide. Thank you very much.”
That excites me because business is business worldwide, and you’re not alone in this. This is a dread that many individuals have: the fear of not knowing something. I’m not certain.
You just have to believe in yourself and be that expert, and I’ll pass it on to Tim since he knows a lot about this.
Tim: Yes, and I appreciate your inquiry. You know, thirty years ago, that’s how I got my start in business planning. After getting my MBA, I worked in market research and assisted large corporations with projects like this, and what drew me to business planning was the dilemma that you face before you begin.
You’re so unsure of yourself. It’s true for everyone. It’s quite natural. I’m not sure whether this is true for everyone. I think that is, but I know that breaking down uncertainty into smaller parts and starting a business plan was very beneficial for me at that moment of doubt.
A lean business plan makes it even simpler these days, so I start thinking about how I’d know whether this is viable, and I do what I always do: I start with the numbers. I think to myself, “Wait a minute, how many units can I sell realistically?” and “How much is a unit going to cost me?” What does it mean in terms of gross margin, revenues less than direct costs?
Then what would my expenditures be, and I start making some estimations about how much money I’m going to spend in the office and how many employees I’ll need to start? Okay, two or three persons are required. What is the cost of each one?
Will this work? I start asking a lot of particular questions to assist me with that general hazy doubt. Is it possible for me to accomplish it? I believe that delving into the specifics is the best approach to respond. I’ll start with the figures. Many individuals are familiar to me. Over the years, I’ve worked with a lot of companies that like to start with the ideas.
What is the goal? Who’s the first to arrive? What’s the point? That is something that some individuals will do. There are no guidelines regarding what you should do initially. You roll up your sleeves, get down to business, and get moving. Begin anywhere. Just get started on this.
Your lean strategy will develop naturally as you need it. That’s my response to that question, and now I’ll go on to the next step: you’ve got your lean plan, you’re executing it every month, and you’re finding, plan, run, review, and modify. By the way, lean startup, lean manufacturing, and lean business are all related.
The concept of lean, as described in Wikipedia and in the lean startup book, is that you take small steps, and at least one author of the lean startup book refers to the minimum viable product as a small step, and then you see what happens, which is that the sequential that is going on, lean implies small steps and frequent reviews. You have no idea what will happen in the next three years. You describe what will happen next, put it into action, and then evaluate it.
My understanding of it is lean and lean business planning, and this lean business plan is the first step. In the lean startup world, MVP stands for minimal viable product, but I like to think of it as minimum viable plan. This is what you’ll need to clear up the last question’s concerns. What is your bare minimum feasible option?
You’ll need a sales estimate and a spending budget, as well as certain milestones and KPIs, as well as a strategy and tactics plan. That’s the strategy, and then you just let it go. You take the initiative. You get closer to the goals. You keep track of the outcomes. You examine the metrics, which are then evaluated in the third arrow, before revising.
One of the most important tasks of management/ownership, and I speak as a company owner to other business owners, is the never-ending issue of whether or not to adhere to the plan. I promise you, there’s no point in sticking to a plan just because it’s a plan. That was in the 1980s and early 1990s; now it’s 2015.
No, you don’t keep to the plan just for the sake of sticking to the plan. When the plan is working, you stick to it. You have a lean plan and lean planning in place so that you can evaluate what’s working and modify the plan as needed. If it’s working, you should accentuate it to make it even better, and if it’s not, you should alter it. That is always the case. That is how a lean company strategy is managed.
Consider that for a moment. It isn’t a legal document. It’s not the business plan that makes your hands sweat like the term paper you wrote in third grade for Ms. Elliott, who will give you a F if you make a spelling error. It’s the tool you’ll use to run your company. Actual vs. planned methods It’s not simply some accounting function; you’ll look at what we intended and what occurred. It’s not about the spreadsheet, it’s not about the statistics, it’s about what occurred, as you can see from this geeky MBA spreadsheet.
We made a profit. Magda, the deli owner, found that she sold fewer beverages than she had anticipated. “Wait a minute, was I priced too high?” she wonders now. “Did I just make a mistake?” It leads to the position of management. The point is that I despise how much it sounds like jargon and buzzword variation and other such things. The goal is to figure out what was different and why, as well as what we should alter.
That’s when you start to see genuine results. There are many diverse perspectives on plan vs. reality. It’s important to remember that if you’ve completed the metrics, it’s not simply about sales. For instance, if I intended to increase my Twitter followers from seventeen thousand eight hundred to eighteen thousand last month, did I achieve that goal or not? That is a metric. It’s not in the ledger.
Let’s pretend we’re promoting a lecture. Did we carry them out? This is an example of a webinar. Palo Alto Software has individuals on the team that are in charge of handling the webinars. They’ve set goals for how many webinars they’ll hold in a certain time frame. Is it true they made it? Didn’t they? What were the data points? Was there a sufficient number of people? What were the results of the conversions? That is why you should use lean business planning. You’re doing a better job of running your company.
I’m simply displaying different perspectives on plan vs. reality, expenditures, fixed costs, and cash flow. You may even accomplish what we intended for our accounts receivable collection days, which are business to business accounts receivable collection days. Exhale a breath of relief if you don’t recognize those words. You don’t have to deal with them since you’re in the cash industry.
If you’re conducting business with other businesses, you’re certainly familiar with those phrases, and they’re crucial to your cash flow. That’ll be taken care of as well. When are we going to start collecting? What is the total amount of our accounts receivable? All of this is plan vs real management, and here is where the lean business planning work pays off. It should take less time than a conventional business plan, but the harvest is in the hands of the management, unless, and this is where I’m heading in our last ten minutes,
There is a reason why company planning is done the way it is. As I have said, I am an angel investor. I’m a member of an organization of angel investors. This is something I deal with often. We would never, ever invest money without first reviewing a business plan.
Let’s speak about what happens if we have a business plan event, apart from the lean business planning that I’ve been talking about that we, the owners, utilize to operate our business plan, a company better, and here are some of them. You’re a startup, therefore you’ll need money. That’s the first. You’ll need financing and investment. You’re selling a company.
There are reasons why society, banks, and SBA investors say I want a business plan, and by that they don’t simply mean your lean strategy for operating your company; they mean I want something that informs me about your business and they’re outsiders. You’re already a long way there if you’re following your lean business strategy.
This is how I see things. The lean plan is always available. Strategy, tactics, details, and critical business statistics are all evaluated and updated on a regular basis, and when it comes time for the business plan event, your lean plan serves as your pitch presentation’s script. Your pitch presentation is about the narrative, as I stated before but will elaborate on.
The figures you’ll utilize are in the backdrop of the lean plan. If you have a lean business plan, which I’ve seen many times in angel investing, individuals don’t have in the background, they make the presentation, and we start asking for an example. It’s something I’ve seen.
This is something I’ve observed in the past three weeks. Last week, we made an investment. The pitch goes well, and then we begin to inquire, “How about headcount?” How many employees will you need in a year?” Entrepreneurs with a business strategy may envision in their heads, “Well, this is predicated on five, and we’re thinking fifteen next year,” and we’ll suggest, “How about if we quadrupled your headcount?” “Could you double your speed?”
Those that have a business strategy are already at work on it. The ones whose pitch was just enough, all they needed was a pitch, you can tell they don’t know by their expressions. There will be questions from investors. They are the result of a strategy.
The plan is not to be confused with a sales document. This is what you put to it. You may need an elevator speech, and you will undoubtedly want a summary memo. We’ll look through your summaries with our angel group to determine whether or not you require a pitch. That was an error on my part.
We’ll read your summaries, and out of the thirty, we’ll invite around 10 to pitch, and they’ll come in and pitch. Following the pitch, we’ll request a copy of their business plan, which we’ll utilize to do due diligence. We won’t be able to view the business strategy to choose if we want to learn more. We’ll be dissatisfied if we want to learn more and they don’t have a business plan, and you don’t want to disappoint your angel investors.
Tim: My moderators have asked me, “Why lean business plan?” as the first inquiry. What’s the difference between a traditional business plan and a lean business plan, and why do they use so many different terms? There’s the one-page business plan, the strategic plan, the operations plan, and everything else.
When I get to the taxonomy of various company strategies, I’m stating that it’s now 2015. Our collective attention span is shorter, and the speed of change is faster, so I’m concerned that people connect the term “business plan” with a document required to get a bank loan or to seek angel investment or another kind of investment.
Whereas, in my opinion, all business owners should have and deserve the benefit of good business planning, which helps them establish and reinforce a strategy, tactics to match that strategy, the concrete specifics we’ll discuss, and then the essential business numbers so they can run their business more effectively.
That isn’t always a document. To respond to that, I’ll go on to, let’s see, advantages. This is where it all begins. You’re just doing what you need for a business plan, but do you need more than that, as you can see in this picture, since you’re having a business event? That flow chart indication of a decision point is this diamond in the center. I’ve planned out my strategy, tactics, and objectives. I’m working on my lean business strategy. Every month, I evaluate it. It’s new since I change it every month. Then, all of a sudden, there’s a business plan event.
Sabrina: Tim, we have a few more excellent questions that I thought would be very interesting in the context of lean planning.
I wanted to send you this question on why someone might not want to complete a traditional business plan. You got right in and started lean planning. Why is it critical to avoid old-school business plans? Why should anybody be concerned about lean planning?
Tim: Thank you, whomever posed the question. It adheres to the design concept of form following function. If the purpose of the business plan is to support a loan application or to attract angel investment, the structure of the business plan must contain additional information.
If the function is focused on the key points of strategy, developing tactics that match and execute strategy, and developing accountability and ownership within the task structure with milestones and assumptions, and managing cash flow, those functions can be operated by a lean business plan, which is easier to do, faster, and better a plan. As a result, form follows function.
If all you want to do is improve your company management, you don’t need to go to the trouble of describing your market to yourself or your management team to yourself. You just want to concentrate on what you need to do to improve your company management.
Another advantage is that if the plan is lean, simple, and quick to implement, you’ll be far more likely to be able to utilize it to manage change. Change happens in a flash. You have a tiny lean plan that you pick up at least once a month and look at what occurred, compare it to what you expected to happen, and modify. You evolve. It’s as if you’re gazing out over the horizon and down at your feet at the same time.
Is there anything more I can ask?
Sabrina: Without a doubt. In the context of the lean planning technique and why someone would want to really concentrate on lean planning, there’s a debate regarding whether there’s a big difference in research between an old school business plan and a lean plan, and if a lean plan means you don’t have to do as much research. There are many issues regarding research, including how much research is required and if a lean business strategy requires less research.
Tim: Thank you, thank you, thank you, thank you, thank you, thank you, thank you, The focus of lean planning is on what will occur. We used to say in conventional business plan talks that you needed to know all of these things, and you still do. Let’s face it, you’re in charge of a company. You must be aware of your market.
When it comes to a lean business plan, the additional work of writing out the information so that a third party is aware of it is not included. In my years as an entrepreneur, I’ve dealt with a lot of individuals who operate companies who know their industry, who are immersed in their market, and in that situation, if you’re simply going to do it, as I did when Palo Alto Software was expanding, you’re not obliged to do a lot of research.
If you’re going to make the choices and go for it anyway, utilize a lean business plan to keep track of what you planned vs what you really did, and match your strategy with your tactics. To operate a company, you need to know your business and your market. You don’t have to explain it to strangers, which is a significant distinction in lean company planning. It’s the method you’ll use. You don’t do it unless you have a business plan event that needs adding descriptions for outsiders. You keep things simple. You keep it manageable and use it to operate your business without adding anything more.
Sabrina: Tim, I have another excellent question for you. “It concerns me the attention lean procedures have received as an alternative to conventional company plans,” adds the author. Lean procedures require less time to prepare, such as completing a lean plan in twenty minutes, but I’m dubious of someone having ready knowledge to develop a business plan or a business model in twenty minutes, much alone an hour.”
Tim: Thank you for that, and please note that we are splitting. Planning include determining what will occur, what has already occurred, and what needs to change, as well as managing. We separate the planning from the knowledge and the research in lean business planning.
No one is arguing that knowing isn’t essential; rather, someone, mostly myself, is arguing that writing it down and communicating it to others is an additional function, a difficult job that you only do when you have a business need for it, such as these business plan events.
I completely agree that you can’t think you don’t need to know your business simply because the strategy is brief and effective and just has bullet points. You do, but you don’t have to explain it to strangers as part of your business strategy.
Sabrina: Thank you, Tim. We’ll now go on to the following question. Someone else wants to know, Tim, whether lean business planning has any possible dangers that haven’t been identified and may have a significant effect on a company’s performance. For instance, price, rivals, and so forth.
Tim: Consider a strategy as if it were a holiday itinerary; operating a company entails risks. Running a company has risks. A flight is canceled, and a hotel is not as nice as the images on their website suggest. In business, there are always dangers.
By thinking about how the dots are linked and what connects to what, the plan and planning assist to control those risks. Pricing, for example, will be included in your tactics in a lean business plan, and as you do your tactics, you’ll be keeping in mind your strategy, which has to do with your company’s identity, what you do differently, what market you’re in, and so on, so pricing and these other risk factors will be included.
Risk is managed through the strategy. It recognizes the possibility of danger. We make risk management brief, simple, and effective in lean business planning, and we evaluate it often because we assume that planning is to manage change.
Change does not invalidate planning; planning controls change, so you lay down your assumptions, link the dots, and then things start to shift, and you’re continuously going back and rewriting, which is the best approach to mitigate risks in the background. You don’t want to be a dot; you want to be a line. You’re managing over time, which necessitates a lean, efficient strategy as well as a great deal of administration. I put a lot of emphasis on the word’ing’ at the end.
It’s more than simply a simple business strategy. It’s all part of a lean company strategy. It is a good management system.
Sabrina: Great. Someone wants to know what is a suitable time frame for lean planning, as you explain the context of lean planning and why this is more engaging for people. Do they make plans every month, quarter, or year? Is this just for new businesses? What does a timeline and a time frame mean in the context of lean planning? There are many individuals that have similar questions.
Tim: Thank you, thank you, thank you, thank you, thank you, thank you, thank you, I make it a point to evaluate the strategy at least once a month in the lean business planning process. In a managerial context, you’ll look at assumptions and actual outcomes, compare them to plan results, and then evaluate and modify the plan. I can now claim that I am preaching what we did for two generations of Palo Alto Software, which grew from $0 to over $6 million in revenues without any outside funding.
For the last twenty years, the third Thursday of every month has given us the opportunity to close the previous month’s books. We’d gather the executive team, bring in lunch, and the meeting would last just an hour or two. It seldom lasted more than two hours, but every a month, we’d get down and discuss what was working, what wasn’t, and what our expectations were. Have we failed to execute and as a result, the situation is bad? Have we done a good job in terms of execution, so let’s do it again? Have our assumptions changed to the point where we need to review the plan and key assumptions every month for a couple of hours to see if we should stay the course and keep going, or if things have changed to the point where we need to change the plan and key assumptions every month for a couple of hours?
Sabrina: Thank you very much, Tim. The second issue concerns financials, namely revenue, and how far into the future should revenue and other financials in a lean company plan be projected? Is it different from a conventional strategy, and what is the best approach?
There are a lot of financial questions, and I believe you’ll answer some of them throughout the presentation, but I believe this is the greatest one.
Tim: Thank you, thank you, thank you, thank you, thank you, thank you, thank you, This is a typical business issue that must be answered on a case-by-case basis. Never let a business plan expert tell you what you need to know. It’s a different story if a bank or investors tell you that you need this time period. We’re company proprietors here for your own management. I am, as are you.
We’ll figure out what we’ll need, and it’ll be dependent on how we’ll utilize it. I’ll add that across a lot of startups as well as operating and growing a company, I’ve always adhered to the same principles. I always want to look at monthly cash flow for the following twelve months on a monthly basis, and then simply yearly for the second and third years.
To calculate cash flow, I need a forecast of my revenues and a projection of my expenditure, as well as some adjustments for sales and spending that don’t come in at the same time as you’d want, such as business to business sales that are paid a few months later. Some cash flow changes, which I want to have for the next twelve months, and I’m going to conduct my forecasts and suggest forecasting. It’s not about predicting the future with precision because you can’t. None of us have it. We’re just human. We can’t predict the future with any accuracy.
What we do is set up our assumptions, or as I like to say, connect the dots, so that our expenditures, for example, are linked to our sales, and we have a picture of future cash flow and are monitoring for changes.
That’s why we gather once a month to evaluate it, so we can spot changes. For example, if sales increase as a result of a good marketing campaign, we’ll have more money, and we’ll know about it sooner rather than later, allowing us to put more money into priorities or what’s working. If things turn out to be worse than anticipated, we’ll notice and link the cost dots to the income dots. This is what these financial predictions are aiming towards. It isn’t a kind of foresight. It’s all about running the business and controlling your cash flow.
Sabrina: Tim, there’s a fantastic question, and with just seven minutes remaining, I’d want you to answer it. First, I’ll answer a question that just takes two seconds to answer. Someone has asked whether a lean plan and the lean planning approach may be used by NGOs. There is no issue at all. In fact, I serve on the boards of approximately five charitable organizations. LivePlan is used by all of them. Anyone involved in a nonprofit knows that as a 501(c)(3) organization, you must conduct a budgeting process with your board of directors. That’s when LivePlan comes in handy. Check it out during your free thirty days, and yes, you may use it for a charity.
I have a more complicated issue for you, Tim, since you’ve experienced it, and I believe that between the famed Silicon Valley and all the investments and hoopla, people sometimes get the idea that the only way to start a company is to acquire all this money. That they won’t be able to establish a company unless they can obtain angel or venture capital financing. Is it wise to seek financing to get your company off the ground, or should you work with what you have and let it develop from there? I have so much I want to put out there to launch my company, but I’m short on cash, so I’m not sure where to begin. Is it possible for me to get funding? Is it necessary for me to seek venture capital?
I’m going to hand it on to you, Tim, because it’s such a fantastic question, and I know you’ve got some excellent answers.
Tim: Yes, I adore this query. In the past seven years, I’ve written over 5,000 blog articles. You can see where I stand on this by Googling Tim Berry’s Ten Reasons Not To Seek Investors. I firmly support bootstrapping, and I can assure you that I speak from personal experience. Without any outside funding, I founded Palo Alto Software and developed it to over $5 million in annual revenue, zero debt, and thirty-five people. I oppose to the mythic status that currently exists. If you’re acquainted with Quora, Q-U-O-R-A, you’ll see that I spend a lot of time there. I also receive a lot of email inquiries. I disagree with the notion that a company requires financing, which has been popular in recent years among bloggers and other media.
Here’s a statistic for you. It’s been eight years since it was published, but Wells Fargo, the bank, conducted a research. In the United States, the average starting cost was $10,000 nine years ago. All of them were self-funded. Angel investment is just the tip of the iceberg in terms of what it takes to start a company, and what people don’t realize, as I’ve seen through my activities in angel investing and in groups, is that you’re not ready for angel investment until you’ve done something.
You must put in the effort, which is nearly usually self-funded. Angel investors are hesitant to back a concept. They’re looking for traction. If you don’t gain traction, get a group of two or three individuals together and create a prototype and test it. You can’t just assume that startups need money.
We’re running out of time. I’m not going to go at my slides; I have statistics, which we’ll send in the email follow-up, demonstrating that these investments are only the tip of the iceberg. There are a few thousand startups each year in the hundreds of thousands, high hundreds of thousands, nearly a million in the United States alone, and the danger of doing what I did is just a few thousand. As soon as you get started, you’ll have something to sell. The first client is the most essential item you have, much more vital than the company strategy.
Your business plan is the lean business plan for your own management, but you don’t wait for financing or a business plan. You must get started or you will not be able to get financing. Nobody puts money into new ideas. They put money into progress. They put effort into their job. They put their money into the future. They put money into teams. They put money into traction, which means you have users.
Go to Kickstarter to learn more. You must just begin by doing the job and finding a few others to do the work with, and if you have any funds, God help you, you will lose them. If you’re willing to risk your money, I’ll add that when I say I did this, I mean my wife and I did it since she had to sign the lien as well. When we were bootstrapping, we had three mortgages and $65,000 in credit card debt. That is not something I endorse. Do what I say rather than as I did. There’s a lot of it going on. That’s how things are in the actual world. Is it dangerous? Yes. Is it possible to fail? Yes, and when you fail, it’s terrible. At the very least, minimize the risk by preparing your company first. That is a free service.
That’s all I’ve got to say about it. If you’re talking to angel investors, I’ll look through your narrative, do a market study, add descriptions, create summaries, and formalize the financials. Because we’re heading to a conclusion, let’s start with point number one: genuine business plans are never completed.
For example, Palo Alto Software was founded in the late 1980s. It’s business strategy is still not done. Every month, we evaluate and update it. Sabrina is now in charge of it. She is the one in charge. It hasn’t stopped. It’s still Thursday the third. It’s been more than two decades. We haven’t completed the business plan because, surprise, surprise, surprise, surprise, surprise, surprise, surprise, surprise, surprise, surprise, surprise, surprise, If you don’t complete the business plan, your company will die. The business plan is something you don’t want to complete.
Consider the following scenario: you need to create a “business plan” for an outsider; you take a picture and fill in the details and descriptions, but your core business plan remains lean and is constantly revised. Furthermore, all company strategies are incorrect. It’s not about correctly predicting the future; it’s about establishing a link between different assumptions so you can adjust fast. When you create a business plan, you’re essentially creating a dashboard that you’ll use to manage your company. Former President Dwight D. Eisenhower, who commanded the allied invasion in World War II on D-Day, and yes, that was before I was born, provided our quote here to wrap this off, and then I will remain on for as long as required. “Planning is important, but the plan is useless.”
My view on lean business planning is that we should comprehend it, keep it short, and keep it simple. We’ll look through everything again and make any necessary changes. It just has a few weeks’ shelf life, but it’ll be useful to us. It becomes a regular instrument for bettering your company management. Get what you want from your company, says the slogan of the book we’ll give you for free. That is why we use lean business planning to help you achieve your goals. It’s possible that this is growth and profit. That might be the ability to coach the children’s soccer team in the afternoons. You get what you want out of your company, and lean business planning is designed to assist you in achieving that goal.
Sabrina: Tim, it’s all right. It’s been fantastic. We’ll give out the audio recording to everyone. Attending the webinar or downloading the recording is free. You’ll also get a link to Tim’s book in the email, which you can use to download it. Tim Berry’s book Lean Business Planning will be included in the link. You will get a complete recording. We’ll provide a PDF of Tim’s slides since he has a lot of new ones and didn’t get through them all, and many of you requested if we could get a copy of the slides so we can work on our business plan while watching the presentations.
To be clear, you’ll get a recording, a link to download the book, a link to download the slides, and a thirty-day free trial of LivePlan. Take advantage of the thirty-day free trial since you won’t find it anywhere else on the internet. Make good use of it. Get in there and put this to good use.
We’re not one of those SaaS businesses that offers everyone a free thirty-day trial. We really believe in our product, and as a result, people are willing to pay for it. We’re making this huge offer to you because we don’t want you to believe we’re trying to sell you our goods. We want you to go in there, learn why lean planning is beneficial to your company, read the book for free, gain access to the slides for free, and we believe you’ll like our offering. If you don’t, you won’t have to pay us anything. Please understand that we want you to be successful in business. That is exactly what this is about.
We’ll also look at the FAQs. We received a lot of excellent questions and received a lot of wonderful answers, but we didn’t get to all of them, so we’ll include them in the FAQs. If you have an ongoing business, LivePlan works with both Quickbooks online and Quickbooks desktop, for those of you who have inquired. It also integrates with the Xero accounting software.
It’s not a bookkeeping solution. It won’t handle your accounting for you, but it will provide you with attractive dashboards of all your statistics at the press of a button, and it will assist you in running your company more effectively. If not, go to bplans.com; it’s now on the decline. Resources that are available for free. Templates for lean planning are available for free. Sample business plans are available for free. We expect you to give it your all in the workplace. We want you to succeed, so we’ve provided as many free materials as we can.
We are delighted to have you among us. Thank you very much, and I’ll sign out now. I hope you all have a wonderful remainder of your week, and thank you very much, Tim Berry.
