MATCH YOUR PLANNING TO YOUR PHASE
Too often, planning approaches for mature organizations are unnecessarily applied to seed-stage businesses. The right approach for you will vary depending on where you are in your new venture life cycle. For this purpose, let’s look at typical planning needs at three phases in a typical startup journey.
GESTATION/PRODUCT DEVELOPMENT - Here, you are incubating your startup idea, developing your product or service, learning about your market, and maybe gathering some early customer feedback. Your goal is to build something that meets a market need, one that customers will pay to have resolved. Your most important question is: Do we have a concept that anyone (other than us) cares about? In this phase, planning should focus on how to prove your concept, learn about potential markets, set priorities, and coordinate next steps. You can lay out a low-cost development path and identify key milestones, but some elements of a traditional business plan, such as extensive revenue projections, make little sense. If you don’t yet have a compelling product or a workable business model, focus on developing these, instead of guessing how much money you will make. One of the common mistakes of early entrepreneurs, especially those in love with their idea, is behaving as if they have launched a stable business when, in fact, they are still in the cave of gestation.
CONSISTENT REVENUE - Once you have achieved some level of recurring sales, everything changes. Early revenue doesn’t always translate into a profitable business, so your key question becomes: Can we actually make money at this, and how? Your sights now shift to the goal of breaking even, the point at which your venture can fund itself. Here is where the development of a clear, compelling math story is invaluable. The math story, to be outlined in the next section, answers questions such as: What is our business model, our competitive advantage, and our strategy? What is our path to breakeven (including pro forma profit and loss projections)? What are projected cash flows, and how will we manage our burn rate? What control mechanisms do we need in place to manage forward? How much capital will we need to reach profitability?
Whether or not you need a written business plan at this stage depends on your financing and communication needs. If you are seeking investors or lenders, you need a high-quality written plan, but be sure to learn what format your target investors require and what aspects of the plan they are most interested in. Even if you are not seeking funding, you may benefit from the discipline and rigor required to develop a business plan and find that it helps you communicate with stakeholders of all kinds. On the other hand, if you are working with only a handful of key team members, you can address the above questions and regularly review your key financial metrics without pulling together a formal plan. A decent-sized whiteboard and simplified financial snapshots will do just fine.
BEYOND BREAKEVEN/GROWTH - Once a business is self-funding, everything changes again. If you want to continue to grow, the operative questions are: Is this business scalable? How can we create significant value over time? Here, you will benefit from a disciplined planning approach that is widely communicated and regularly updated. Once you have found a robust market, scaling your business is all about executing. Identifying and coordinating resources, finding ways to grow efficiently, maintaining a hawk-like focus on key growth drivers, and understanding and mitigating risk factors are all critical to scaling a young business. In the growth phase, a well-managed planning process can be the difference between a healthy, thriving venture and one that overreaches, stalls, or flames out.