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February 25, 2005

The Living Business Plan

"If you don't know where you're going, any road will get you there."


People start software companies for lots of reasons. Many want to get rich. Some want to earn a comfortable living, doing work they enjoy -- with independence and control as significant sources of satisfaction. A few conceive of their ventures as means to serving higher purposes. Some fall into it, and just go with the flow.

People who sign on to help run these kinds of companies also have various motivations. Some have already been successful financially. They either enjoy building companies, or aren't terribly motivated but feel guilty at unabashed sloth. Some have experience but haven't made it big financially yet, and are looking for the Score -- and fast, if you please. Some want experience and would accept a modestly successful outcome that gives them accelerated opportunities for personal achievement and wide industry exposure. Some are even interested in the problem being solved. (Imagine that!)

Uniquely, the enterprise software business makes all of these things possible. Since it suits multiple (but not necessarily simultaneously achievable) purposes, it brings together an interesting collection of people. Charismatic visionaries, aggressive business people, and pain-staking craftsmen mix in ways that ordinary circumstances and inclinations wouldn't predict. The business is complex and moves fast, and allows relatively small groups of people to have outsized impact, so the "players" attracted to these businesses tend to be smarter than average, and more intense. Reconciling objectives creates constant strain. Unmanaged, or addressed only superficially, it's destructive.

And that's just at the emotional level. Even a collection of 100% homogenous types single-minded in, say, their greed, can fight like pit bulls if they disagree intellectually on exactly how they're going to get rich. Precisely because all this is so hard to reconcile, if you get it even roughly right, it can generate "virtuous cycles" of better attitudes and higher productivity because people understand it's hard.

So how do you achieve and keep this balance? In my experience, going to the sweat lodge to get in touch with your inner muse/cabinetmaker/would-be-plutocrat is a waste of money and time away from family and friends, even if the food is good and the setting is breathtaking. Trips like that, you take them when you've got a team executing to a plan but you need time together to reflect on whether the plan still makes sense in light of new data. To get there, you need to have a plan in the first place, a plan that's alive and based on lots of direct contact with customers and partners. And initial agreement around that plan is something that either gets done around late pizzas at the office, or gets done by a different set of players.

Here's an interesting litmus test: ask for a copy of a company's business plan. Odds are

  • if you get one, it's a Powerpoint presentation for investors;
  • if the company is not out raising money, it's obsolete (assumptions and objectives not longer correct or achievable).

So you say, "No, I mean the plan you use to run the business -- you know, the operating plan". More than likely, out come

  • a high-level operating budget / financial projections;
  • less often, usually incomplete, and almost always uncoordinated, a set of functional plans;
  • worst case, binders full of analyst reports covered by summaries of analyst reports

Ventures run like this are  guaranteed disasters.

We're all familiar with the adage, "Plan the work, then work the plan." This gets applied imperfectly, because planning documents are either too superficial or too detailed to be used meaningfully on a regular basis. Here's a different approach. Picture a document with the following outline:

pages 1-2 Your opening lines and quick answers to the top 3 questions if a prospective customer or investor were to invite you to "so tell me about your company" at a conference
pages 3-4 A list of key assumptions this positioning relies on. They should each be stated in a line or two at most. The assumptions should be categorized by customers, partners, investors, and employees. They should be as specific as possible, forged out of direct contact with each group, and should answer questions like:
  • for customers -- "customers need our solution because..." "this solution will be an investment priority for our customers because..." "we will be more attractive than competitors' solutions because..."
  • for partners -- "we help pull sales of their solutions by..." "we are are a better complement for them than our competitors because..."
  • for investors -- "there are enough potential customers, and we can aspire to enough share, to make for an interesting top line...(include the high-level numbers)" "our business can generate enough free cash (how much?) on this top line to sustain a valuation that meets or exceeds their return criteria (what are those?)..." (or) "what we're building is potentially worth a lot (how much? why?) to a big, healthy fish with a record of eating other promising-looking fish at attractive prices (for the investors!)..."
  • for employees -- "the best people in the business will want to come here because..." "the best people will want to stay here because..."
pages 5-6 Lay out specific quantifiable objectives each of these constituents will find relevant.

For example, for customers these might be specific price points or implementation times, or service response times.

For partners and investors they would obviously be financial milestones like revenues, but they might also be operational milestones like shipping a version by a certain date, or winning x reference customers by a certain date, or hitting certain organizational objectives.

For employees, it might be voluntary attrition, or some informal litmus tests for satisfaction.

pages 7-10 List all of the major actions/ programs/ initiatives that will deliver these objectives, along with budgets, deadlines, and the names of the people on point for delivering each one. Where successful completion of the initiative is not "binary" (it works/ it doesn't), include a brief definition of success.

For example, in marketing's company launch efforts, "brief press/ analysts" might be accompanied by "obtain x mentions or articles". The actions or initiatives should not be described in terms of process, but in terms of what comes out at the end.

As a second example, an engineering list would present different fully-tested features, rather than present testing as a separate initiative.

For the purposes of this document, it's more important to know that we're doing the right things, rather than that they are being done right.

This "Living Plan" document should be accompanied by a separate log that keeps track of what has been kept/ changed/ dropped/ added over time to each of the sections, with each such entry briefly explained. All of the items should be dated to note when they were last modified.

The "assumptions" section should also footnote a separate "fact base" of notes and reports on which those assumptions are based. This fact base doesn't have to be a formal research document -- it can include copies of email correspondence with customers and targets, personal notes from conferences or sales calls, etc. The idea is to keep everyone honest to the quantity and quality of data that's supporting critical assertions about how the world works that the plan is based on.

(I would also recommend including in appendices the following items:

  1. any reputable economic forecasts for the customer segments being served,
  2. for businesses with concentrated customer bases, a six-month revenue forecast by customer (month-by month),
  3. a one-page presentation of the latest P&L actual vs. budget for the year.

The point of these things is to help members of the senior team be not just aware, but facile with these critical measuring sticks for the business.

An organization chart is nice too; knowing the names and roles of people in each others' groups -- and staying current with changes in structure and composition -- helps teamwork a lot.)

In Practice

The Living Plan should be reviewed once a month, and re-published once a quarter with edits. By whom? In my view, by the CEO, or together with the COO if one exists. No time? Need a first-draft jump start? Fine, get help, just make sure it's objective. It's my observation that good people generally are leery of buying from, investing in, or working for top executives that don't have a grip on their companies at this level.

Why do I think this format is optimal? First of all, ~10 pages is absorb-able. It's easy to carry both in your head (most of it anyway) and in your briefcase. And at this length it's detailed enough to be actionable without losing the big picture. Integrated across all business functions, it will reveal major inconsistencies or mis-timings among what different groups are doing. Finally, at this length it's manageable, in the sense that it can be edited relatively easily to stay relevant and useful, but not so easily that the plan can get re-written too often.

And how does this help everyone get on the same page? First, it literally creates "the same page" about what the plan actually is -- conflicts are often tied to different interpretations of unreconciled plans and priorities. Second, it breaks down monolithic disagreement into specific, distinct issues that can be resolved with facts (obviating the "I've been in this business for twenty years, and ..." bluster that some like to wield). Third, it sets expectations for when and to what standards things will be done. People can self-select as to whether they can live with those, or vote with their feet for something else.

No souls need be bared.

February 25, 2005 | Permalink | Comments (0) | TrackBack