When Business Plans Don’t Work - Malta Business School
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When Business Plans Don’t Work

About The Author

Lorenzo Mulè Stagno is the Associate for Henley Business School in Malta and the Managing Director of Allied Consultants Limited. Lorenzo holds a Master in Business Administration (2004) from Grenoble and a teaching degree from the University of Malta. He is an educator by profession. He also successfully completed a Post-Graduate Certificate for Online Facilitation and a Post-Graduate Certificate in Coaching, both obtained from the Henley Business School – University of Reading.  Read more >>
Believe it or not, business plans are a good thing, even if they are seen by many as just a shot in the dark. I remember delivering a business planning course to a group of start-ups, and their major concern was: how can you predict what will happen in a year’s time? Yes, in their case they were required to come up with a one-year plan (and attend a couple of hundred hours of management training) to be eligible to a small start-up government grant. They looked at me in shock, disbelief and some suspicion when I claimed that most Western business plans generally span three to five years, while that is considered very short term in the Far East. When I mentioned Mitsubishi’s 100 year plan, they thought I was just exercising my quirky sense of humour.

The concept of a business plan carries some problems which many of the readers will be familiar with. First there is complexity. Business plans are complex. Even a simple business plan can turn into a 30-page document. And half of that are pages full of financial data (mostly predicted or invented).

Secondly they are difficult to write, because they require a lot of mental discipline and structure. It is like building a house from scratch, down to the smallest detail, all in your head. And they take long to write, because the deeper you go into it, the thicker the business plan becomes. This irks entrepreneurs, since they are itching to just go out and do it, instead of waiting around and just plan.

Thirdly, they never match up to reality. Many times, and especially with start-ups, six months down the line the business plan you wrote (or had written for you) already seems to be talking about a very different company, written by someone who seemed to have been drinking something much stronger than coffee, and probably with some psycho-pharmaceuticals involved.

Yet, whether we like it or not, we plan. We plan what we are going to do on the next day. We plan our next holiday, or our career moves. We plan all the time. True, some people are more adept (or obsessed) with planning than others. But all of us plan, even those who claim to live day by day.

Therefore, the difference here is not whether or not to plan, but the level of planning we should go into. I remember a young couple who opened a bookshop, because they loved books. They closed down the shop within a year, having lost quite a few thousand euros. One could find many mistakes in their venture, but in the end it all boils down to planning. Even a rudimentary business plan (I’ll close one eye and let you off with a 10-pager) could have exposed some of their future flaws and possibly avoided the subsequent disaster. One issue for example was customers: how were they going to get customers into their shop, in large enough amounts for them to thrive? They had not thought of that. They had thought that once they opened their doors, people will come. Yet they were not situated in a high street area (the rents were too expensive for their budget), so they were situated pretty much just on the edge of town. Parking gratefully was no problem (which they thought was an asset), yet people were just driving by and not stopping.

So this hapless couple could have done with adequate planning. Unfortunately, as already surmised, building a business plan is not easy. Even for people who have studied management, it can be quite a daunting task. There are quite a few consultants who are ready to offer their business planning services, but that comes at a cost of course. And the costs can vary immensely, from a rudimentary business diagnostic provided for free through a Malta Enterprise (or Business First) service, to a nice fat €15,000 plus from one of the big firms.

A now defunct governmental organisation called IPSE had pushed the cause for business plans quite strongly, through the offer of grants. Banks also started asking for them, when they started moving away from being “social” banks to more “professional” set-ups. However, in spite of the fact that both these pushes were positive, they were flawed. They were positive because they started trying to instil an attitude that business planning is important. However, the banks were only interested in the financial projections, while IPSE had specific criteria that needed to be satisfied, leading to a gold rush by some consultants who were simply providing copy and paste business plans with just (and not always) a name change. This type of business plan – a sort of annex to an application for governmental or EU funding – became quite popular and a lucrative business channel for a number of consultants.

Unfortunately these were business plans that involved little genuine intent. Their use expired the moment they were delivered with the application for funding. They were not there to ever be looked at, really. A common situation used to be that involving a consultant who was paid for writing a reasonably realistic sounding plan which fit the required criteria. This was then attached to an application for funding. Many times the business man hardly contributed to the plan, and never read it, at any point. If he was given a copy, that copy ended up in a drawer or on a shelf “gathering dust”.

These “business plans” work, of course. They work for the precise purpose of gaining the necessary funds, and definitely not for the purpose of providing strategic directions and paths in the short, medium and long-term for the company. However banks, even from their limited financial viewpoint, are starting to review business plans on a yearly basis, and question the overdrafts and loans given on the basis of the projections met or not met. IPSE did wise up to the fault in the method, alas too late. However the lessons learnt were to some degree inherited by the organisation IPSE transformed into: Malta Enterprise.

Hence, the first point is that business plans are supposed to do what they are named to do – to plan your business. Therefore, it is vital that the leader of the organisation or company, and all other stakeholders, give their honest input into it. It may be wise to remember that if we fail to plan, as the age-old cliché goes, we plan to fail.

The input should also be realistic. Sometimes we tweak our forecasts into too optimistic scenarios so that the plan will look like it is going to work. This happens mostly because if we do not provide the required dose of over-optimism, we would end up with a plan that is indicating failure. And we really do not like that!

The alternative however, is not to take out our rose-tinted glasses, but to look through the rest of the plan and see why exactly the results are indicating failure, and what we would need to change elsewhere to turn this prediction around. Sometimes it may require employing less people initially, and doing more yourself, or reducing some cost items, or looking at different or better ways to increase sales. This should always be done with a dollop of realism, taking into account the surrounding context of the environment. And sometimes, yes, there will be the disappointment of realising that your original idea, when planned out, won’t work, or you can’t seem to find a way to make it work. At that point you have to face the painful scenario of aborting the much-loved idea that got you all passionate.

BusinessPlans

Secondly, business plans are always based on foresight, which is hardly perfect vision. Therefore, it is essential that the business plan is periodically taken off the shelf, or out of the drawer, and reviewed. This could be every six months, every year, or on achieving (or not) certain milestones. It should then be revised and corrected, entering in the new data and experience you gained, so that you would have a more realistic plan. A plan represented pictorially would generally look like a smooth straight line graph (see figure 1), or maybe with one or two angles (see figure 2). What really happens in life can be more reasonably depicted in figure 3.

It would also be advisable to extend the business plan if you have already surpassed the half-way mark. Except if it spans a hundred years, in which case probably your next of kin will do it for you.

Thirdly always try to get an outsider’s point of view. Remember that you are probably too close to the trees to realise how big the forest is. An outsider will take you through every step by asking what you may think are some of the stupidest questions. But those same questions may also uncover some deep flaws that you missed, or some great insights. You can do this by asking a friend you can trust, or a family member, who has your interests at heart. Try to pick someone who isn’t very negative, nor over-optimistic. It is also never a bad idea to find someone in business, who could become your mentor. That would be the person to show your plan to. Alternatively, invest some money in a couple of hours of a consultant’s time. The important thing is that you can explain your vision and plan to an outsider, and this outsider is convinced of what you are planning to do. If you don’t manage, then something still needs to be tweaked in the plan.

And when you don’t do any of this stuff, that’s when business plans tend to not work.