Plan for the plan, not going as per plan

We come across many businesses that fail to understand this fully. They continually operate based on a strategy designed keeping in mind redundant factors, despite evidence pointing to the fallacies in the plan. These businesses tend to run out of cash quickly and fail to attract investors.

Considering the risk involved, lenders also may be hesitant to step in. Those few businesses that manage to pick themselves back from this perilous position face a new set of hurdles – as they have lost precious time and the competition has moved miles ahead.

There is a textbook solution to avoid this classic trap.

• First, build multiple business growth scenarios and assign probabilities to each of them.
• Then, push the team towards the most optimistic higher probability scenario.
• Be fully prepared for the full spectrum of high probability scenarios.
• If possible, work on risk mitigation simultaneously.

When the product/service is unique, the team is new, and the business has yet to establish a target audience – how can one create scenarios and assign probabilities?

Unfortunately, employing this technique in a new business or startup is extremely difficult and impractical. This technique is not useful in the absence of historical insights and experience in a similar business. In our interactions, while many business leaders understand the need for a well-structured business plan that prepares them for the unpredictable world, they need to juggle multiple responsibilities associated with running the business. They often lack the time and industry experience needed to create and modify such a plan. Firms like Astravise LLP can step in and provide the necessary assistance needed in situations such as these.

Based on our previous experience assisting start-ups, we have compiled a few guidelines that can help in navigating the choppy waters of business planning:

• Business Plan Based on Lead Indicators: Do not build only a financial projections spreadsheet. It is better to ensure the team has a clear understanding of the lead indicators of the business and formulate a plan based on that. For example, data analysis may reveal synchronized movement between the number of customer complaints and subsequent customer churn percentages. Business plans should consider these data points while building a robust customer life cycle pattern.

• Test the Markets with a Minimum Viable Product:

  To avoid running out of resources during experimentation, test the market with a “Minimum Viable Product”. It lowers the risk of losing time and money and allows making provisions for the next experiment if the MVP gets rejected in the market.

• Build “Early Warning Systems”:

  Business should track industry developments that provide early indications of failing business assumptions. Business plans should identify possible “red flags” – indicators that signal a negative deviation from the plan trajectory.

• Strengthen Your Core Team:

  Your core team must be well-equipped to navigate your business despite uncontrolled variables. “Pivoting” or changing direction of strategy is a part of startup life.

• Plan Flexible Cashflow:
  • Keep as many costs as possible in a variable mode, i.e., avoid fixed costs and examine how to convert an apparent fixed cost into a variable cost structure.
  • Go full throttle on spending after keeping a sufficient cash buffer – no risk is worth taking if it is likely to wipe you out. Build room for error.
  • Businesses are most vulnerable in front of investors or talent markets when they do not have a rainy-day fund saved up.

Let us consider a slightly different category of events – those that have never occurred in the past can be catastrophic but can be identified by applying thought -so called “Single Points of Failure”. For example, business takes a factory situated in a low-lying area of the city and heavy rains damage the factory, machinery and goods. Or the only good code-writer in the company gets hospitalized for months and has not kept his work so that anyone else can take over. Business plans should consider such possibilities and try to build buffers to reduce the impact of such events.

To conclude, planning is a complex process that must factor in different uncertainties and thoughtfully build flexibility. In other words, the most crucial part of every plan is to plan for the plan, not going according to plan.