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On Wed, 9 Dec 1998 Tom Bryant wrote Re: Business Plans
[...]look at the roles of planning in entrepreneurial
>behavior. Amar Bhide, at Harvard has done some provocative work debunking
>our control-oriented predilection for pushing entrepreneurs through things
>called Business Plans (articles in HBR, 1986, 1994). His work shows pretty
>clearly that the presence of a formal plan is not a success indicator.
>
[...]
>Can we revisit the "controlled chaos" discussion a bit? What do we know
>about managing the degree of chaos we unleash with learning exercises?
>When is "a little knowledge"' simply not enough? Why does curiosity
>sometimes overwhelm us? How do we, really, pace a learning process?

First, I think that there are Business Plans and *Business Plans*.
Business Plans focus on financial spreadsheets while *Business Plans* focus
on actions, enabled by resources and producing value. In consonance with
Mr. Bhide, in my experience (current, unfortunately) Business Plans have
little correlation to success. The Visions expressed are but unrecognized
Hallucinations and the numbers are fictional stories. Conversely, *Business
Plans* include spreadsheets but only as expressions of expected results
(rather like the speedometer, gas gauge and radar detector) and not as the
steering wheel, accelerator, brakes nor map. For what its worth, the *BP*
answers the following questions:
1. What do we do for a customer?
What needs do we meet, what problems do we solve (from their viewpoint)
What are their key characteristics that creates this need
-- that makes them our customers
What role do we play (on the customer's team)
What tasks do we perform
What are the deliverables (what we leave behind)

2. What does our Value Added do to the Customer's "System"?
-- before we do it
What they do, how they do it, and the economic structure of the
game they are in.
-- after we do our thing.
What will they do, how will they do it, and what changes will they
be able to make to the economic structure of the game they are in.

3. What results will they get?
Benefits they can expect
Performance changes to their system --
Performance changes in their business --
Competitive edge enhancements --
Collateral Impacts (what costs and pain to them will we
cause) --
Value they can realize:
The economic leverage they can gain plus the new rate of learning
and adaptation they can enjoy minus the cost of collateral impacts --

4. Why will our technology and approach work -- and be accepted?

5. How we do it?
Our skills
Customer Project Scenarios
Key Ideas and Concepts
How we mitigate their pain of change.
Results (e.g. Quick implementation, Low risk (high foresight)
projects, Low cost implementation, Self-sustaining staff)

6. What will we learn from each "project"
and how will we apply that to building a better company?

7. How we will qualify prospects?
criteria
decision process

8. How we will attract prospects?
How we find them. Better yet, how we help prospects find us

9. How we will Sell and Manage Accounts?
What Information, process, techniques, tools, effort?

10. Why we will win?
Why they should prefer us
Why we will be successful

11. What else is important?

12. How big could this market be?
-- driving forces
-- who are immediate targets
-- who are likely followers
-- who are the unknown 90%

13. What is our Development and Intro Plan for information, services
and products?
Key Technologies, Critical Resources, Steps, Method

14. How big could our business become?
Our limits of Management Competency and Cohesion
Competitors and Rivals
Price Elasticity
Our Readiness and Image
What share can we expect
What are our other limits to growth

15. Outlook -- our L-M-H scenario?
Revenue
Costs
Staff
Profits
Cash Flow
Note that not until #12 - #15 do spreadsheets beging to come into play.

In light of this, I am not surprised that your students are cavitating.
There are simply too many variables and n(n-1)/2 interreletionships.
Especially if they start only at the financial view of the business,they
have no basis for deciding any specific parameter or relationship. I can
still remember the first time I had to help prepare a business plan without
a guru. We had five person teams and were still floundering after a week.
Then we got back to the basics of what a business does rather than what it
looks like. It still took another week to create a very simple plan.

Now I coach supposed CEO's through the process and it takes the better part
of three months. Of course we are examining all the variables but it is
still very complicated.

I suggest looking at the problem as follows:

*Business Planning* is a larger form of Project Planning. (A business is
but 63 projects which must be orchestrated. If the orchestration is sloppy
the financial results will be low and if perfect, the financial results
will maximize.)

Accordingly, the students should start with a Project Planning assignment
(develop a product) followed by a second (produce a product) and a third
(bring 100 propects to the point of salivation in two months) and a fourth
(make 100 quotes and close/negotiate 50 Purchase Orders within two weeks of
the onset of salivation) and a fifth, hire and train the 5 people required
to support the 50 new customers, with a lead time of four months). Now
have the students integrate the five projects (and the costs) and estimate
the subsequent revenue that the 50 customers will pay depending on sale vs.
lease assumptions.

Easy for me to say, aye?

Jack Ring
32712 N. 70th St.
Snottsdale, AZ 85262-7143
sendmail: jring@amug.org
602-488-4615
Cell) 602.418.8784
F)602-488-4616

I teach strategic management and entrepreneurship. A couple of
items in your note caught my eye, leading to the following
questions:


First:
>15. Outlook -- our L-M-H scenario?
> Revenue
> Costs
> Staff
> Profits
>

Is L-M-H low- medium- high?

Second:
>*Business Planning* is a larger form of Project Planning. (A
>business is but 63 projects which must be orchestrated. If the
>orchestration is sloppy the financial results will be low and if
>perfect, the financial results will maximize.)

This is really interesting. Do you have a list of the 63
projects?

Thanks

Denny Garvis
Dennis Garvis
garvisd@wlu.edu
Williams School of Commerce, Economics, and Politics
Washington & Lee University
Lexington, VA 24450-0303
540-463-8069

It was written
>Second:
>>*Business Planning* is a larger form of Project Planning.

Would this be so because the whole is thought equal to the sum of its parts?
Or because starting/running a business is thought to be a project?
Either way I have my doubts
>(A
>>business is but 63 projects which must be orchestrated. If the
>>orchestration is sloppy the financial results will be low and if
>>perfect, the financial results will maximize.)
>
So financial results depend on efficiency? - Again I have my doubts.
A sloppily run monopoly, or producer of the latest must-have product,
can avoid low financial results, may it not? - Not that I am making any
brief for monopoly, but let's hear it for effectiveness. Good business
planning certainly
spends its share of time on 'What are we trying to get done here?' before
getting
into 'How may we best do it?'

Tom Wheeler

Jack Ring's response shows how hard it is for some people to back off from
full-blown, rational-analytic perfection models. Off course, one could do
it Jack's way, but a lot of opportunities would be lost in the process, and
a lot of time and other resources might be invested in magnificently
detailed, but locally sub-optimal plans. There is another approach, and it
helps to explain why entrepreneurs sometimes have the advantage over large
corporations.

Think of it as an artist. We've probably all seen the caricaturists who
can sketch an exaggerated resemblance of a person in 10 minutes, for $10,
and it's the kind of thing people frame and keep on their walls. We can
also take a photograph in even less time, for less money and stick dozens
of copies in our seasonal mailings. Or (someone) could commission the
modern Renoir, pay hundreds of thousands of dollars, sit still for 3 months
for a classical portrait -- maybe hate it forever.

Which one is good enough? Even the question of optimality depends on time,
extra qualities, use, etc. Any one of the three could be the "Best"
answer. What I asked for was the quick sketch.

How complex is a successful business launch? I tell my students that it's
probably a 10,000 variable/decision problem, give or take about 5,000
variables. That's good enough for them to understand that it's a very
complex processs, even if I can't prove the number.

But think of the 80-20 rule: How many of those thousands variables are
really critical? Especially in the first ten hours? How many of them can
the human mind sift through very rapidly? Can we train ourselves (and
share that with our students) to identify the most significant
uncertainties? What does it take to get order-of-magnitude estimates,
back-of-the-envelope logic, etc.? Each student was able to think of a
business to model -- given that there is an infinity of possibilities, that
alone demonstrates they were able to sort amazing amounts of information
and make choices. Some things are done in seconds; other take years.
Experienced venture capitalists can reject in minutes over 90% of the
full-blown Business Plan opportunities presented to them. Humans are able
to make decisions on the bases of many different kinds and qualities of
information.

Incidentally, I have since heard from one of the students who says he
doesn't see what the others are so worked up about -- a rough cut is a
rough cut. But I've haven't seen his paper yet! <g>

Best of the season to all!

Tom Bryant.


+/+/+/+/+/+/+/+/+/+/+/+/+/+/+/+/+/+
Prof. Thomas A. Bryant, Ph.D., Visiting Professor and
State of New Jersey Chair in Small Business & Entrepreneurship
Faculty of Management, MEC 326
Rutgers, The State University of New Jersey
111 Washington Avenue, NEWARK, NJ 07102-3027 U.S.A.
Tel: (973) 353-1062; Fax: (973) 353-1664
e-mail: tabryant@andromeda.rutgers.edu

Interesting difference in viewpoint. I go for the quick and dirty estimate
because we know that the real world situation changes so fast that any more
intense effort would be useless. On the other hand, when one considers the
ramifications of error, it seems not to be full-blown, rational-analytic
perfection.

1)I take it the level of sketchiness adequate for a classroom exercise may
be far more gross than the level that is prudent for a commitment of 5 to
15 people whose livelihood depends on the acuity and alacrity of the plan
(including one or two whose houses are mortgaged to the hilt). But is this
education? I am often reminded of the cartoon showing Snoopy with a
surprised look and thinking "You mean we are playing for money?"

2) The notion of "locally suboptimal plans" is one of the interesting
wives tales. In a well-planned business the goals are consistent and local
suboptimal do not occur.

3) OK, think of the 80/20 rule. Sure, there are not so many variables to
be considered -- once the 20% are isolated. But how are the 20% selected
and who does it? Just because Pareto is alive and well does not mean that
the 20% are obvious. In fact, the success is in discerning the right 20%.
In my view these are what Michael Porter calls the Strategic Factors. The
purpose of the first several questions is to help discern these key
factorsg.

4) I fully agree that "Experienced venture capitalists can reject in
minutes over 90% of the
full-blown Business Plan opportunities presented to them." But please
recall that they also report that 90% of their investments go down the
tubes. That leaves 1% successful out of the plans presented to them. We
are all like Los Angeles Freeway drivers -- all those who are left are
darned good. In which category do you want your students to be?

5) I am not comfortable that this has come any closer to responding to the
original quesition of how much is enough. But I suggest that the key for
students is to consider the question, "How close is sufficient?" That is,
they should be doing probabilistic models in the first place.

On Fri, 11 Dec 1998 Tom Bryant wrote Re: Business Plans
>
>Jack Ring's response shows how hard it is for some people to back off from
>full-blown, rational-analytic perfection models. Off course, one could do
>it Jack's way, but a lot of opportunities would be lost in the process, and
>a lot of time and other resources might be invested in magnificently
>detailed, but locally sub-optimal plans. There is another approach, and it
>helps to explain why entrepreneurs sometimes have the advantage over large
>corporations.
>
>Think of it as an artist. We've probably all seen the caricaturists who
>can sketch an exaggerated resemblance of a person in 10 minutes, for $10,
>and it's the kind of thing people frame and keep on their walls. We can
>also take a photograph in even less time, for less money and stick dozens
>of copies in our seasonal mailings. Or (someone) could commission the
>modern Renoir, pay hundreds of thousands of dollars, sit still for 3 months
>for a classical portrait -- maybe hate it forever.
>
>Which one is good enough? Even the question of optimality depends on time,
>extra qualities, use, etc. Any one of the three could be the "Best"
>answer. What I asked for was the quick sketch.
>
>How complex is a successful business launch? I tell my students that it's
>probably a 10,000 variable/decision problem, give or take about 5,000
>variables. That's good enough for them to understand that it's a very
>complex processs, even if I can't prove the number.
>
>But think of the 80-20 rule: How many of those thousands variables are
>really critical? Especially in the first ten hours? How many of them can
>the human mind sift through very rapidly? Can we train ourselves (and
>share that with our students) to identify the most significant
>uncertainties? What does it take to get order-of-magnitude estimates,
>back-of-the-envelope logic, etc.? Each student was able to think of a
>business to model -- given that there is an infinity of possibilities, that
>alone demonstrates they were able to sort amazing amounts of information
>and make choices. Some things are done in seconds; other take years.
>Experienced venture capitalists can reject in minutes over 90% of the
>full-blown Business Plan opportunities presented to them. Humans are able
>to make decisions on the bases of many different kinds and qualities of
>information.
>
>Incidentally, I have since heard from one of the students who says he
>doesn't see what the others are so worked up about -- a rough cut is a
>rough cut. But I've haven't seen his paper yet! <g>
>
>Best of the season to all!
>
>Tom Bryant.
>
>
>+/+/+/+/+/+/+/+/+/+/+/+/+/+/+/+/+/+
>Prof. Thomas A. Bryant, Ph.D., Visiting Professor and
>State of New Jersey Chair in Small Business & Entrepreneurship
>Faculty of Management, MEC 326
>Rutgers, The State University of New Jersey
>111 Washington Avenue, NEWARK, NJ 07102-3027 U.S.A.
>Tel: (973) 353-1062; Fax: (973) 353-1664
>e-mail: tabryant@andromeda.rutgers.edu

Jack Ring
32712 N. 70th St.
Snottsdale, AZ 85262-7143
sendmail: jring@amug.org
602-488-4615
Cell) 602.418.8784
F)602-488-4616

I'm going to chip in a point or two on the subject of business plans in
relation to the comment about venture capitalists being able to quickly shoot
down 90% of the business plans that come their way. I've had occasion to
discuss that exact phenomenon with a couple of experienced venture capitalists
and this is what they told me.

The first thing they look at is the business. However, they don't look at it
to see if it's any good because there's no possible way they could know.
Instead, they look for any obvious holes. If they find any, they go no
farther with that opportunity.

Assuming they don't find any glaring holes in the business case, they next
look at who's going to be undertaking the effort. The point made to me was
that, in the last analysis, investing venture capital is betting on the
entrepreneur, not the venture.

I find that to be true with internal "business cases" for internal "ventures."
It isn't so much a matter of being persuaded by the case as it is a matter of
having confidence in those who will pursue the effort.

Just a thought...

Fred Nickols
fnickols@ets.org

On Sun, 13 Dec 1998 14:24:15 -0500, fred nickols
<fnickols@ETS.ORG> said:

<snip>
> Assuming they don't find any glaring holes in the business case, they next
> look at who's going to be undertaking the effort. The point made to me
> was that, in the last analysis, investing venture capital is betting on
> the entrepreneur, not the venture.
>
> I find that to be true with internal "business cases" for internal
> "ventures." It isn't so much a matter of being persuaded by the case as it
> is a matter of having confidence in those who will pursue the effort.

I suspect that part of that confidence may be that the people
involved have thought through what they are proposing. Which is
one of the things which a good business plan show (or not show...)

Dave Ackerman
University of Alaska Southeast

There are clearly people who believe that preparing business plans is a
useful, helpful and important exercise. There are also others who don't share
that point of view, some of which view business plans as a waste of time.

Let's assume that both groups are correct. This would imply to me a question
of situational relevance and value, probably affected also by the players.

So, rather than argue interminably about whether or not business plans are or
aren't of any value, why not try answering the following questions...

What are the conditions under which business plans are
probably unnecessary?

What are the conditions under which business plans are
probably quite necessary?

What kinds of players would derive little use or value
from a business plan?

What kinds of players derive great use and value from
a business plan?

Yes, there's a 2x2 matrix lurking in those questions...

The conditions suggest little value in business plans
and the players see little value.
Business Plans as "A Waste of Time"

The conditions suggest little value in business plans
but the players see a lot of value.
Business Plans as "Personal Preference"

The conditions suggest a lot of value in business plans
but the players see little value.
Business Plans as "A Hard Sell"

The conditions suggest a lot of value in business plans
and the players see a lot of value.
Business Plans as "Absolutely Necessary"

The problematic areas, of course, at those where business plans aren't
warranted but are valued, and those where they are warranted but not valued.

Perhaps sorting all this out will be helpful...

After retiring from my own business (so I'm a retired entrperneur), I
earned a Ph.D. with a dissertation in entrepreneurship. Now I teach
entrepreneurship courses, and in those courses, the majority of my
students elect to write business plans.

However, the real truth... entrepreneurs generally only write business
plans when they need money. Getting the money drives them to perform
this widely hated task.

But I still teach students to write business plans, because in the
process, they learn things about how to develop an opportunity into a
business. A bonus is that later, if they ever actually need to write a
BP to get money, they know how.

fred nickols wrote:
>
> There are clearly people who believe that preparing business plans is a
> useful, helpful and important exercise. There are also others who don't share
> that point of view, some of which view business plans as a waste of time.
>
> Let's assume that both groups are correct. This would imply to me a question
> of situational relevance and value, probably affected also by the players.
>
> So, rather than argue interminably about whether or not business plans are or
> aren't of any value, why not try answering the following questions...
>
> What are the conditions under which business plans are
> probably unnecessary?
>
> What are the conditions under which business plans are
> probably quite necessary?
>
> What kinds of players would derive little use or value
> from a business plan?
>
> What kinds of players derive great use and value from
> a business plan?
>
> Yes, there's a 2x2 matrix lurking in those questions...
>
> The conditions suggest little value in business plans
> and the players see little value.
> Business Plans as "A Waste of Time"
>
> The conditions suggest little value in business plans
> but the players see a lot of value.
> Business Plans as "Personal Preference"
>
> The conditions suggest a lot of value in business plans
> but the players see little value.
> Business Plans as "A Hard Sell"
>
> The conditions suggest a lot of value in business plans
> and the players see a lot of value.
> Business Plans as "Absolutely Necessary"
>
> The problematic areas, of course, at those where business plans aren't
> warranted but are valued, and those where they are warranted but not valued.
>
> Perhaps sorting all this out will be helpful...

Fred asked:

>What are the conditions under which business
plans are probably unnecessary?<

A - There are few unknowns.
B - Success is most likely assured.
C - You have done it before successfully.
D - You are investing your own time and money.

>What are the conditions under which business
plans are probably quite necessary?<

A - There are many unknowns.
B - Success is not likely assured.
C - You have never done it before.
D - You want others to invest their time and/or money.

>What kinds of players would derive little use
or value from a business plan?<

A - The ignorant who don't value planning.
B - The uneducated who don't know enough to plan.
C - The arrogant who think they need not plan.
D - The Spontaneous who by their nature won't
plan nor follow a plan.
E - The Innovative who by their nature look at
plans as obstacles to innovation.
F - Submissive people who will not assert
themselves to see that a plan is followed.
G - Reactive people who never get organized.
H - Introverts who cannot or will not express themselves
so that others will follow the plan.
I - Self-Sufficient people who must do everything themselves
no matter what the plan requires.

>What kinds of players derive great use and
value from a business plan?<

A - The informed who value planning.
B - The educated who know enough to plan.
C - The wise who know they need to plan.
D - The Conscientious who by their nature
plan and will follow a plan.
E - The Conventional who by their nature look at
plans as a necessary fact of life.
F - Assertive people who will see that a plan is followed.
G - Organized people who always develop plans and follow them.
H - Extroverts who will express themselves so that others will
follow the plan.
I - Group-oriented people who always want to work with others
to implement plans.


Sincerely,

Bob
+--------------------------------------------------------------+
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On Sat, 19 Dec 1998 fred nickols wrote RE:Business Plans
[...]
I like your message and your matrix. But just one question regarding:
{...}
> The conditions suggest a lot of value in business plans
> but the players see little value.
> Business Plans as "A Hard Sell"

If the players see little value, then how are they going to discern that
the conditions suggest a lot of value?

It is kinda like the thermos bottle that will keep a liquid hot or cold.
As the entrepreneur said; "How do it know?"

Jack Ring
32712 N. 70th St.
Snottsdale, AZ 85262-7143
sendmail: jring@amug.org
602-488-4615
Cell) 602.418.8784
F)602-488-4616

I'd like to add a few to Robert's response to Fred's proposition:
Fred asked:

>What are the conditions under which business
plans are probably unnecessary?<

A - There are few unknowns.
B - Success is most likely assured.
C - You have done it before successfully.
D - You are investing your own time and money.

>What are the conditions under which business
plans are probably quite necessary?<

A - There are many unknowns.
B - Success is not likely assured.
C - You have never done it before.
D - You want others to invest their time and/or money.

>What kinds of players would derive little use
or value from a business plan?<

A - The ignorant who don't value planning.
B - The uneducated who don't know enough to plan.
C - The arrogant who think they need not plan.
D - The Spontaneous who by their nature won't
plan nor follow a plan.
E - The Innovative who by their nature look at
plans as obstacles to innovation.
F - Submissive people who will not assert
themselves to see that a plan is followed.
G - Reactive people who never get organized.
H - Introverts who cannot or will not express themselves
so that others will follow the plan.
I - Self-Sufficient people who must do everything themselves
no matter what the plan requires.

j. Those who don't need others' money - whether they be arrogant, introvert,
submissive, uneducated, or self-sufficient, not tied to corporatisation,
capable of handling their own financial affairs, unwilling to go into debt,
etc.
k. Those whose business timeframe is so pressing that they cannot spend the
time developing a plan for actions that must be taken now
l. Those whose business or organisation is not of a size that warrants
extensive business planning or which may be structured along different lines
to the traditional, hierarchical, organisation.
m. Those who structure their business in such a way that they achieve only
one thing at a time, don't overstretch on capability or financial capacity,
and keep one foot on the ground at all time no matter how fast they are
moving.



>What kinds of players derive great use and
value from a business plan?<

A - The informed who value planning.
B - The educated who know enough to plan.
C - The wise who know they need to plan.
D - The Conscientious who by their nature
plan and will follow a plan.
E - The Conventional who by their nature look at
plans as a necessary fact of life.
F - Assertive people who will see that a plan is followed.
G - Organized people who always develop plans and follow them.
H - Extroverts who will express themselves so that others will
follow the plan.
I - Group-oriented people who always want to work with others
to implement plans.


j. Those who are convinced that the only route to success is through a
business plan
k. Those who need the written word to make decisions
l. Those who are comfortable with not being proactive despite the
opportunities that are dropped in their lap
m. Those who need something to blame when they are unable to achieve their
real objectives


Let it be known that now that I have successfully created a discussion
thread that infuriates some, amuses others and bores the rest I will be
dropping the subject. To me the fact that there are so many good books
written by people who have been very successful without following the
traditional planning approach means that there is great support for all
sides of the argument. Me, I'm off to enjoy Xmas.

All the best for the season anyway,

Phil Rutherford

May I offer a paraphrase from Gen Eisenhower about planning?!:

It is the act of planning that is important, following the plan is not.

In our age of knowledge business in all industries, we don't have the luxury
to follow a plan that requires extended time to complete. Our plan must be to
continually plan ahead, and revise and modify as the environment changes.

Ted Rosen, Ph.D.
George Washington Univ. School of Business and Public Mgmt.
THRosen@aol.com