Don’t write the busi­ness plan, do it

Finweek English Edition - - LAST WORD -

For the right rea­sons, many fun­ders re­quire en­trepreneurs to write a de­tailed, con­gru­ent and bank­able busi­ness plan. The plan ought to ar­tic­u­late the prod­uct, its mar­ket and how the en­tre­pre­neur will go to mar­ket and gen­er­ate con­sis­tent pos­i­tive cash f lows to re­pay the bor­rowed funds and cre­ate value. This logic works well, ex­cept for one prob­lem: a busi­ness plan is ex­actly that – a plan.

No­body, not e ven t he most pas­sion­ate en­tre­pre­neur, can guar­an­tee that what the plan says will in fact be. It would be use­ful if both the en­tre­pre­neur and the f un­der had more cer­tainty that the idea in the busi­ness plan stood a greater-thannor­mal chance to gain trac­tion with cus­tomers and suc­ceed. If only there was a way the plan could be proven be­fore the en­tre­pre­neur in­vests the count­less sleep­less nights and the fun­der com­mits mil­lions of rands.

Most peo­ple start by writ­ing a busi­ness plan, or even worse, get a con­sul­tant to write it for them. They then take the busi­ness plan to a fun­der, who lends funds on the strength of the plan. Even­tu­ally, armed with a plan and some funds, they go out and start the busi­ness.

Seems log­i­cal? I don’t think so. Why risk all that time, ef­fort and money on some­thing that may turn out to be a bad busi­ness idea and a waste of lenders’ funds?

Why not fol­low the same process, but in re­verse?

In­stead of start­ing by writ­ing the busi­ness plan, why not start by do­ing the busi­ness plan and write it later?

In his book The Google Way, au­thor and man­age­ment con­sul­tant Bernard Gi­rard, who had been analysing the com­pany since its found­ing in 1998, writes, “had the lead­ers of Google fol­lowed the rules and un­der­gone the t yp­i­cal ven­ture cap­i­tal rite of pas­sage, they would have writ­ten a busi­ness plan that laid out a de­tailed f inan­cial model show­ing how they would make money and how l ong it would t ake to make a profit for their ini­tial in­vestors. They did noth­ing of the sort. In­stead, they started by c r e at i ng us e r d e ma n d a n d only t hen did they con­sider how to gen­er­ate in­come”.

In do­ing the busi­ness plan, you will learn, very early in the game, the key chal­lenges in sourc­ing raw ma­te­ri­als for your prod­uct, your key sup­pli­ers, what af­fects their pric­ing, the ex­ter­nal fac­tors, in­clud­ing for­eign ex­change rates, in­ter­est rates, and com­mod­ity prices as well as ways and means to man­age their volatil­ity.

On the de­mand side, once you start sell­ing, you will know and ex­pe­ri­ence f irst-hand whether cus­tomers are pre­pared to pay for your prod­uct.

A fter a few it­erat ions of man­u­fac­tur­ing, pro­mot­ing a nd sell­ing your prod­uct, you will be in a much bet­ter po­si­tion to pen down a plan for your busi­ness. You will be more en­light­ened to the risks, the com­pe­ti­tion, cus­tomer pref­er­ences and also the right price point. You will know in­ti­mately what cus­tomers value in your prod­uct, why they will choose your prod­uct over y ou r c om­peti­tor s . Es­sen­tially, you will write your SWOT anal­y­sis from f i r s t-h a n d e x p e r i e n c e , not f r om googling your com­peti­tors like many do.

Most im­por­tantly, you will have the conf idence t hat your busi­ness idea ac­tu­ally works and you can prove it. Andile Khu­malo is the CIO of MSG Afrika, MD of P OW E R F M a n d Founder of MyS­tartUp, an o nline pl at f o r m for en­trepreneurs. He also presents POWER Busi­ness on POWER FM at 5pm, Mon-Thurs.

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