How do you develop a business plan when change in the industry is imminent?
This is the second of four questions I got last week from an MBA student doing research. The first became my post yesterday on what makes a good business plan.
1. Change is always imminent.
The question is questionable. Homework: read The Black Swan by Nassim Nicholas Taleb. If you know that change in the industry is imminent, you’re way ahead of the game. Business planning is about managing change.
Still, to be fair, we get what he means. There’s some well-known and obvious fork in the road coming up and in this case everybody knows it. Usually this is related to public regulation, such as the upcoming the federal deadline for digital television. Sometimes it’s planned events like an election. And I think we can assume uncertainty of the outcome, for example, back in 2005, if you were planning a business in Bulgaria, you knew that joining the common market was likely, but not certain.
Then what do you do? Two plans? Two scenarios?
2. Good business planning manages change.
I’ve written a lot about business plans managing change. It’s the main theme of my book The Plan-as-You-Go Business Plan, which is also posted in full at planasyougo.com. I might point out particularly the sections Why Plan as You Go and Plan Review Schedule and Paradox: Consistency vs. the Brick Wall.
3. Good business planning always identifies assumptions.
Every business plan should clearly identify important assumptions. In the plan-as-you-go book I wrote:
Identifying assumptions is extremely important for the planning process and the plan-as-you-go business plan. Planning is about managing change, and in today’s world, change happens very fast. Assumptions solve the paradox between managing consistency over time, and not banging your head against a brick wall.
Every business plan needs regular scheduled review of actual results compared to plan, and the review should start with the assumptions. When assumptions change, plans should be reviewed and revised accordingly.
4. Two plans? Three plans?
I’m not a big fan of the multi-headed business plan. You’ve seen them or heard of them — the most common is the one with two or three scenarios, like pessimistic, optimistic, and most likely. Or the two-headed plan implied in this question.
There are no hard and fast rules on this. It’s a matter of opinion, not best practices. Lots of people like the discipline of the multiple scenarios, but I don’t. Business planning is about results, which is a matter of the decisions and accountability and management it causes. The Byzantine complexity of the hydra business plan doesn’t lend itself to getting results.
Instead, I suggest you note the critical assumption and which way you expect it to go, and make your plans. You should have regular review meetings to follow up, so as the moment of truth draws closer, you review your assumptions and your plans, and revise as necessary.
However, there are two valid sides to this argument. Ff you’re human, you’re thinking about contingencies. What will you do if it goes the wrong way? Do you develop a fleshed-out plan for the contingency?
In the end, the scenarios question depends on the actual case. How big the imminent event, and how different the two alternative scenarios? I can imagine cases where you might flesh out the alternative plan as part of the plan. If so, be careful about it; don’t waste too much time imagining two different worlds. Stick to the key points.
5. Planning is always better than not planning
Let’s finish this answer with this reminder: there is no level of uncertainty that makes planning a negative. Planning, if you do it right, with the normal planning process of review and correction, helps you manage uncertainty.