Many thanks to Lora Kolodny for this question she asked me in a comment to my post here yesterday:
But I have to ask — any other cases? Has a business plan ever saved your (company’s) life? (cue song: Last Night a DJ Saved My Life)
Yes, many times. With apologies for what might seem like tooting my own horn, it’s a real question, and it deserves a real answer. So these are real saved-by-business-planning experiences I’ve lived through first-hand.
- During the early stages of Borland International, after sales had taken off but before there was any working capital, good business planning saved founder Philippe Kahn, his main administrative executive Spencer Ozawa, and the whole company, from a disastrously premature adventure into retail distribution. They stayed with direct sales until there was working capital to support sales through distributors to channels. This isn’t my credit, but I was on the board of directors and I saw it close-up. Philippe and Spencer used planning to see the cash flow and working capital implications, and to postpone the sales to distributors. That probably saved the company, which went public in less than four years from its founding.
- At the end of 1993, with Palo Alto Software, my wife and I faced the disastrous results of getting into mainstream retail channels with a software product that didn’t sell out from the channels to the consumers. The valuable input we got from buyers in the channel was pretty much “your boxes suck.” But we also knew that our customers weren’t happy with business plan template type products (think of them as Word and Excel files, instead of a stand-alone application). So we did invest in expensive professional packaging design, but, much more important, we went back to the drawing board to develop our first stand-alone business plan application. It was tough at the time because we had no capital left and no outside deep pockets. So we — my wife and I — had to go out on a very long and scary limb with three mortgages and $65K credit card debt (at the worst of it) to pay for repackaging, product development, new channel sales reps, and other elements of a serious business plan. We should have called it a recovery plan. And because we had a plan, with milestones, we were able to survive the risk at the darkest times. We had the plan and the specific milestones to give us hope. Happily, it worked. The first Business Plan Pro was a big success. And amazingly, after all that, we’re still married. To each other.
- By late 2008 and early 2009, as the recession dug deeper into sales, some of us (me included) wanted to lay off some of our people to prepare for financial troubles. Our CEO, Sabrina Parsons, stuck with the plan, and because of that, as things got better again last summer, as we started actually recruiting more people for a growth period. We hadn’t laid off anybody as cost cutting. The plan worked.
- When sales tripled in 1996, our business plan showed us in advance how the rapid growth in accounts receivable was going to absorb about a million dollars of working capital that we didn’t have. We were able to go to the bank months in advance, with bar charts showing the projected sales and the resulting cash shortage, and arrange a comfortable line of credit before we desperately needed it.
- In truth, the plan has served us for years to manage the company. My wife and I started in the middle 1980s with a plan to “sell products, not hours” that took a long time coming to reality in the 1990s. As the company grew in the 1990s, we got to 36 employees and $5 million annual sales without a penny of outside investment; and that took careful business planning to manage the credit lines and working capital without ever spending money we didn’t have. Since we hired our first employees in 1993, through today, we’ve had an annual refresher of the business plan and a monthly plan versus actual review on the third Thursday of every month. Sabrina’s been running the company for three years now, and she does the same thing. And here we are with 45 employees now, multimillion dollar sales, no outside investors, and no debt. That has as much to do with business planning as with anything else. We do practice what we preach.
And again I feel like I should apologize because there’s so much about my company in this; but Lora’s point in the comment yesterday was very important:
People think plans are just for “beauty pageant” purposes, or certain kinds of competitions that are varying in worth. I like that you shared this example of where you were required to pony up a plan in the real world beyond competition and awards shows: “We did that to get the merchant account initially, to set up a commercial line of credit with a bank, and when we were looking at possibly taking on investors.”
So I’ve taken that literally and given these examples because I believe that every company should have not just a business plan, but a planning process that starts with a business plan and continues through the rest of the company’s life, with regular review and constant change. And the examples I know best are ones I lived through.