I wrote this article for Intuit back in 2012, and some information was used to publish this special report: http://dpub.intuit.com/t/29292
Have a roadmap for success – Plan, Execute, Measure, Celebrate, and then back to Planning.
“If you don’t know where you are going, you might not get there”
“Small Business that becomes a Business drops the small by thinking big….”
What is great about this cliché’s, it the ability to inspire a great deal of thought with so little words, there is more to it… “Thinking big” is not anymore just about dreaming of alternate reality where the hardships of the growing business disappear with the simple summoning of “big thought.” Thinking big is really all about planning and executing, with simple and attainable goals. Not being afraid to go back to the drawing board if the results do not measure up. And when the goals are achieved via the correct measuring system, they are celebrated as the catalyst to the next bigger goal.
The SBA (Small Business Administration) stated in 2009 that 50% of Small Businesses do not make it past the 5 year mark. http://www.sba.gov/sites/default/files/sbfaq.pdf
I’m sure that a great majority of that 50% of Small Business owners and investors wanted much more than a 5-year “almost made it” business. The American Dream is to employ, not be employed… and to control your financial future. So when a new small business is opened, not just money is at stake, a better future of the business owner is at the cornerstone of the entire endeavor.
Success is generally not a function of complete randomness and luck. Apple Inc. is not the most powerful technology company in the world because accidently people prefer to buy the same functional product as their competitor for twice the price from Apple…. Rather, it was the quality and differentiation of their product that created a global phenomenon and almost a cult following. Behind Steve Jobs’ “Think Different” slogan there is an entire driving force of individuals with the goal of being successful by being different and the resilience to stick to plan regardless of the short-term barriers. Strategic goals and financial goals are not exactly in complete cohesiveness, but they are typically reasonably predicted, measured, and praised when achieved… and most importantly used as the blueprint for the bigger and better plans ahead.
Let us explore an example of a small business’s role in this realm. There is an Ice Cream store in Akron, OH that opened its doors in summer 2008. There were 6 other stores within 5 miles that opened the same type of store, but with the more popular frozen yogurt. Further more, 5 out of the 6 Frozen Yogurt shops were opened within the same year. The owner of the Ice Cream store was warned: “If you are going to be in this business, you must follow the trend… people do not buy Ice Cream any more, it’s all about the froyos.” Mike, this business owner, does not believe in trends or fads, he believes in his core business values: “Have the best product and have the best service, everything else will follow!”
Doesn’t sound like much of a plan, does it? Well it’s just a philosophy, but it becomes a plan when it is broken down into its business implications:
- Have the best product: this means the materials will likely be high quality and probably higher cost. It also means that significant investment will be made on the skillsets of the employees that make the product and the equipment will be of higher caliber. And last, but not least, there must be continuous R&D to always have the cutting edge products that transcend trends.
- Have the best service: this means that infrastructure is set to be able to serve the client, which could mean high cost of technology and high quality employees that value the company, these are typically most expensive because they start building tenure and benefits have to be offered to retain talent.
- Everything else will follow: he is referring to the GOALS here.
So, let’s break down what a goal is. Analogically, picture business as a long race, so long that it feels like there is no finish line in the horizon. Most people will be driven mad by the thought of ruining a never-ending race… and those are probably that 50% that SBA was referring to; those definitely saw a finish line, and probably not the one they wanted. But there are others that do not care about the finish line, they just want to run and make pit stops every time they need to refuel. That pit stop is the metaphor for the moment the business owner steps back from all the craziness and does a simple analysis: Look at the Plan, verify it was executed as designed, then measure the results with the short-term goal; if the results show to be way behind the race, then a totally new strategy will be implemented, but if it shows to satisfy the goal… the race keeps going and until the next pit stop. This pit stop strategy (short term planning and measuring) keeps the racer grounded and in the moment.
Mike’s Ice Cream store never gave up, and had a tough time making it’s case about being the correct choice of the times for the consumer. But, the plan was to provide the classic product and the “alternative to the trend” and of course, without a glitch, being the most pleasant to buy from. This was a tall order, heavy financial constraints (like high materials costs, high employee costs, and high infrastructure investment). Seemed like there was no apparent innovation coming from here, but there was… innovation was in the simplicity, while instilling in the consumer the value of the classic version of the product and eventually recognize Frozen Yogurt as a the temporary “alternative to the classical” and a negative choice. The nice thing about the classics is they never exist to important, although temporary irrelevant, it will always serve the standard and default choice during the troughs of the fads. As the Yogurt Shops started to fade, now only 2 out of the 6 left, the Ice Cream Store gets all the default business the other stores created a market for.
So, behind this story there is an interesting lesson to learn. Strategic goals are important, but different to measure, and its easy to get caught up on them with great disregard of the financial goals which are much more tangible. This type of planning usually takes more priority on financials goals rather than strategic. A business road to success is series of short attainable goals, while completely aligned with the vision of the bigger and more strategic goals. Business can be described as: “an organization engaged in activities with a for-profit motive and provides a return of capital to its owners while managing the inherit risks of losing it all.” In the financial section of the most basic business plan will contain the following pillars:
- Operating Capital – How much needs to be invested and where will it come from.
- Gross Profit Motive – What products and services will be offered, at what price, and the direct costs of providing them.
- Operating Plan – How will the business be managed and the costs of maintain it. And how will the risks of doing business are mitigated.
- Increase in Net Worth – How will the business increase in value to encourage investors to expect a gain upon exiting it. What assets such as Real Estate and Equipment will the company acquire?
- Returning Capital to owners – how will owners be compensated for risking their capital.
So, as we start making the perfect mixture of strategic and financial goals, we also start working in the constraints; typically represented by money… yes money will be a forefront of this, but we actually call it capital. Running a business with a well though out plan is just like planning a business trip
- Know your destination – Set your goals and ways to measure them
- Pick the roads to take – Setup a Business plan to dictate how the product or service will be delivered
- Make the required stops to refuel – Stop, measure performance, adjust strategy or work differently if need be
- Choosing the vehicle to take – Using the right tools and equipment for the job, train and improve on skills to provide the ultimate service and/or product experience.
- Pick your trip mates to help you get there – having the right employees and partners to help run the business.
- Arrive and Plan the trip back– Celebrate the success of meeting goals and continue to next goal
The roadmap to success is achievable, realistic, and measureable plan that is tightly aligned with financial goals. After all, the most important reasons why half the businesses do not make it past five years are having unattainable or an on-existing business plan combined with undercapitalization.
We can conclude the secret to a successful business is = Strong Business Plan + Execute and reach attainable goals + capital to overcome constraints.
That being said, the best way to put this to practice is using a tool. A tool that can help you device a strong business plan with measurable goals. This same tool should help you monitor progress and measure the results. And most importantly, this tool needs to keep track of the capital and constraints.
This tool is called QuickBooks Enterprise, within the traditional accounting tasks being performed in this program there is system of business planning tools:
- Employee Organizer:
Employees are the most important assets of every business. Long-term employees help keep clients longer as they upkeep those relationships and clients feel safest working with familiar voices/faces. High quality employees help keep a high level of product quality and customer service. Highly skilled employees help the business innovate and have the edge over the competition
So naturally, the Employee Organizer, helps businesses keep important information about employees such as pay and position history. Best way to motivate employees to stay is to keep track of their progress and reward them with promotions and progressive pay.
- QuickBooks Business Planner
Strategic and Financial Planning are both equally important and this tool will provide the baseline to construct a comprehensive plan with a step-by-step guide to include: Industry/Competitive Analysis, Marketing, Operations, Management/Staff, etc…
Then, complementing the Business Plan with Financial Projections to plan for capital requirement and feasibility.
This is probably the most underused feature in QuickBooks, with unlimited value to businesses of every Industry. Since most businesses have the common constrain of Capital, it is a great idea to keep in check. A well devised budget will give everyone an organization a guideline on how to spend and when to stop, managing expenses is the first step to heaving a healthy financial future.
QuickBooks Enterprise allows you to review the previously setup budget and compare with the actual numbers in real-time, together with a dollar value over/under column and percentage of budget to keep track of trends.
Business Success is a series of short moments where we stop and look at the original plan, measure current results vs. projected results according to plan, celebrate the accomplishments, and then go back to rewrite the plan for what did not work and build upon the what actually was achieved. And at the core of it all must be a system that will allow for all this to be attainable.