Platt Perspective on Business and Technology

Planning for and building the right business model 101 – 4: the business plan and what is included in it 2

Posted in startups, strategy and planning by Timothy Platt on January 14, 2015

This is my fourth posting to a series that addresses the issues of planning for and developing the right business model, and both for initial small business needs and for scalability and capacity to evolve from there (see Business Strategy and Operations – 3, postings 499 and loosely following for Parts 1-3.)

I began discussing business plans in the context of this series in Part 3, and note here that I outlined something of the basic components of such a document there. And in continuation of its discussion, I note that a well-considered and well written business plan can serve as an effective road map for moving forward in developing and building a business, and for identifying and focusing on what should be your higher priorities in doing so. And this road map also includes a set of tools that you would need for benchmarking and evaluating progress and performance in this new venture, giving you resources you need for identifying where you might need to make course corrections – and if so, of what types.

This is important for building and running the business. It can be one of your most important assets when you need to expand out, and either in bringing in new members to your founding team, or when recruiting early-stage critical needs employees and at whatever level on your still embryonic table of organization. There, this document and your discussion as to how you are pursuing your new business and its goals, can be your strongest proof, validating the seriousness and professionalism of your effort in building this new venture. And it can provide due diligence validation to others that it would make sense for them to take the chance of buying into your new business venture with their time and effort.

And if you plan on seeking outside capital to facilitate early stage growth for your business, and before you have opportunity to develop a track record of proven already-achieved performance in it, a well-drafted business plan can be essential for obtaining angel or at a somewhat later stage, venture capital support.

All of this hinges on what you assume as you think through your business venture itself, and the business plan that you would develop and offer as a guide to its possibilities. And that brings me to the topic of this series installment: what we bring with us as assumed “business axioms” when planning and carrying through on a new business venture.

I stated at the end of Part 3 that I would discuss axioms and axiomatic systems per se here, at least insofar as that topic area is relevant to business plans and to business building. And I added that I would discuss this in the context of novelty and innovation and in products and services that would be sold as new offerings emerge and evolve. And I noted that I would also discuss this in the context of how markets and consumers change in what they look for, expect and demand, in business processes as they have to change in keeping pace with all of this, and in disruptively new ways where what has been assumed to be stable and simple and predictable in general, can transform, creating new and emerging sources of value creating distinction.

• Think of an axiom as a foundational starting point, and in a practical concrete setting of the type faced when planning and building a business venture, that means think of an axiom as a self-evident truth that you would simply take for granted and build from.

What was and has been reasonable to automatically assume can change, and particularly when disruptive innovation enters into the picture. And this can mean underestimating levels of impact of change and novelty, or overestimating them. And it can also mean not seeing where an old assumption might simply be becoming irrelevant.

I find myself thinking back to some of the failed startups that I have at least in some small way worked with as a consultant, and more that I simply know about as I write this. Why did they fail? There are a number of ways to address that type of question.

1. When I wrote my series: Understanding and Navigating Burn Rate: a startup primer (see Startups and Early Stage Businesses, postings 67 and following for its Parts 1-12) I focused on the issues of finances, and on cash at hand and available liquidity in general. If a venture runs out of funds and can no longer meet its expenses or debt obligations, it folds.
2. I have written several times and in a variety of contexts about how a new business venture can fail from a lack of effective organizational and management skill on the part of its founder, and from communications problems. In this regard, and as a posting citation on how a new venture can at the very least find itself in trouble, I would note: Maintaining a Vision while Loosening Our Grip.
3. Here, I add to this list, automatic and unconsidered adherence to unsustainable axiomatic assumptions. That can mean automatically assuming things that might have been true once, but that no longer are. Or even more insidiously that can mean seeing change and even genuinely disruptive change, but making the wrong assumptions as to what it means and where it will lead – and simply taking those assumptions for granted.

I have seen new business ventures at least start to fall into all of these problems. If they are identified as problems and early enough, it is usually possible to course correct away from them and to make learning curve opportunities out of them that lead to a stronger new business than would otherwise have been attainable.

• When they are not recognized as the problems that they are and early enough on:
• Before for example, a new venture runs over the above noted Point 1 cliff of insolvency, and when re-budgeting and reprioritizing can bring it stability,
• Then, they lead to overall business failure.

There are more points that I could add to the above numbered list, of possible causal mechanisms for a new business to fail. But the three I listed above should be sufficient to meet the needs of this discussion. And with that, I turn to its Point 3, noting that I added Points 1 and 2 here, primarily to put that reason into context.

How do our automatically assumed business axioms fail us? Consider the possibilities that I at least partly noted above in the abstract, and that I restate here with new points of focus:

• Underestimating levels of impact of change and novelty, and failing to see how that can lead to assumptions that you make loosing value or relevance,
• Overestimating levels of impact of change and novelty and making unsustainable new assumptions about them (e.g. on the basis of what can be fad driven hype),
• Not seeing where an old assumption might simply be becoming irrelevant and regardless of whether you are facing a particular disruptively novel change. Here, if disruptive change can make old assumptions loose value quickly, slow and gradual change can too, and certainly when it proceeds over a long enough timeframe.

For a more real-world concrete example consider a business set up by people with real depth of experience working with leather, who set out to build and market harnesses and rigs for horse drawn carriages and wagons through a new business venture – just as Henry Ford is gearing up to mass produce the first standard model, mass market cars and trucks and just as demand for these new vehicles is starting to take hold in what would be your marketplace.

• Know what you assume, and why, and think through the reach and potential consequences of what you take for granted.
• It is impossible to fully do this, but be aware of the possibility that you might have to reconsider your assumptions as one of your core business due diligence requirements – and with an awareness that this is not just a startup requirement.
• And seek out and develop the flexibility that you will need if faced with disruptive change and its possibilities, and for both capturing new sources of value and for avoiding and mitigating more problematical consequences of it too.

I intentionally picked an old historical example here, as set at the dawn of the age of the internal combustion engine and mass produced vehicles that employ them. That complex of developments marked the beginning of a period of large scale disruption that both began and ended entire industries. I also note here that we are in an age of disruptive change and transition again, with much of that centered on information processing and communications technologies and what they can enable. We are surrounded on all sides right now by at least potential business axiom challenges that could lead us into similar problems if simply taken for granted. We start and I add continue businesses under circumstances now, where it is crucially important to know and understand what we automatically assume and take for granted in them.

I am going to continue this discussion with a next step set of issues: implementing a business plan and at least starting a discussion on the complex of issues that arise when doing that. Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 3 and also at Page 1 and Page 2 of that directory. And you can find this and related material at my Startups and Early Stage Businesses directory too.

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