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Steering clear of the rocks

Q: What's the one thing in common among every business plan that has ever been pitched to an investor? 

A: The plan is wrong.

Don't worry about the plan being wrong.  The plan represents a set of assumptions that hang together to produce a business venture that, if everything went according to plan, will generate positive returns for the investors and other stakeholders.  It's impossible to get all of the assumptions right.  It's management's job to adjust the plan as the assumptions don't line up.  Somethings go better than you expect.  Other things go worse.  And, there will be factors which emerge that you never considered.  That's what makes being an entrepreneur fun (and stressful!).

One of the most common mistakes that entrepreneurs make is failing to recognize that things are going off track until it is too late.  Entrepreneurs are optimists, generally.  You need that optimism or you'd never try to get a venture started.  Objectively, the odds are against you.  But, it's the thrill of the opportunity that motivates most entrepreneurs.

You can't panic when you miss your first milestone or your first assumption turns out to be false.  But, you should objectively analyze the impact.  If your development project is starting to fall behind, can you really make up time in the coming few weeks?  Or, should you re-adjust some of the features and change priorities to add more slack in the schedule?  If your revenue generation is behind schedule, can you realistically make that up in the remaining months of the year?  Or, should you ratchet down your initial assumption to match the reality.

There is no easy answer for this.  But, here are some things to keep in mind as you analyze.

  • Don't dismiss any missed milestone or projection as 'no big deal'.  You need to find the root cause and assess whether other assumptions you have made are wrong.  One of the most common occurrances is the cascading of missed objectives.  An optimistic assumption in one area is usually coupled with optimism in other areas.  Even when you re-double your efforts, it can become hard to avoid falling behind faster due to the inherent optimism in the original plan.
  • Get objective input.  It's very hard to avoid drinking your own Kool-Aid as an entrepreneur.  You are the visionary that sold everyone on this plan.  You convinced everyone that you could overcome the obstacles.  So, as the new obstacles appear, you still believe you can overcome those, too.  I'm not saying that you shouldn't try.  But, you need to get someone outside the daily fray (board member, advisor) who can assess the situation and give you objective feedback.
  • Listen!  Your board members, advisors, and team members are probably trying to give you some subtle messages about adjusting the plan.  There's a fine line between giving up on the plan and making the right adjustments.  A key skill for the CEO is to be able to listen objectively to all input, question their own assumptions, and then make the right decision.
  • Act early, act often.  Early action when a plan is going off track is your best friend.  By taking early action (adjusting sales plans, reallocating resources, cutting expenses, etc.), you are buying yourself the most time to get back on track.  If you make up your shortfall or catch up on your project plan, it's not hard to ask the resources back that you may have given up.  Or, you may find that you can get by just fine with less.
  • There's no shame in adjusting the plan.  The real shame is in failing to adjust the plan.  Again, here is where the entrepreneur's passion can become their weakness.  You've overcome so many obstacles to get your business to this point.  Of course, you can overcome the current obstacle, too.  What you have to think about is, what if we can't?  Am I spending too much money for the case where we don't get back on track?  Chances are, the answer is yes.  Way more companies have gone out of business by spending too much money than by spending not enough.  Keep the odds in your favor by adjusting your spending as quickly as possible when you start to go off track.
  • Don't wait for the Board to force you into making changes.  Most times, the Board will defer to management as management has much more detailed information.  So, if you believe that you can make up for a miss, the Board will usually give you a shot.  But, just make sure you aren't fooling yourself first.
  • Most of the 'misses' with a plan are negative, but you may also exceed aspects of a plan.  This is great when it happens.  Don't be afraid to adjust a plan updward if you are really confident that you are ahead of the curve.  If you really are growing ahead of plan, no one should object to ratcheting up the spending proportionately, too.

I'd be interested in other approaches that people have taken when your best laid plans go astray.  Please share them in the comments.

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