Published January 2004

Active business plan
can help companies
head off trouble

The millions of Americans who did their Christmas shopping online got more than the woozles, vonkschmoozles and candied carboozles they ordered. They got to play a part in restructuring U.S. business.

Some of the restructuring has been obvious. Retailers, once aloof from the geeky “’Net,” have had to come to terms with it. “Bricks and mortar” retailers have been forced to make peace with their Internet buyers — in fact, one of this year’s new retailing ideas involves “buy it online and pick it up immediately at the store.” (This says something interesting about the efficiency and overall wonderfulness of in-store shopping, but that is another story.)

Some changes, though, were less direct, but just as important. One consequence of the growth in Internet and e-commerce, for example, has been the elimination of the minor leagues for business.

In today’s economy, nobody cuts you any slack because you are a small business. Because all businesses look alike on the Internet, customers expect each of them, small or large, to deliver similar levels of performance. The result is that virtually all businesses, no matter how small, have to compete in the “big leagues” and deliver goods and services with at least the same efficiency as the large, “household name” corporations.

Playing in the big leagues is tough. Certainly, Internet-fed competition on pricing has caused great difficulties for many small businesses. But not all the effects have been bad. Smaller firms are being forced to learn new management tools and put them into daily use — and that’s a good thing.

Large firms, for example, have routinely used business plans to help them manage growth and contraction as well as implement strategic moves. Small firms usually consigned their business plans to live with the dust bunnies once the bank loan was obtained. But now some of them are finding, just like the big guys, that these plans can be a valuable management tool.

Unlike business plans that are developed for “show and tell” — to attract investors or to secure bank financing — the most useful parts of the business plans actually used by management turn out to be the problems they reveal, before they take place. This allows management to make adjustments and deal with things before they become problems, instead of always being put into a reactive mode, “putting out fires.”

What experienced managers in larger firms look for in a business plan is congruence — when the marketing, finance, operations and management parts of the plan all fit together. And smaller businesses should be looking for the same thing.

When the parts don’t fit together, your business won’t run smoothly. But often businesses, especially smaller businesses, come to accept constant problems and “rough running” as normal, not realizing the cause.

From a management perspective it is easy to mistake the cause when things don’t go smoothly. Most problems in business look like “people problems” when they first appear. And so it is perfectly natural for us, when the wrong materials are ordered or stuff doesn’t get out the door on time, to blame Jason or Velma. If only he or she had tried harder, or were better focused, or … something.

But, often enough, what is going wrong isn’t the result of faulty decisions, lack of skills or insufficient effort. It is that the parts of the business that fit together last year no longer do. Maybe the business grew, or shrank or has more products, different customers or underwent some other change — and what worked smoothly last year now seems to produce an endless series of squeaks, squeals and problems.

A business plan can help a smaller business head off those problems. When you have an active plan, even a relatively small change in your forecast — a 10 percent growth in sales, for example — can result in operations, finance, marketing or management issues.

Depending on the company, that kind of increase might impact inventory levels, and might mean the need for more phone lines or additional computers. It could also imply an increase in work hours, which might raise issues of overtime, hiring and even building security.

All of these things emerge when an active business plan is put together. Where will we put the added inventory? Exactly how long does it take a customer to place an order? How many customer calls do we get in an hour? If sales go up, say, 10 percent, will we have to hire someone to help out in the morning? What is the effect on cash flow?

To be successful in today’s marketplace you have to manage better, by heading off problems before they happen. And you do that by fitting the parts of your business together in an active business plan. Welcome to the big leagues.

James McCusker, a Bothell economist, educator and small-business consultant, writes “Your Business” in The Herald each Sunday. He can be reached by sending e-mail to otisrep@aol.com.

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