Like many technology startups that struggle with adolescence, Twitter has taken awhile to develop a solid business plan. But that hasn’t bothered investors, which have plowed an estimated $900 million into the firm since its inception in 2007. “We don’t necessarily have to start making a lot of money right now,” co-founder Biz Stone told CNBC in a 2010 interview, a year before a Russian company invested $800 million into the firm. Stone may be right. With 140 million users, a good number of people are obviously getting value from Twitter.
But it’s far less excusable for the average mid-market company to go without a codified business plan. Unlike Twitter, which sells something no one needed before they began using it, a mid-market company that manufactures pantyhose or sells legal advice absolutely needs a business plan. They’re operating in markets where the rules of competition are far better established.
Mid-market companies especially need business plans if they someday want to become much larger companies. Forbes Global 2000 companies live and die by planning. Small firms don’t need planning as badly because their CEOs can often manage the most important details of the business in their heads.
But middle market firms ($10 million to $1 billion in revenue) are at a size where formal planning and accountability truly matter. A 2011 study by Ohio State University and GE Capital of nearly 1,500 mid-market companies found that those with the strongest financial performance were far more likely to have the core elements of a business plan than the rest of the companies. Some 66% of the growth leaders had formal growth targets (vs. 31% of the laggards); 58% of the leaders formally tracked their progress (vs. 33% of the others); and 53% communicated their goals and progress to employees (vs. 24% of the rest). All to say that skipping business planning is a bad idea.
Over the last 30 years, whole forests have been felled so that books on business planning could be printed. (Watch me present my favorite planning system.) Yet ironically very little has been written about switching on the planning process in companies that have long operated without one. It is a critical but delicate task. If you do it wrong, your managers will resist. They may even revolt. One successful online publisher that too aggressively implemented business planning watched 40% of the leadership team leave the company four months later.
At the very least, your managers are likely to miss their targets and engage in ugly plan review meetings. Their morale will sink, and they will pressure you to shelve the plan so things can get back to “normal.” Normal means little accountability, which in turn means lower performance. Too many CEOs justify backing off planning by saying, “Now just wasn’t the right time. We’ll try it next year.” While business planning is necessary to guide companies through treacherous markets, it is unnerving for managers who have never felt the performance pressure that a good business plan will induce.
Growth leading companies in the middle market use formal business planning to a much greater extent that growth laggards. (This data was from a study produced in 2011 by Ohio State University and GE Capital.)
Instituting a rigorous business plan is a complex rite of passage that CEOs must phase in deliberately but delicately, steadily ratcheting up of the pressure on their team to meet their targets. The lessons of several mid-market firms shine light on how to institute it without sending off fire alarms.
First, Steer Clear of the Common Pitfalls
Academics and consultants have created a cottage industry selling business planning processes. Many planning processes are designed to be instituted meticulously. When the CEO rigidly enforces the program, their team is likely to reject it. Helping an organization become excellent at planning is a process, not an edict.
Other CEOs worry about upsetting their team, so they create a plan with a clear direction but allow soft goals (e.g., “increase market share” or “improve customer satisfaction”). The problem is you can’t determine whether executive team members have delivered or not. While this is much less threatening to executives, it rips out a critical element of planning and will decrease its effectiveness.