Contributed by Peter R. Geyer
Your business plan is your roadmap to success, and if you have built your own business – and particularly if you have had to seek bank or investor financing – you have probably had to write one.
But once written, how many of you have actually gone back at a later date to update your business plan?
It’s not a bad idea, even if you don’t need another round of bank or investor financing. Merely the act of writing – or updating – a business plan is a good way of refocusing your mind on where your business is going, how it is changing, and how you can keep it on a growth trajectory.
If you already have a business plan, but it is more than a year or two old, you don’t necessarily need to start a new one from scratch. If you focus on thinking about three things – internal factors, external factors, and the future – you can quickly and efficiently bring your old plan up to date.
Internal Factors: Inside Your Business
When you first wrote your business plan, one of the first things you had to do was to describe your business and your products or services. Have those things changed significantly since your last business plan?
A perfect example of how this can happen with a company that is growing is Netflix. When Netflix was founded in 1997, its primary business was DVD sales and rentals through the mail. In 1998, Netflix abandoned sales and went to strictly being a rental business. In 2010, Netflix moved to video distribution through online streaming, and in 2012, the company began producing its own content. Each step of the way fundamentally altered both the product offerings and the methods of distribution, to the point where the Netflix of today is almost unrecognizable from what it was when it was founded.
When you update your own business plan, think about whether the fundamental purpose of your company has changed. Think about whether your products or services have changed. Think about whether the methods of distributing your products or services have changed. Your updated business plan should take these changes into account.
External Factors: Outside Your Business
Your business may have changed since you originally wrote your business plan. At the same time, your competition or customers may have changed as well. Whether it is your competition, customer tastes, or the regulatory environment, the outside world can strongly affect how you position your business moving forward, and that should be reflected in your revised business plan.
In the past several months, German cities have been lobbying for tighter regulations on the exploding market for electric scooter sharing. Since the vehicles were legalized for use on public German streets in mid-2019, this segment of the urban mobility market has grown largely without effective regulatory control, leading to a rising number of accidents involving pedestrians and other vehicles, as well as other issues related to on-street pick-up and drop-off. In anticipation of this regulatory change, many fledgling electric scooter sharing companies are changing their growth models and are looking more toward consolidation of existing businesses within already-participating cities, rather than unfettered growth of new businesses in additional cities.
While regulatory changes are just one of many outside influences on your business, it is important to take a close look at how the world outside of your business has changed since you originally wrote your business plan. The world is constantly changing, and your business plan should also change to keep up.
Your original business plan probably included at least basic financial forecasts for your first few years in business. While most banks and investors understand that any financial forecast is purely speculative – especially before your business is even fully operational – they at least want to see that you have carefully considered your future financial viability. But once your business is fully functional, you are no longer just equipped with a theoretical foundation for your forecasts. Now you have real data to back up your prediction of future profitability.
While the social media world is full of companies that are wildly powerful but spectacularly unprofitable, Twitter stands out. Within four years of its founding, Twitter had earned over $28 million in revenue in 2010. While this is a remarkable feat, it is more than matched by their remarkable net loss of over $67 million that same year. Over the next decade, as revenues exploded at Twitter, so did its net losses. You can bet that Twitter’s business plan was updated multiple times – not only to explain this growing discrepancy between increasing revenues and persistently rising losses, but also to describe how the company would adjust its business model to ultimately achieve profitability in the face of now better understood market dynamics. Fortunately for Twitter, by 2019 it finally did turn its first profit in absolutely spectacular fashion.
The occasional reforecasting of your business’ future, through revising the financial forecasts of your business plan, is an effective way of incorporating information that you have gathered from practical daily operations. With this more-informed data in hand, it becomes easier to see operational inefficiencies and to make your business operate more smoothly and profitably.
Many business owners dread the process of writing a business plan when they are required to do so by outside parties, so when it is finally written, it is not surprising that many will also resist having to revise or rewrite it again. But by occasionally updating your business plan, you ensure that it remains dynamic, and – just like updating a roadmap – updating a business plan ensures that you can identify and use new roads to success.
Peter R. Geyer, MBA, is an experienced business founder and consultant who works with you on your business roadmap, so that you can go about your business servicing customers. Check out his business plan services here.