May 03, 2008

Operating Plan or Business Plan? - By Sanjay Anandaram

Often times I meet entrepreneurs who submit a great looking business plan with all kinds of fancy colour pie-charts and trend lines. It is evident that a great deal of time and energy has been spent in creating the plan. The plan contains enormous amount of secondary data about the market, the performance of Indian and U.S. companies in the similar/allied space, their valuations and the like. But precious little in the business plan about the business that’s currently seeking funding!

On the other hand, I also meet entrepreneurs who submit a non-colour 10 page stapled-together document without any fancy pie-charts and trend lines. Even more of them simply send in a presentation which essentially talks in simple language of the following:
•What is the problem that is being solved and who is experiencing it
•How is the problem being currently solved and the problems with the current solutions
•How will the company deliver a strong competitive solution and why will it win
•How will the business make money?
•The people behind the venture

Of course, there is some data on the market. But the focus is on the business that’s seeking funding. The plan is meant to be a guiding light for the company. It is meant for the investors and the management. It is intended for employees and potential partners. It is not supposed to be a showcase for cut-and-paste marketing data.

The point here is that a plan is not an end in itself. A business plan captures, distills and details the knowledge, strategic and operational matters of the business. Each functional aspect of the company should be covered – sales, marketing, operations, development, human resources, finance. A clear articulation of the strategy and the tactics for each of the functional areas demonstrates clarity of thought and purpose. The plan is something the key management team signs off on and is used as a management and measurement tool. Else, various functions will tend to exhibit random Brownian motion i.e. will operate in a knee jerk manner, in fits and starts and with no real end goal in sight. And as we all know, the total displacement is zero in Brownian motion even while a lot of distance is traveled!

A plan is a guiding light. A plan is not something that is done once a year to develop a fancy report. And then forgotten. In fact, a plan is a very live document undergoing constant change and revision. In the early days of the startup, it is not unusual to find large gaps between the numbers in the plan and the actual performance. The reasons for the deviations need to be analysed and fedback to create a revised plan. It is a continuous process. For example, the pricing assumptions may undergo a change based on experience and market situations. So also, various cost assumptions. The business model may be refined. Revenue assumptions may need to be restated. Remember, we are talking of a startup here that’s struggling to find its place in the sun and carve out a unique position. It is losing money and has to find customers. Quickly. The strategic and the operational or tactical at times merge and the plan should reflect it. The plan should be a management tool. And should therefore be measurable. Abstractions and generic statements (“we will create value for our customers”) have no place in the plan. There should be details about how the service or product will be developed, priced, delivered, supported, financed. The resulting financials must be captured. Projections for the next few months must be made. Feedback from operations must be used to refine strategy, refine the medium term goals, and sharply focus on the immediate near term milestones. In short, the business plan and the operating plan should be the same!

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.