It’s getting to be that time of year when serious budgeting begins and business plans for next year are taking shape. In addition, millions of newly-minted entrepreneurs are running around hawking their business plans, trying to get while the getting is still good. But given all the uncertainties of the pandemic, today even the most established businesses aren’t any better prepared than the newest startups to make serious and realistic projections about revenues over the next year or two because you can never really plan the future by the past. Especially the past that we’ve experienced for the last two years.
As a result, today we’re all stuck in a world of lovers, liars and wishful thinkers and there aren’t a lot of answers as to how best to proceed.
Some folks – the lovers – are the truest of believers in their businesses and think that trees grow to the sky and that there’s no end to their exponential upsides. They’re making rosy plans, expecting amazing results as the world rushes to their doors, and they intend to put the pedal to the metal and push on through. Few of them will make it much past the starting gates. Nothing good happens overnight these days.
Others – and you know who they are – know just how tough and tight things really are but they’re either trying to get initial funding for their ventures (while the funding is still flowing like crazy) or attempting to raise follow-on funding to keep their doors open. To accomplish this, they need to pretty much keep their eyes closed, their fingers crossed, and say whatever the world needs to hear.
They’re living by the old Trump doctrine that “a lie is not a lie if the truth should not be expected.” Shame on you if you were foolish enough to believe that I knew what I was talking about or that I meant what I said. Or as attorneys for former Trump lawyer Sidney Powell asserted in seeking to dismiss a defamation lawsuit filed against her, “no reasonable person would conclude that the statements were truly statements of fact.”
And then there are the wishful thinkers who haven’t the slightest clue as to what they are signing up for or what the likely outcomes of their ventures will be but who are deluded captives of what I would call Excel exceptionalism. If the spreadsheet says it’s so, then you take that for gospel and go forward. The truth is that in these cases, if you torture the numbers long enough, they’ll confess to anything.
I was reminded of this particularly Pollyannish perspective recently when I saw an ad for a Neutrogena beauty product with a tag line that read “for people with skin.” Now there’s an exciting TAM (total addressable market) that’s certainly worth chasing. Part of the problem, though, is that entrepreneurs are indoctrinated by shows like Shark Tank, where contestants appear with their products or prototypes and seek funding at crazy valuations based on using the new proceeds to drive increased sales. Only Mr. Wonderful is ever rude enough to ask about things like margins, marketing costs or market size.
But there are a couple of basic ideas that will help you – whether you’re new to the process or an old hand – if you want to develop defensible numbers and projections that at least make some basic sense. While plans are basically useless, the planning process, properly done, is absolutely critical.
Solid, well-thought plans aren’t guarantees but they will help you detect changes and make course corrections as you go forward. Keep in mind that they aren’t anything more than today’s best guesses because you can plan all the plans you want, but you can’t plan results. For better or worse, you live the results of your old plans every day.
First, do your homework. As amazing as it seems, far too many entrepreneurs jump into new markets without even the most basic understanding of the ground rules, regulatory environments, competitive offerings, etc. This is in part due to the curse of Uber, which taught too many newbies the idea of forging blindly and quickly ahead — and then asking for forgiveness rather than permission. Even apart from the fact that the strategy doesn’t work in all markets, it’s a dumb approach and doomed to fail.
Second, start by building your plan backwards. Figure out first where you want to end up. Then determine the steps and the required growth and resources needed to get there. Finally, do a realistic inventory of your current assets and capabilities to see whether you have the funds and foundation required to complete the journey. You may discover that you simply can’t get there from here and save yourself years of headaches, heartaches and hard times.
Third, remember above all that consistency is easier to defend than accuracy. You’re going to need to “sell” your plan over and over to your own team, to your board, to customers and regulators, and to investors. It’s hard to look smart with bad numbers. If you can’t explain succinctly where your numbers came from and how they were arrived at, you can forget the whole drill. No one really knows what the future holds or what certain specifics will be down the line – costs, rents, taxes, etc. You can only do your best but it’s crucial that your plan be built based on logical premises and straightforward assumptions. Anyone can argue the assumptions and change the numbers in your models, but it’s your logic and approach that needs to be rock solid, consistent and clear.
Dream in years, plan in months, review weekly, and react immediately.