When I talk to entrepreneurs and leaders at young startups, I frequently get asked questions related to business plans. What makes a good business plan? How important are they? How much influence should they really have on your day-to-day decision-making?
It goes without saying that creating a business plan is very important. It provides a necessary framework for leaders to articulate their vision and business strategy and serves as a critical tool for tracking cash flow when combined with a financial plan (I cannot emphasize enough how critical this is – you risk killing your business before it even gets off the ground if you aren’t tracking cash flow!). While a business plan does help focus decision-making and formalize a path to growth, the initial financials included are challenging because you’re basing things on assumptions. Once the business is actually up and running with revenue streams to track, the real work begins.
A business plan can become problematic for an entrepreneur when the function of the plan comes to be viewed as more of a constraint than a helpful framework. For example, if you propose a new idea or new way of doing things, the business plan can tell you “no” based on financial constraints. To find a balance between following a business plan while still allowing for entrepreneurial thinking and creative freedom, my top piece of advice for entrepreneurs and leaders is to make your business plan very flexible. Update them monthly or quarterly instead of annually to ensure they stay relevant and allow space for new thinking and pivots.
In my experience, as Whole Foods expanded and became more complex, we had to do more business planning. We created a five-year, long-term plan, but we updated it quarterly to allow space for new opportunities. Rather than calling it “The Five-Year Business Plan,” we named it “The Long-Term Outlook” to emphasize the fact that this was a living document, not static. A successful business gets feedback from the market (things that are working well and things that are not) and evolves accordingly.
A business plan should do the same. Look at it as a tool with principles you can use to keep you organized and on track, not as a set of rules that must be meticulously followed. A plan cannot predict every scenario you may encounter. Allow enough room to adapt in real-time to the rapidly shifting industry landscape, evolving consumer preferences, and new opportunities that emerge.