In the past few years, the old-school business plan – market research, revenue projections, some data-stuffed appendices – has started to look a little old-fashioned. We live and work in an age of lean startups and constant disruption. The titans of the tech economy, from Apple to Google, all started without any formal business plan. So why should anyone? Always be iterating, right?
Well, yes and no, says Michel Bergeron, senior vice-president of marketing and public affairs at the Business Development Bank of Canada.
First, most new businesses aren’t speculative tech ventures, he points out, financed by risk-seeking venture capitalists. Secondly, “that misses the point of a plan. It’s not a bible, and you shouldn’t get hung up on it being perfect. The great value in developing it is to think through the key difficulties, and to challenge your own founding idea.”
That latter point is critical. The No. 1 reason for failure in new businesses, he says, is overconfidence – producing something the entrepreneur is enthusiastic about but that the market isn’t. All the iterating in the world can’t fix that.
But that doesn’t mean a conventional business plan works for everyone, and it doesn’t mean that one size fits all.
Consider this tale of two businesses: Vancouver’s Luppolo Brewing Co., founded in 2016, and Calgary’s Finovo Financial, founded in 2017.
Luppolo is an Italian-inspired craft brewery in east Vancouver. Co-founders Anique Ross and her husband, Federico Stucchi, came up with the idea after moving back to Ms. Ross’s home province after living in Mr. Stucchi’s native Italy. They partnered up with two more friends and co-founders, and began planning.
Lean startup principles don’t work at a brewery, which needs equipment, ingredients, building renovations and staffing. Luppolo cost the quartet more than a half-million dollars before it sold a single keg of beer. The lion’s share of that money came from a Canada Small Business Financing loan, administered through Vancouver City Savings Credit Union, and for that the founders needed a pretty traditional, 45-page business plan.
It was very typical, Ms. Ross says, and included "an executive summary, company profile, market research, sales and marketing strategy, operating financials and projections. We looked at other breweries and analyzed their pricing structures, their strengths and weaknesses.”
They examined the growth of craft-beer market share in other cities in the region, performed a SWOT analysis (strengths, weaknesses, opportunities, threats), and actively tried to find the weak points in their assumptions. Finally, they had the plan reviewed by mentors at Small Business BC, a government-supported resource centre for entrepreneurs.
On the other end of the spectrum is Finovo, a two-man financial-coaching firm founded in Calgary last year. Co-founders Russ Dyck and Kevin Langman both came from the oil-and-gas sector, where, says Mr. Dyck, “we were always helping co-workers with RRSPs and TFSAs, and found that there was a real need for financial planning. Larger institutions really only help people in the top 10 per cent, once they have maybe $100,000 or more of investable assets.”
Finovo concentrates on customers with lower net worth who are planning for their financial futures around four “life transitions” that tend to happen before the age of 40: a new job, a new home, a new spouse, and a child.
Without a bricks-and-mortar location and with minimal overhead, Finovo’s startup costs amounted to less than $10,000 in its first year. Its business plan is just as lean: a Google doc shared between the two founders, as well as a lean “business-model canvas,” a popular planning template based on nine building blocks (problem, solution, unique value proposition, etc.) made for on-the-fly revision (the one created by Mr. Dyck and Mr. Langman is a whiteboard covered in sticky notes).
As lean as it was, however, the pair still used it to challenge their initial idea, developing avatars of potential customers, and putting together market research from interviews with their target demographic, seeking to prove that initial hypothesis.
Both Finovo and Luppolo passed the first test: demonstrating a demand for their product.
But both stumbled early on. Their plans miscalculated how they would reach those customers. That, says Bridget Field, a client services manager with Small Business BC, is another common cause of small-business failure – and a major oversight in many business plans.
“I constantly see operations being underconsidered,” she says. “That day-to-day, how do you actually run the business. Imagine a day in the life of a business and draw a flow chart.”
In Luppolo’s case, the early sales forecasts turned out to be off-base because of a misunderstanding of how consumers wanted to buy beer. Initially, the founders thought that growlers – refillable glass jugs that microbreweries fill on-site for customers – would account for around 50 per cent of their beer sales. It turned out that growler fills made up only 30 per cent of sales in 2017, and even less this year. Instead, sales of cans have taken off.
“So we’ve shifted,” says Ms. Ross, “but that means there are more packaging costs we didn’t account for.” Fortunately, food sales – an unexpectedly robust revenue stream in the brewery’s tap room – have helped offset added costs, and they built enough flexibility into their revenue projections to accommodate the unforeseen hit.
Finovo also made a major pivot in its first few months. Mr. Dyck and Mr. Langman assumed they would advertise on social networks and stage one-on-one workshops with clients. “But that market was inundated, and we got almost no response,” says Mr. Dyck. They found their salvation almost by accident: A friend of a friend owned a small company and invited the pair to come in and give some financial coaching to employees.
The workshop was so successful that it changed the company’s entire approach, from one-on-one counselling to group workshops. They’ll do either, but their focus has shifted.
As has their marketing. After finding they couldn’t spend enough on social advertising to be competitive, they began producing old-fashioned print brochures, bringing them to the offices of mortgage brokers, accountants, and more traditional financial planners who target high-net-worth clients.
“They might not serve people without major investments,” says Mr. Dyck. “But instead of simply turning them away, they can refer them to us. Looking back, it seems like a no-brainer.”
Finovo was smart to start lean – if they had signed a lease on a traditional office, with a waiting room and space for one-on-one consultation, they would have found it that much more difficult to pivot to the workshop model.
But that kind of flexibility can be built into more traditional business models, too. Especially, says Ms. Field, if entrepreneurs keep their optimism in check and build some caution into their financial forecasts. Luppolo’s shift from growlers to cans is a case in point – cans cost the brewery more, but that’s where consumer preferences lie.
Ultimately, says Ms. Field, a business plan, conventional or otherwise, should never really be finished.
“It’s the owners’ road map,” she says. “Especially as a business grows and evolves and adds new products and staff, it should be the basis of your planning each year. And it’s your most powerful communications tool. When you’re bringing new employees on it’s your manual: This is our mission, our objective, it’s who we are.”