3 Killer Business Planning Principles... Background, Detail, and Conservatism... Must Read!

Business planning is one of the most critical steps to online or offline business success. It is so much easier to work from a well researched and well conceived blueprint, when running a business, than it is to work without direction. When you work from the air, without any guidance or sense of direction, you get blown with the wind. You get lost in a sea of problems. You become overwhelmed, overworked, stressed, and rudderless. You are in the doldrums. Please, do not put yourself into such a mess!

When you have a good busines plan you can follow it to achieve your life's dreams. You can modify it as you work from it so that your plan remains relevant at all times. A business plan is the route map to your wildest financial aspirations. All the more reason why you should pay diligent attention to its preparation.

Business planning is a fundamental part of starting and running a successful online or offline business. A business plan is a strategic document that manifests the principle of thinking before acting. As a strategic document it details the long term plan to be followed, covering a period of 3-5 years. A business plan is also a tactical document in that it is best constructed at a detailed level that makes the forecasts reasonably accurate over the first year.

A business plan manifests the time-honoured principle of thinking before acting. As a wiseman would ask... "How can you act when you don't even know where to begin, not to talk of where you are going to?" A business plan forces you to do the necessary groundwork or research that tells you the right point to begin, and what direction or path you should be following to run your business successfully. This activity is a risk management activity... it fills your initial ignorance with concrete, actionable intelligence.

A business plan should be flexible to allow for continuing refinements as the business is executed. A business plan should also be updated every year, to keep it relevant and a powerful driving force for your business.

This article discusses three killer business planning principles that were introduced in the earlier article... "12 Deadly Principles of Business Planning. You Must Know These." The three principles are... the background principle, the detail principle, and the conservatism principle. The emphasis here is on elaborating on these principles so as to fix them clearly in the reader's mind. Basically, the principles are applied to the planning of the Triplacc.com site in order to provide the reader with a concrete example of how the principles may be applied. See also the article... "3 Explosive Principles of Business Planning... Your Business Will Fail If You Violate Them."

The Background Principle

The background principle states that "A business plan must be the work of someone with a relevant background (the founder, for a start-up business), and the plan must reflect its author's background." 'Relevant background' means that the author's background must be relevant to the business area covered by the plan. There must also be consistency between the plan and its author's background.

For a start-up business the plan must be the work of the founder, assuming that the founder will be running the business. This is because the experience and lessons learned in constructing the plan are critical to the successful execution of the business, based on the plan. It is almost impossible for a founder to successfully execute a business that has been planned by someone else. This is because the founder would lack insight into the plan, unless the founder is already an established expert in the business area. The quality of the business plan also testifies to the management capability of the business, and hence to the ability of management (or the founder) to run the business successfully.

Triplacc's management team has an interdisciplinary background involving management, technology, problem solving, research, writing, and human psychology that is ideal for writing its business plan and for running its business. Many problems have been solved on the path to completing its plan, and to solve the problems the management team has needed research skills. It has drawn from its understanding of human behaviour and it has needed to express its ideas in legible ways.

The Detail Principle

The detail principle states that "A business plan must be sufficiently detailed to inspire confident action when executing the business; yet it must remain flexible."

A business plan must be concrete if it is to have any use. When it is concrete it is easily implemented, and the way to make it concrete is to make it sufficiently detailed without losing its flexibility. Of course, a business plan must be visionary (this gives it direction), but the vision must be translated into concrete, actionable, detailed steps if the vision is to be easily implemented and attained.

A detailed plan for a start-up business imparts confidence that the founder knows what he or she is doing. It is also evidence that the founder has done his homework. A detailed plan builds investor confidence and proves management's capability.

A detailed plan also illustrates strategic thinking, which is about anticipating problems well before they occur and preparing solutions for them, while leaving room for day-to-day tactical manoeuvres that create efficiencies from, say, tracking and testing.

Triplacc's plan does a thorough job of problem anticipation, and provides well-researched strategies and tactics for dealing with the problems. The result is lowered risk and boosted confidence. The strategic solutions will be revised on a yearly basis as part of the yearly business planning process. This will account for changes in the business environment, such as in market data.

The Conservatism Principle

The conservatism principle states that "A business plan must be conservative." This means that it must not exaggerate sales or deliberately underestimate costs. To the contrary it must deliberately underestimate sales (just in case things don't go well) and it must deliberately overestimate cost without going over the top (just in case costs increase). It must also plan for omitted costs due to oversight.

Another way of stating this is that a business plan must be reasonably pessimistic in both costs and sales; i.e. costs must be reasonably over-estimated and sales must be reasonably underestimated. It is important to capture only the worst case scenario so that the tendency for business failure is minimised. It also means that a business should normally outperform its plans.

The Triplacc business plan reasonably over-estimates costs by first researching an item's cost using Google and then augmenting it by a reasonable percentage to reflect possible increases. Where costs could not be researched an educated guess was made that weighed on the side of reasonable pessimism.

The plan reasonably underestimates sales by exploiting the link between sales and the potential market. The measures taken are as follows:

1. The potential market was based on only search engine traffic; it omitted other major traffic sources such as direct traffic, referral traffic, Web 2 traffic, publicity traffic, purchased traffic, viral traffic, etc.

2. Only a limited set of relevant keywords were used to estimate the potential market. The more relevant keywords that are used, the greater the traffic volume and potential market.

3. The potential market was derived from US figures only and was then doubled to account for the rest of the world. Considering that The Internet Coaching Library's "Internet World Stats: Usage and Population Statistics" indicates, according to December 2007 figures, that only 18% of Internet usage is attributable to North America (US and Canada combined) it is clear just how conservative the Triplacc plan's estimate of its potential market is. First, it ignored Canada; and then it represented only at most 36% of the Internet population (i.e. twice the North America percentage).

4. A growth rate of 49% a year is assumed for the business, when reliable sources indicate that the average Internet growth rate is 100% a year. These sources include K G Coffman and A M Odlyzko's "The Size and Growth Rate of the Internet", First Monday, 1998; K. G. Coffman and A. M. Odlyzko's "Internet Growth: Is There A "Moore's Law" For Data Traffic?", Handbook of Massive Data Sets, 2001 ; and A. M. Odlyzko's "Internet Growth: Myth and Reality, Use and Abuse, 2001."

5. It is assumed that visitors make a purchase every 10 visits when reliable sources (including John Barbour's "The Email Profit Formula: How to Turn Your Email List into a Virtual Profit Machine", 2005) indicate that visitors take 5-8 visits to a purchase.

6. It is assumed that, when a visitor buys, she buys only one item when it is indeed possible that she may buy more items.

7. A conversion rate is used to reduce sales further as a reality check on the planning. This concedes that not all potential customers (or sales) will be actual customers (or sales). Some of the potential customers who make repeat visits to a site will do so only for research purposes and will not buy. Others still will be freebie hunters who never buy.

8. Sales estimates are based on only 10% of the current site, this 10% being the original site planned. New productivity tools made it possible to expand the site to 10 times what was originally planned.

Final Remarks

This article has described in some detail three master principles of business planning. The principles are... the background principle, the detail principle, and the conservatism principle. The emphasis has been on elaborating on the principles using a concrete business planning example, the idea being to fix the principles in the mind of the reader. If you are planning to start a business you'll be foolish to ignore these principles. And if your business is failing then these principles are more than likely contributing to its failure.