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Summary:

I was crazy enough to start two businesses at the same time — OnlyBusiness.com and Polaris Blue. My partner and I run them concurrently, and fortunately both have done well. No doubt we got lucky, but I want to share a concept critical to our success […]

Daniel Meyerov, OnlyBusiness.com

I was crazy enough to start two businesses at the same time — OnlyBusiness.com and Polaris Blue. My partner and I run them concurrently, and fortunately both have done well. No doubt we got lucky, but I want to share a concept critical to our success that might help other founders, especially in this uncertain market. Create three versions of your strategic plan, one each to address a different potential outcome for your business: the overnight success, slow-but-steady growth and survival mode.

OnlyBusiness.com is a community platform that offers web tools and services to small businesses. My partner and I developed a multi-outcome strategic plan, detailing how the operation would perform under three, clearly defined scenarios. The exercise gave us more options for coping quickly with surprises that might ordinarily have caused big problems.

I’ll show you what I mean, by sharing how we staged three critical budgets for each potential outcome.

I. Marketing

PLAN A (Overnight Success):
If sales growth is 120 percent of target per quarter, consistently, we’ll know our marketing is working and plan to ramp it by 30 percent to 50 percent, but in a graduated manner, in case growth isn’t sustained.

PLAN B (Slow Growth):
If sales growth is 80 percent of target in that time, we adjust up, but only where minimum marketing-to-sales ratio of 1 to 5 is still met (i.e., $10,000 of marketing generates $50,000 in sales.)

Plan C (Worst-Case Scenario):
If we aren’t meeting minimum performance, we slash marketing by up to 50 percent, cutting generalized magazine and newspaper advertising, but not highly targeted web programs like PPC and SEO.

II. Payroll

PLAN A:
If sales growth is 120 percent of quarterly goal, we expand aggressively, first by doubling ranks in the mission-critical areas of sales, marketing and customer support, with incremental expansion each quarter thereafter. Second, we add staff in production and project management, limited to 50 to 75 percent growth.

PLAN B:
In slow growth, we maintain current payroll as long as possible, ensuring that no particular staff member is overburdened while all business aspects are covered. Any incremental additions are evaluated for their impact on profitability.

Plan C:
We radically cut payroll, simply to keep the operations functioning. The owners take on more direct sales and marketing responsibilities. Our goal is to maintain sufficient financial reserves to operate at a bare-bones level for 12 months, in case income during this time is zero.

III. R&D

PLAN A: We ramp the engineering base by 200 to 300 percent over three months. New coders and maintenance teams are dedicated to additional system/module development, with dedicated project managers. A group for Q&A and testing is also implemented.

PLAN B:
In the slow growth scenario, we meld a single team to handle all development, project management and testing. New product features are added in order of priority, and additions are interspersed with testing and maintenance activities.

Plan C: We cut engineering teams to focus on maintenance and system stability. Only new features that are extremely light, easy to implement and test, and that benefit a majority of customers are considered.

No starry-eyed entrepreneur wants to seriously consider worst-case scenarios, or even so-so performance outcomes. But entrepreneurs need options to trouble-shoot effectively under pressure. We had our initial budgets set for Plan B. Happily, OnlyBusiness.com adhered mostly to a hybrid of Plan A and Plan B, but at points we leveraged strategies mapped out in all three plans. When you stage your cost commitments and plan for ‘what if’ situations in advance, you prepare yourself to respond swiftly to the challenges of running a company. Giving yourself clear options increases your chances for success.

Daniel Meyerov is founder and CEO of OnlyBusiness.com.

  1. @Daniel,

    I think your write up is sound, however, I must point out that you’ve outlined the proper way to write a business plan. Any sound business plan includes contingencies, which are your scenarios. Strangely, the silicon valley entrepreneurial and investment community abandoned planning sometime in the 90′s for “eyeballs” and clever “viral growth” tricks (spamming). Whereas solid business planning includes contingencies for reasonable outcomes. Worst case, as an entrepreneur you should be planning a business which can sustain itself as an ongoing concern.

    Perhaps one day we’ll see the Silicon Valley looking at your companies and others that have sound business plans and organic revenue growth, and potential investors analyzing these companies for opportunities to grow and scale more quickly.

    Best,

    Curtis

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  2. i whole heartedly agree with what you’re saying. i’m running a very early stage startup myself and its really not so much for putting into a business plan as it is an exercise for thinking about different scenarios and their contingency plans. Like you said, having thought about it before hand allows you to adapt to the situation quickly. Great writeup!

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  3. You are right Sunday, October 5, 2008

    You are spot on.

    The problem with most entrepreneurs (me) is that you only consider Plan A, and even if it’s A- you will run out of money and fail. Plan B is even optimistic. C is really the best that you can hope for. D & F are far more likely.

    You need to plan for an enormous amount of cushion 3X Minimum to 10X Likely. 3-10X the cost, 3-10X the time, 3-10X the stress, 3-10X the effort, -(3-10X) the return, -(3-10X) the response to your product.

    It is VERY HARD to be successful…

    I should know. I have failed because I only planned for Plan A…

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  4. POWERFUL INFORMATION AND WOULD ALSO WANT MORE ON SMALL TO MEDIUM ENTERPRISES SPECIFICALLY.

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  5. Keep up the fire and good work

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  6. Nice write up, Daniel.

    I agree the “low / medium / high” approach to business planning is critical in the current environment, but also should occur in any economic climate, regardless of the weather (but enough of the odd eco-speak.)

    One point I’d add, though, is regardless of which scenario you find your business in, you should always have a measurement plan in place to make sure you’re making the right decisions.

    I.e., in Marketing Plan A, is marketing really responsible for 120% of sales growth or is it due to product development? Likewise, if you’re seeing a 5:1 ROI on some marketing programs, they should receive prioritization even when you’re exceeding goals, not just when there’s a shortfall.

    - Pete

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  7. [...] put buffers into your models. Instead of one complex model that itemizes cleaning supplies, make three rough ones—one for success, one for likelihood, and one for abject failure. Be open to one-offs and special [...]

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  8. Dan,
    Simple and brilliant! Some SBO’s may be thinking this way – but not necessarily putting pen to paper and really creating the strategies to be ready to implement, depending on the scenario that unfolds.
    Deidre

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  9. Its better to consider more than twice in order to make more than one business effective. People struggle the most by being at two or more business at the same time.

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