What’s a hypergrowth company? It’s a company that grows more than 20% per year. Many small businesses have the ability to double or triple revenues annually. However, hypergrowth companies are always balancing business growth with the cash they have in the bank to grow operations.
Recently, I did a podcast where I discussed why business plans are vital for these fast growing enterprises. Here are the top 6 reasons why you want one:
- Business plans provide clarity. Having a clear vision, purpose, and profit motive helps entrepreneurs build strong companies and weather the storm during the bad times. Whether you’ve been in business for 1 year or 20 years, all businesses get stuck. It’s a fact of life. Oftentimes, we need clarity. We need to realign our vision and create an activity plan that helps us progress forward.
Setting aside with your team to have a strategy meeting and revise your business plan is a great way to get unstuck. One of the best things you can do is to let your management team know that you are hosting a strategic planning session, book a hotel conference room, create an agenda, set up a white board and let the ideas fly.
What should be on your agenda? I would keep it very simple and have the group answer three questions: a) Where do we want our business to be in 10 years? b) How will we get there? c) Who’s responsible for what activities to get us there and what are their deadlines? That’s it. You can have a full day session just answering those 3 questions.
A simple meeting like this can provide true clarity to your team so everyone knows where the train is headed.
- Business plans help you focus on a money making target market. In our previous paragraph, we talked about how strategic and business planning sessions help you gain clarity. One of the biggest questions you can answer is who is your target market? Unless you have billions of advertising dollars like Wal-mart, you have to focus your team’s time, money and energy on a strategic market. I always suggest you have 2 target markets: low hanging fruit and big whales.
Low hanging fruit – It’s people who already have a need for your product or service. You don’t have to do lots of education. They would hand over their cash quickly if they knew you existed. You setup a marketing activity calendar to attract these individuals so you can keep the lights on and continue to operate month after month.
Big whales – A whale is prospect that’s 10 times larger than your average sale. Some whales are Fortune 500 companies. Others are social media influencers who can introduce you to thousands of individuals with one post. While your low hanging fruit is a short term play, capturing whales are your long term play that can help you grow your business exponentially. The best book on capturing this market is The Ultimate Sales Machine by Chet Holmes.
New team members know where the ship is headed. A team is only as good as its leader. And as a leader, it’s important for you to ensure the team is working cohesively in order to grow sales exponentially while also monitoring expenses. Showing your C-suite and management team your business plan can be beneficial to your long-term success. It helps them understand what their Key Performance Indicators are and how their success will be judged. What’s a Key Performance Indicator (or KPI)? It’s a way to measure whether or not the team is reaching its business objectives. For example, your Chief Sales Officer’s KPI may be to bring 100 sales leads into the organization and convert 20%. Your Chief Financial Officer’s KPI may be to keep inventory costs below $2 per unit and gross profits above 45%. All of this would be outlined in the business plan.
Advisors are willing to give their time to your company. A powerful Board of Advisors can help you avoid mistakes, bring business into the company, help you raise capital, and achieve your business goals faster. You have to sell advisors on giving you their time and a great business plan enables you to do that.
If you think my advice is to simply give a prospective advisor your 80 page plan and then wait for their input, you would waste your time. Instead, smart entrepreneurs will utilize the knowledge gained from the business plan process to “pitch” the advisor. Then he or she would email the 80 page plan to reinforce the pitch.
Business plans save you time and money. Would you build a house without a blueprint? Buy a home without researching the neighborhood? Planning is essential to success. And your business is the biggest financial investment you’ll ever make. If you plan, you can save time and money you’ll save. If your team knows what’s expected of them and if you guidelines to implement a business process, you can make more money and save both time and money.
Business plans help you prepare for the unexpected. Last week, there was a really bad windstorm in my area. Our commercial building (where my office is) sustained damage. That wasn’t in the landlord’s business plan. A smart entrepreneur knows that challenges he/she never conceived of will emerge. But you can plan for the unexpected by a) allocating a portion of your day to deal with unexpected emergencies and b) having a process ready for dealing with the unexpected.
A study from the Journal of Management Studies found that companies that plan grow 30% faster than those that don’t plan. The study found that plenty of businesses can find success without planning but businesses with a plan grew faster and were more successful than those that didn’t plan. (Burke, A., Fraser, S., & Greene, F. J. (2010). The multiple effects of business planning on new venture performance. Journal of Management Studies, 47(3), 391-415).
Cheree Warrick is a business plan writer that helps entrepreneurs receive bank loans, angel investment, government certifications, immigrant visas, and more. Contact her at wewritebusinessplans.com or call 703-934-4630.