Execution : What Use Is An Imaginary Business Plan ?

We covered this a lot in the recent PM Workshop we did.

Now, as part of a business I'm trying to setup (and am very very new to), there's a bunch of numbers on a spreadsheet which are what is popularly known as the business plan, and what I would rather think of as a rough draft :D

Investment ? How much ? When ?

There's a certain amount of seed capital, obviously, as the idea starts taking shape. What I'm doing is a little capital-dependent, so the initial 'sunk cost' is key. [ Notice I called it sunk cost since I do not want it weighing down the operation with numerical pressure just yet. ] Of course, in the sheets, and in life, there's more that can be done for greater returns. Its very very alluring to try and start just a little bit larger so it can start paying for itself soon.

But wait, do I trust that sheet ?

There are a bunch of revenue-side numbers in that spreadsheet that are key. Tweak them around a bit, and the end results change dramatically! And a lot of tse have been based on certain assumptions that produce a wide enough range of outcomes from hardly managing to break even to unbelievable levels of profitability. Obviously, the numbers are somewhere in between.

(Pic Credit)

Re-examine your assumptions as you go along.

Then there are costs. And hidden costs accounted for as a percentage factor. Assumptions, and assumptions about assumptions :) The whole model is one big fairy tale, or so it seems.

So why build a model at all ?

• Getting familiar with the assumptions. Play around with the sheet a bit, and you'll start getting the hang of the assumptions you're making in there. Make a note - at least a mental one - of the bits you're tweaking a lot to understand outcomes. I would not be surprised if over half your real-world numbers are what you might consider wild guesses :) Its important to know what you do not know.
  
• Getting comfortable with the worst case, and then some. Taking risk is a major part of being an entrepreneur. Understanding these risks is even more so. Learning how to manage the risks, eventually, could help you become a successful one! The spreadsheet does help understand risks better.
• It helps to have a reference as you execute. Since you're testing a bunch of hypotheses, you need to be measuring against something - perhaps ranges if not precise numbers. And its not just the numbers you might get wrong - but the assumptions about the bits and pieces that define your model itself - this needs to be validated before you start taking your numbers too seriously! Say, your business is a quick turnaround, low margin one - if you leave out - for lack of effort or knowledge or change in business scenarios - one variable that jacks up your costs by, say, 4% for every cycle, you've had it! Having this reference will help you understand how much you still need to figure out before you try and mesmerize the world with words like "scale" and "growth" and sink in a gazillion into this.

So there, this is coming from my experience-as-I-experience it. Will keep this blog updated with the aftermath, and how effective the fairy tale was in making my dreams possible.