[Ten Simple Ideas] The Ernst & Young Business Plan Guide: Chapter by Chapter - Series Overview and Chapter 1
In this series of articles, I will post ten simple ideas from each chapter of The Ernst & Young Business Plan Guide (3rd edition). This first post in the series provides a brief overview of the book and discusses ten simple ideas from Chapter 1, The Business Plan.
Introduction
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License: CC0, Public Domain
Image Source: pixabay.com;
License: CC0, Public Domain
In this series, I will borrow a concept from the Ten Simple Rules series of articles on PLOS, and attempt to mine Ten Simple Ideas from each chapter of the book, The Ernst & Young Business Plan Guide (3rd edition).
This is a book that I read several years ago as a graduate school requirement. It seems like this would be an interesting topic for many people on the Steem blockchain, and I thought that this style of presentation might be a good method to revisit the text and refresh my own memory.
One caveat is that some chapters are fairly short so some articles in this series might combine chapters or fall short of ten simple ideas.
Section 1: Overview
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License: CC0, Public Domain
Image Source: pixabay.com;
License: CC0, Public Domain
The Ernst & Young Business Plan Guide (3rd edition) is organized into 3 parts, as follows:
Part 1: The purpose of a business plan (chapters 1 through 4)
Part 2: An in-depth look at a business plan (chapters 5 through 16)
Part 3: Other resources for entrepreneurs (chapters 17 and 18)
The book was written by Brian R. Ford, Jay M. Bornstein, and Patrick T. Pruitt. In 2007, when it was written, all three were listed as partners in Ernst & Young's Philadelphia office.
In general terms, the book provides guidance for an entrepreneur to create a business plan and use it as a tool for managing a business and seeking investment funding.
Section 2: Ten Simple Ideas from Chapter 1
1.) A business plan serves a 3-fold purpose: Determining future projects; Determining how well goals have been met; and Raising money.
If there is one single idea that stands out from the chapter, it is this one. Entrepreneurs tend to think of a business plan as a tool for raising revenue, but that is only part of its purpose.
Determining future projects
From this perspective a business plan is a forward looking document that tells the entrepreneur where to direct the organization's resources. If the business plan is done well, this will insulate the investor from unforeseen risks and obstacles, and it will ensure that money and people are focused on solving the right problems.
Determining how well goals have been met
From this perspective, the business plan provides a yard stick that the entrepreneur and the investors can use to determine if a project is living up to expectations, and to signal when expectations are not being met. This is not merely an exercise in credit and blame, but it feeds back into the planning perspective by pointing out when course corrections are needed.
Raising revenue
Finally, when a business is launching, investors need to see a credible business plan before they will be willing to provide resources to a business. According to Ford, Bornstein, and Pruitt, if an entrepreneur seeks funding without having a credible business plan, investors are likely to ask the entrepreneur to come back later with a complete plan --- or worse.
2.) Even with a good idea, it can be difficult to translate ideas and personalities into a format that is persuasive to investors.
In support of this point, the authors offered the case of an entrepreneur they knew who envisioned something like Home Depot or Lowes before either of those companies had launched. The visionary had the right concept, had a team identified, and knew the vendors, but he could not get funded. According to the text,
His vision was so clear to the believers on his team and his advisers that no one saw the need to put it all down on paper...
So, although the process can be difficult, it is usually necessary to slow down and take the time to write your ideas out in a way that will be persuasive to investors.
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License: CC0, Public Domain
Image Source: pixabay.com;
License: CC0, Public Domain
3.) Making use of a business plan is an iterative process.
Many companies draft annual business plans, and even over the course of the year, revisions are frequent. In fact, business plan creation never really stops.
The authors give one example of people who insisted on using word processors for business plans, even when typewriters were still in fashion. Another example that they offer is a person who keeps their business plan in a 3-ring binder in order to be able to replace pages.
The point of the examples is to illustrate that the business should be constantly changing in reaction to new information that becomes available.
4.) Because of its three-fold purpose, a business plan must walk a fine line between being informative and persuasive.
Because the business plan is making financial representations, the information that it contains must be accurate, it should use a business-like tone, and it should acknowledge risk. However, to get past all of the competing business plans, it must also tell a compelling story in an interesting way.
A specific piece of guidance that they give is to include attractive graphical presentations instead of simple black and white.
5.) Two paths to success: Success by succeeding or success by not failing.
To succeed by succeeding means to succeed by a kind of "magic" (authors' word). This can be due to something like persistence, shrewdness, or willingness to take risks. This is basically a matter of luck or inheritance, and it cannot be taught.
On the other hand, the authors note that 75% of businesses fail within their first few years, and avoiding many of these failures actually can be taught. A comprehensive business plan is a big part of succeeding by not failing.
The authors list 8 categories of success factors. Of these, six are failure factors and two are success factors. These are shown in the following table.
| Factor | Type |
|---|---|
| Management | Failure |
| Product Market | Failure |
| Financial Considerations | Failure |
| External Environment | Failure |
| Inflexibility | Failure |
| Factor X | Failure |
| Viable | Success |
| Hits | Success |
The business plan especially helps with guiding the entrepreneur through the six "failure" factors, or 75%. Factor X is basically just a name for unforeseen circumstances that take the entrepreneur by surprise.
6.) The business plan should be prepared by the business person, but input can come from advisers.
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License: CC0, Public Domain
This idea is basically self explanatory, and the authors didn't devote a lot of ink to it. You can hire a lawyer or an accountant or a tax expert to help you develop portions of the business plan that are outside of your expertise. You can also seek informal guidance from a mentor.
7.) The ultimate test of the business plan is the level of interest that it generates from reviewers.
This idea was sort of in conflict with the notion that a business plan serves a three-fold purpose, but it's important enough to state it anyway. When seeking investors, the entrepreneur must convey basic company goals in a clear, digestible way.
8.) The business plan is a negotiating tool.
When you present your business plan to investors, you are beginning a process of negotiation. You are showing your plan to a person for a reason, and usually it's because you want something from them. If they're willing to review it, it probably means they want something in return.
Like any negotiation, you want to hold some cards close to your vest, so the authors suggest that you should be clear and detailed about the things that you are looking for from the reviewers, but you should be vague about the commitments and concessions that you are willing to offer in return.
9.) Address specific market conditions.
The authors point out that every venture has a specific market context. They give the example of a CD retailer that opened soon after the technology became available. At the time, the main problems that investors would have been concerned about would have been things like managing growth and demonstrating that technology adoption was likely.
In contrast, if that CD retailer had tried to open in 2007, investors would be wondering about competition with mobile devices, music downloads, and streaming.
Your business plan needs to be tailored for the specific context in terms of time and geography.
10.) The business plan should only be revealed to trustworthy people with a need to know.
Not much to say about this here, except that it will be discussed more in a future chapter. However, it's important to note that you should be prudent about who sees your business plans, and appropriate confidentiality agreements should be in place.
Conclusion
Image Source: pixabay.com;
License: CC0, Public Domain
Image Source: pixabay.com;
License: CC0, Public Domain
In this post, I covered ten simple ideas from chapter 1 of The Ernst & Young Business Plan Guide (3rd edition). I'm not going to recap them all here, but I will repeat the two strongest ideas from the text. These came through in many places throughout the chapter.
The first of these is that the business plan serves a threefold purpose. It helps with forward planning, evaluating results, and seeking funding. The second idea that warrants repetition is that the business plan should be managed in an iterative process, and nearly always under revision.
I hope you found this article useful. Check back tomorrow (I hope) for ten simple ideas from chapter 2.
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Steve Palmer is an IT professional with three decades of professional experience in data communications and information systems. He holds a bachelor's degree in mathematics, a master's degree in computer science, and a master's degree in information systems and technology management. He has been awarded 3 US patents.
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