Why Have a Business Plan?
Contents
Surviving First Contact
“Everyone has a plan until they get punched in the mouth.” – Mike Tyson
“No battle plan survives contact with the enemy.” – Helmut von Moltke, German military strategist
These memorable quotes are often used to exemplify the futility of business plans. Why bother writing down the details of product development, competitive analysis, go-to-market strategy, and financial model if it will all change once you bring the product to market? Why go through endless excruciating strategy sessions debating the relative value of strategic options when the real market forces you will face will likely be entirely different?
Strategic planning is a process. No matter what the specific enterprise it may relate to, it always begins with a situation analysis and market overview. You must understand the marketplace you intend to enter. You will address several vital questions during the planning process:
- What are the growth prospects of this market space?
- Who are the key players?
- What are their strengths and weaknesses?
- What specific competitive advantages do you possess?
- What is your unique customer value proposition?
- What is your go-to-market strategy?
As you wrestle with these critical issues, you will build a better product or service. You will create a better product-market fit since you will have understood your competitive advantages in great detail.
As a result, you will be better prepared to survive first contact with the marketplace.
“Plans are worthless, but planning is everything.” – Dwight Eisenhower.
General Eisenhower famously led the invasion of Normandy as the Supreme Commander of the Allied Forces. This historic battle was planned in great detail. Clearly, everything did not pan out as intended. But the extensive preparation for all eventualities, along with the ability to pivot and respond to the enemy’s moves, led to the famous Allied victory in World War II.
Lessons from Tesla
In a blog entry on Tesla’s website titled “The Secret Tesla Motors Master Plan (just between you and me)” Elon Musk wrote:
- Build sports car
- Use that money to build an affordable car
- Use that money to build an even more affordable car
- While doing the above, also provide zero-emission electric power generation options
Fourteen years later, they are executing on the same plan. They did not get to be the dominant maker of electric vehicles worldwide, with a market cap only surpassed by Toyota, by happenstance. They learned from their previous foray into sports cars by realizing that it was a niche, money-losing product, and instead focused on vertical integration to bring out cheaper cars.
In a manufacturing world dominated by horizontal supply chain integration, Tesla is the only carmaker that is totally vertically integrated. It owns the key elements of the most difficult technological challenge: battery technology. It also created a direct to consumer business model, bypassing the dealer franchise that remains the dominant business model of legacy manufacturers. As part of their commitment to sustainability, Tesla has encouraged customers to sell used Tesla vehicles through their platform, enhancing the lifecycle value of each vehicle and supporting the environment.
It created showrooms in upscale malls where customers could interact with salespeople, get their questions answered, and order cars online. Test drives were arranged in parking lots. Tesla also owns the after-sales service network, thus bypassing the costs associated with a dealer service network.
Tesla has very low marketing expenses. It has never advertised its cars. Elon Musk uses social media masterfully for product launches.
Tesla’s strong leadership, clarity of vision, and the ability to learn from its mistakes make it the most successful automotive company of this century.
Planning for Adaptability and Resilience
Strategic planning leads entrepreneurs to anticipate future challenges and be ready to respond to them. It gives them the ability to pivot when faced with extreme environmental conditions. For example, the current Covid-19 pandemic is forcing businesses to create new business models that respond to the new reality of social distancing and curtailed travel.
It will be a long time before the world returns to business as usual. But companies that are adept at planning, anticipating change, and quickly responding to them will survive. Businesses that haven’t invested in strategic planning will likely lack the resilience needed and will be left by the wayside.
Which side do you want to be on?