Business Plan it Out ft. Paul Smith
This week we’re focusing on all things business planning with special guest Paul Smith, the Fargo/Southeast Region Center Director for the ND SBDC. Paul shares his expertise on not only the types of business plans but also why it’s so important to have one. There’s something powerful about putting the details of your idea down on paper!
Learn more about the ND SBDC here: https://ndsbdc.org/
The Secrets of Business Success Symposium, Thurs. Oct 20th: https://www.fmwfchamber.com/events/details/secrets-of-business-success-symposium-8965
VO: Let's get geared up for startup success. Join Josh as he interviews knowledgeable guests from all corners of the entrepreneurial world and gets the answers to the questions you've been asking. Get ready to learn something new on this episode of From Idea To Done.
Josh: Hey everyone, welcome to another episode From Idea to Done. Today we have our good friend Paul Smith on. Paul is the director of the Fargo and Southeast North Dakota Small Business Development Corporation. Paul, welcome.
Paul: Thanks, Josh. Good to be with you.
Josh: Yeah, thanks for coming on today. So today we're gonna talk a little bit about business planning and some of the elements that go into that. And one of the things I wanted to start with, something I find great value in is the concept of the Lean Canvas, the business model canvas, basically one p-age business plan. Paul, can you talk a little bit about your experience and where these are valuable to use and maybe where they're not?
Paul: You bet, Josh. I think one thing, just to back up, it might be helpful to talk about what is a business plan generally and what is the purpose of it? And I think just short, simple, a business plan is really a roadmap or a blueprint that answers some critical questions. And those questions would include who are we? What do we do? What do we wanna achieve? How are we gonna get there? And what resources are gonna be needed? How will we know when we've arrived? And there are a lot of different reasons, good reasons for writing a business plan, but starting a new business would be right up there at the top. If you don't have any direction, then any road will do. And that's certainly not a way to plan a business. But I would argue that a business plan is a good idea to have regardless of what stage, no matter what stage you're in.
I think the most powerful, compelling reason to have a business plan is that it increases your chances of success. And the data has proven that out. The companies with a business plan are three times more likely to succeed and grow 30 times faster than companies without a business plan. And the statistics as well as I do, Josh, that roughly half of all new small businesses will not survive five years. And that percentage is even higher in certain industries and just one in 10 will survive 10 years. And yet nearly one-third of small business owners don't have any type of a written business plan. They may have it in their head, but that doesn't do them a whole lot of good when that plan needs to be communicated to internal audiences, employees and external audiences lenders and others, key stakeholders. So there are a lot of benefits and really no downside to planning.
I go back to the quote by a couple of quotes, one by Benjamin Franklin, "by failing to prepare, you're preparing to fail" and then quote by David Allen, "you can do anything but not everything". And so the planning is really, really important for not only identifying those things you wanna do, but those things that you aren't or won't do. And so every business plan really needs to answer some key questions. What's the big idea or your pitch? What's the problem or need that you're addressing? Because every successful business starts with a problem or need. How does your product or service solve the problem or meet the need? How do you know that it solves the problem or meets the need? And that's where validation comes in, which I assume we'll talk about later. Who are your customers? What's the size of your potential target market? Who are your competitors? What is your unique competitive advantage? What's your revenue model? There are two dozen different types of revenue models. How are you gonna make money?
What are your milestones, objectives? How much funding is gonna be required? And then how is that funding going to be used and paid back? So are those are the basics I would say. And then as you pointed out, there are really two types of plans, maybe three, but I'm gonna just say two basic types of plans. One is more of a traditional type of business plan. Very detailed, takes a significant amount of time to write, to put together is very comprehensive. It's the one that lenders are typically going to request, especially of startups in order to secure financing. The other type is a lean plan probably heard the term business model canvas before. That's a particular type of a lean plan, but there are others as well. Typically it's one page, maybe two pages. But this plan is more of a high-level type of a plan. Faster to write, easier to change as new information has gained.
And yet it contains the key elements that provide a good framework for then building out a more detailed plan if one is necessary in the future. So there really two different pathways. And the advantage, again, of a lean plan is that it's short, concise, it's visual, easy to keep current, easy to read but it doesn't have all the detail that a traditional plan will have traditional plan. Again, it's going to have more especially by way of market analysis for example, but it's gonna be harder to change, takes longer to write. And so there are advantages and disadvantages to both. And I guess the point is how do you know which plan is right for me? Well, it really depends on what are your objectives and who is your audience? And the idea would be my advice to clients is create the leanest plan possible, the most concise plan possible given your objectives and audience. So that's really going to vary. Now, that's a long-winded way of getting back to your original question.
And we see in at the SBDC, 50, roughly little over half of our clients, our startup businesses, the others are existing companies. And when I'm working with a startup company I'm almost always going to strongly advise them to develop a lean plan to begin with and then validate that plan. And again, for the reasons we've just mentioned. By the way, if anyone wants to go back and learn a little bit more about the lean plan, it's all in a book called The Lean Startup by Eric Ries. And he talks about the business model canvas and other things like minimum viable product and so forth. So that's there. And it's really modeled after lean manufacturing, which really came about in Japan and Deming and so forth. But it's based on this idea of PDCA plan, do ,check, adjust, take small steps, analyze, often, watch the results and make corrections. That's really, and it's a continual process. So that's really what the lean planning is based on. So it's continuous incremental improvement. That's really what it's designed to do. And again, I don't know if you want me to get into specifics regarding the business model canvas or talk more generally about the sort of one-page plan.
Josh: No, I think that's a good introduction. I see kind of two camps of entrepreneurs at least that we talk to, and those that, like you said, they've got it in their head and they're trying to figure it out as they go, but there's really no, there's no path forward. We don't really know what the problem is we're trying to solve. We don't know what the competition looks like. We're gonna monetize at some point, but we haven't really got any thought. We just want to go build the thing. And then you've got a little bit more of the operation-focused entrepreneur that has that business plan or the lean canvas business canvas built out that at least has an idea of where they're trying to go. And I think one thing that we've seen, and tell me you're take on this, Paul, is the first camp of the entrepreneurs don't ever write anything down or they don't go through the exercise of it because they may feel like they're gonna be wrong or that they, they've misanalyzed the market or something's there so that it just, it's a mental block that prevents them from going through that exercise.
But I see huge value of at least going through that lean canvas. If you really know what you want to do, you should be able to crank through this really quickly. So what's been your take on those entrepreneurs that have it all in their head and they're just trying to get there quickly, and I wouldn't say wing it, but they just don't have a really established plan. What have you seen with entrepreneurs like that?
Paul: Yeah I see in a lot of cases a lack of focus because they really don't committed anything to paper. There's something powerful about committing your ideas to paper in an organized, systematic way and having it all in one place, which is what the business model canvas or lean plan really is designed to do. It's a strategic management tool that allows you to quickly and easily define and communicate your business idea or your business model
And so you don't have to get hung up in this fancy wording and narrative. It's much easier to get it down. It's really the more of a structured back of the napkin type of a plan, if you will. And so it's very powerful because it again, touches on all the essential areas that you're gonna want to cover in a business plan, but it does it in a systematic way that gets you thinking about such things as the value proposition, which is really foundational to any business or product
Josh: Why should anybody care? Right?
Paul: That's right. That's the question, why should I care?
Josh: And it's the difference between saying I'm going after cell phone users and if we just get 1% of the market, we're gonna be extremely successful. Of course you will
Paul: Yeah, it really is. We're all on information overload. 24 7, it just, we're bombarded with so many different messages out there. There is so much competition that it, it's very difficult to break through. And yet you have some companies that are, that are disruptive to their industry. Take for example, Uber or Lyft
Easier said than done, but that's where it started. It started on a lean canvas and then of course we all know what it's changed really one of those things that has just changed our lives. And as long as are still problems out, there will be companies opportunities to address those problems and find solutions that people will pay for. Now, quite often those aren't gonna be as disruptive as Uber and Lyft have been to this whole industry, but nevertheless, there are opportunities out there. The key is, I think the real key is to try to validate whether in fact there is a need for your product or service. And then is there enough of a need to predict whether people are actually going to buy it and whether the business can be sustainable and profitable. And there's several different ways to determine market validity, but it starts with the hypothesis.
What are my assumptions? Who am I assuming to be the target audience and what hypothesis do I have about my product, about pricing, about my business model? And then the next step would be to assess the market size and the share of market. So we're going after something called tam or Total Addressable market in that. And then eventually your serviceable addressable market is really, which, what it comes down to but you that involves doing some research. And then perhaps the most important part of it involves conducting customer validation in interviews. And so you gotta get outta the office, get outta your house, and you gotta get out there and interview perspective customers in an effective way to really better understand their motivations, their preferences, their needs, and then take all of that feedback and insight and then bring that back. And that may well result in pivoting from your initial idea, but you're gonna gain a lot of great insights from that. That can only be helpful then as you think about them moving toward a minimum viable product or going into some type of beta testing.
Josh: Yeah, there's so much good stuff in what you've just said. And I'll take it back to the Uber piece too of there's a marketplace there that they started off in New York and I believe LA or San Francisco, and one other side to that market is somebody that wants to be able to make some extra money without spending a hundred thousand dollars on a taxi medallion in New York. So that's a unique value prop for them as well. They totally disrupted the marketplace. And like you said, not everyone's gonna do that. Your idea might be a better version of a customer retention management offer, crm, you know, or something like that. But I think just going through the exercise of the Lean Canvas and almost treating it more as a science experiment versus this is my baby, this is my idea, I've seen so many entrepreneurs get hung up on, they'll go through and they'll try to validate and then the statement is, But you don't get it. I understand this, they don't. And that's a huge red flag of, But you're talking with your target audience. If they don't get it, why move forward? You're an uphill battle from day one.
Paul: Oh, that's absolutely right. You have to, Steve Jobs might have been able to get away with saying if we would've offered our customer, forget what the exact quote was, but something like our customers, if we let them decide they would've wanted just a better horse and buggy
They want faster horses.
Yeah. And yet really the reality is that most products or services, most successful companies are born out of customer pain, a problem, a need, and then the company tries to satisfy that need or that want. But you have to find out that it's not intuitive. And just because I may have a problem or a need doesn't mean that there are a million other people who have exactly the same problem or need or need the same solution. So yeah, all that, to underscore what you said, Josh, it's just really a critical step. And again, the market validation is sort of a continual process, especially at the beginning. Oh, absolutely. And I think an important distinction has to be made between a startup business or a startup and a business. I think they're two different entities. A startup is an entity that is in search of a repeatable, scalable business model whereas a business has already latched onto whatever that business model is, and now they're trying to develop it, they're trying to market it all of that. And in the beginning though, you don't know what that is. And so that, that's where the market validation I think is extremely important.
Josh: Oh, absolutely. I mean, we're 14 years in on Codelation and we're constantly tweaking our unique value proposition or our unfair advantage or our customer segments as we grow. And at team members, we're always looking at how do we improve the next thing, But we've understood what our core market is and what we can provide for them quite a long time ago. And I think that's something that the early stage entrepreneurs look at it and say, like I said, it's almost like it's your baby, it's your idea. And especially here in the Midwest of, I don't wanna be told I'm wrong or this can't work. So I don't share it with anybody. I don't put it on paper. And I think if you can treat it, I was talking with a couple really seasoned entrepreneurs a couple years ago, and they said, Business is collecting cars.
And they said, Ya, you remember when we had that business that was a 67 Camaro man that leaked a lot of oil, but was it fun to drive? We just need to get rid of it cuz it was just impractical
Paul: No, that is really true. There has to be some kind of objectivity. You have to look at it and separate it from your own identity. And if the idea fails, that doesn't mean that you have failed. It means like Thomas Edison you're just one step closer to finding the one that will work and you're gaining knowledge along the way. And I think that's incredibly important. The entrepreneurs who have just clung to this idea because they believed in it so strongly and it's been so close to their identity and they really don't want to hear any even constructive criticism or feedback. Those are the ones that are, I think, doomed to fail.
Josh: Well, that seeps into throwing good money after bad or bad money after good. I can't remember which way it is that bleeds into personal relationships with your spouse partner. It's just one of those things that I think a lot of us have learned the hard way of trying to separate that of we make a mistake in business, don't make the same mistake twice and don't give up if you truly believe in what you're doing. But you do need some data behind it. You need that cash flow, you need the financing. You need to know what the problem is you're solving. And I think you're right, starting with a lean canvas, a business canvas is the first step everyone should take before they even put the shovel into the soil and break ground on their idea. Cause it's the cheapest way to get to understand, should I even do this?
Paul: It certainly is far better than spending even $10,000, $20,000 or more in developing an application. And I'm thinking of a software application specifically, but in developing an application that then you find out afterwards that wasn't the right direction. So I think that this is really the critical first step in what should be an iterative process. And I think that's really what I found to be most effective for most of the business owners and entrepreneurs that I've worked with.
Josh: So basically the business model canvas or something similar to it is the motto monopoly, when you pick up that chance card of Do not pass go, do not collect $200, goes straight to jail.
Josh: And I think it's really good just to say the words, You're gonna be wrong, you're gonna have something that's wrong on there. It's an idea at this point in the last 18 months, we tried to move in a certain direction that just wasn't viable. We didn't have the resources. And when I say resources, it's time, money, and expertise to really move in that direction. I thought we would. So it's like we kind of pull it back and we've pivoted and we're stronger because of that. That's not a failure, that's not a mistake. We tried something and fortunately we had the resources to do it, It just didn't work out. So I think as you go along, you're gonna find those elements that you were off base on and that's okay. You're taking a risk, you're putting yourself out there, you don't know what you don't know, and just keep updating, keep this as your North star and it's gonna evolve as you grow, as a business, as you grow as an idea.
Paul: Yeah, very much. And I would encourage entrepreneurs to reach out for help early on and maybe that's another founder who's been there and done that. Maybe it's folks like you folks like us, but surround yourself with others who can provide maybe somewhat of an objective sounding board and provide some thoughts and ideas based on their experience. And I think that's really helpful.
Josh: They already paid the tuition, so might as well learn from them.
Josh: Well Paul, I appreciate you so much coming on and sharing some wisdom with the audience here about business planning and the difference between the typical business plan and the more lean options. Where can people learn more about you? What do you have going on that you'd like to promote?
Paul: Well people can learn more about what we do which is basically to help entrepreneurs and small business owners to start, grow and manage their business. We provide all of our services are at no cost to the client. And so we have eight offices across the state. I'm at the Fargo and Southeast Center, but we have eight offices and we provide just a range of different types of business advising, services and training. And you can find out more about us on our [email protected] And that's also where you can sign up for our services as well. The other thing I would mention is that in addition to doing business advising, we also do training. We have a monthly business builders workshop and we have October 20th, we're doing a small business conference called the Secrets of Business Success Symposium. It's a mouthful, Secrets of Business Success Symposium, and it's going to be out at the Microsoft campus.
It'll be the morning of Thursday, October 20th. And I would suggest that who is a small business owner or wants to, has an aspiration to be a small business owner to check it out. You can go out to We're actually the SPDC and SCORE and Women's Business Center and Veterans Business Outreach Center are all partnering with the Greater Fargo Morehead Chamber to put this on. And so you can go out to the chamber website to get more information on it, and there is a fee for it, but you can find out more information out there. And we've got, I think well, we're gonna cover a lot of different topics with breakout sessions and then round tables. But we'll address marketing, budgeting, funding HR recruitment and retention succession planning and more. And you'll get to hear from not only people like us, but also from bus business leaders and entrepreneurs too.
Josh: Wonderful. And for those that aren't in the North Dakota areas, SBDC centers across the US.
Paul: Yeah, that's a great point. There are 63 networks across the country and we're just one network over in Minnesota. You would want to go check out the West Central Minnesota SBDC if you're in Moorhead or that area. And there are other SBDC in Minnesota as well all a part of the Minnesota network. Wonderful. But yes, we're all over
Paul: You're welcome, Josh. Thanks for having me.
VO: Thanks so much for tuning into this episode of From Idea to Done. If you're enjoying the show, please feel free to rate, subscribe, and leave a review wherever you listen to your podcasts. We really appreciate it, and we'll catch you in the next episode.
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