Hope is not a plan

Too often a business owner merely “hopes” that things will change. Hope is not a plan, it is a drug. We call it “hopium” and it is addictive because sometimes it works. Sometimes you do nothing and just hope and good results follow. What the owner needs to understand is that he was lucky—lucky the drug didn’t kill him. So the next time he thinks he can just “hope” away the problem again—but sometimes you don’t get lucky. For hopium addicts there is an unfortunate fact in life—if you are trying to do something you are exponentially more likely to get it than if you aren’t even trying. There is never a guarantee that you will get what you want but if you aren’t trying you have virtually guaranteed that you won’t.

The owner’s job is to lead the company. Leadership is having a plan and getting your people to focus upon their part of the plan.[1] Answer the following questions:

· How much money are we planning on making this year?

· What will be required in sales according to the plan?

· What will be required in Gross Profit according to the plan?

· What overhead level is permissible according to the plan?

· Other than money, what other results must the business generate this year?

These issues are at the top of the pyramid. These are the financial issues that must be addressed. The company must have a financial plan. The owner’s additional goals can only be met if the financial goals are met. Once those have been clarified, other goals can be fulfilled. The business is supposed to make the owner’s life better—it is not supposed to be the owner’s life. The owner must also define the other goals that they wish to achieve. Then, of course you must have a plan designed to do it.

The Plan

Imagine a football coach. We all know that he has a game plan established for every game. He would lose his job if his game plan said, “if everything goes right we will only lose by a touchdown.” This is done is small businesses every day. The financial plan of a company is their Profit Plan. How are we planning on making our pre-determined profit? What sales are required? What gross profit is required? What overhead levels are required? What is our plan for overhead absorption by profit center? Obviously your game plan must be designed so that the targeted performance produces your desired result. Once established (and the more specific the better) then it becomes the role of your Organizational Structure to focus your people on their individual results that they must produce in order to perform their part of your plan. The company’s financial reporting monitors these results so that people can be held accountable and incentives established and monitors the company’s progress in relation to the plan.

Every plan must address the following objectives: first it must assure that the business continue to function and stay in business for the next week, month, six months, year, etc. Second, the business must make money and third the business must grow. Any plan that does not address all of these objectives is fatally flawed. Business continuation is obvious but often overlooked. There are cycles to the business and the owner must be prepared to be able to withstand the “down” cycles—like the one we are in. The owner must also identify and develop a management plan that includes key management succession and a structure to shift reliance from people to systems to assure business continuation. No employee (owner included) should have the ability to hold the company hostage. Lastly the business must grow. This is vital not so much for the owner’s short-term return but rather it is required for retention of employees. A growing business offers more opportunity for employees and is more likely to retain the better people. Failing to grow eliminates those opportunities and causes the better people to leave—are reverse Darwinism—that is eventually fatal. Without retaining and challenging the best people succession of management is compromised.

You have survived a hit. The past two years have been very difficult times. If it was hopium that got you through it, maybe we should talk.

[1] “Nobody puts a proposal for a new comprehensive strategy on your desk and asks you to make a decision about it. You have to put it there yourself. And once you use your view of the big picture to formulate a strategy, you have to call on a wide range of skills to achieve a series of objectives. You must devise a business strategy tailored to your goal. You need to communicate the goal and strategy to…all the employees. You have to give greater responsibility to people at the front line and then create a secure atmosphere where they will dare to use their new authority. You must build an organization that can work to achieve the goal and establish measures that guarantee you are moving in the right direction. In short, you have to create the prerequisites for making the vision a reality.” Moments of Truth, Jan Carlzon, HarperPerennial 1989.