How will you know when to revise your business plan? The short answer is that plans are living documents and should be constantly evolving. That being said, there are certain times when major, rather than incremental change, is called for. How do you distinguish between the two? Below are unmistakable signs, or forks in the road, that should prompt you to substantially rethink your plan.
1) Your market has changed — Whether due to technological, regulatory, or competitor driven factors, key market dynamics you envisioned when you came up with your idea, did your research and developed your business plan, no longer apply. Whether you targeted an industry with plenty of existing competitors, or believed that your business would be the only one focusing on this previously unaddressed market opportunity, things have drastically changed. Maybe a major company with deep pockets has embarked on a product line extension and is set to launch a product in direct competition with yours, or maybe, as with online gaming a few years back, the government decided to ban or sharply restrict your industry’s activities. The change could be positive; for example, you’ve identified a superior production process that opens up a new potential market but would require different in-house skill sets or alter your funding timetable. Whatever the driver, once you’ve digested the impact you need to change your business plan accordingly.
2) Your investors are getting nervous — Maybe your plan is taking longer to execute and investors are losing faith, or you differ with a major investor on a key strategic decision. Either way, you might have to find a way to accelerate execution or risk losing your financial backing. I’m not suggesting that the decisions are out of your hands, but sometimes major stakeholders are able to see what you are unwilling to or may be more finely focused on the numbers. They may also literally be entitled to a seat at the (Board) table and have the ability to influence decisions. While no one knows your business more intimately than you do, a rethink of your plan may reveal that your burn rate assumptions are not holding up, or you are not growing in a way that is sustainable, for example you’re spending too much money on customer or employee acquisition and not enough on product, or you need deeper bench strength in a key area. In any case, it’s time to retool.
3) Your company leadership/ownership has changed — When change occurs at the top in key roles — for example, your co-founder gets his dream job, your lead developer is poached midstream, or you bring in a new major shareholder — it’s time to revisit your initial plans, reassess your strategies for getting there, and consider the financial implications. Given the change in circumstances, do you need to raise materially more funding than you expected or has your product rollout now been pushed back by six months? If you differed with a partner on how to scale your company, you’ll now need to determine how these new realities affect your business plan.
4) Your key assumptions haven’t proven viable — When projections about the size of your market or pricing strategy are off, you need to start working on a major redirection. Similarly, having seriously misjudged the strength of potential competition is another trigger for a significant course correction. Production problems can be a big driver too: for example, engineering talent turns out to only be available at prices you can’t afford or your main product failed in beta testing. Whatever the case, you’ll need to gather and analyze all the relevant data, determine how your initial assumptions were flawed or whether some change occurred to make them unworkable, and revamp your plan, including cost structure, funding requirements, and path to market.
5) Your business model isn’t gaining traction with customers — When you start a business, no matter how proven the concept, you’re essentially learning as you go. Your products and approach haven’t been market tested. Once, they are, you might realize that you didn’t look far enough down the road to see how other products in development or already on the market better meet customer needs or how purchase preferences might change. A good business model will have some mechanism for gathering and incorporating feedback. If that feedback is telling you that you will never hit the numbers you planned, or that changing your product such that it meets (or exceeds) customers’ desires, is not realistic at your planned price point, time frame, or scale, it’s time to rework your plan.
How has your business planned changed over time? Tell us in the comments section below or contact Early Growth Financial Services for help with financial forecasting and reducing your cash burn.
David Ehrenberg is the founder and CEO of Early Growth Financial Services, an outsourced financial services firm that provides small to mid-sized companies with day-to-day accounting, strategic finance, CFO, tax, and valuation services and support. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.