An organization I follow on Twitter recently tweeted an Entrepreneur Magazine article from February of last year entitled How do I build a Business Plan? The article was accompanied by a nice infographic showing the “10 Keys to a successful business plan”. When I saw the first, I freaked out. Can you guess why?
Here are my reasons:
- In most communities, our “needs” are satisfied but our uncertainties are not. Of course, there are exceptions even within those communities. Positing business as a solver of needs puts the bar very high. Can you imagine asking yourself if your business fulfills people’s need to eat?! No, of course not. However, your business can satisfy part of your communities concerns over the safety and nutritional quality of the food it eats by providing locally sourced, organic, non-OGM,…foods.This is a much more subtle and achievable task than a need. When you say “needs” people usually stare back at you with a blank face.
- By starting from the end, you are making the whole process much more difficult than it needs to be because everything can be uncertain. Yes, satisfying your customer’s uncertainties will be the end result but, historically, and politically, business has been about property and its productive abilities to satisfy those uncertainties. The whole reason business’s exist is because they own and/or control an asset that no one else can stake a claim to. No one ever went to war over hunger but they did go to war for control over the land to satisfy it. Similarly, the laws of the land define what is property, how it can be used, traded, stolen and so on. Not availing your company of the legal protection the state affords you is tantamount to throwing your money out the window since there are no barriers to entry.
- Companies seeking investment must be able to assuage investor fears by allowing them to enter – at least initially – at a price that recognizes the value of the asset it will be leveraging to provide customers with that uncertainty reduction. Likewise, later on, in future financing rounds, investors will be taking a participation in the company to help it accelerate growth. In this case, they will be looking for a return based on the rate at which the company satisfies customer uncertainties more than on the actually asset itself.
I am sure I could some up with a few more reasons but I am going to stop here, these are the most important.
Almost daily, I am approached by entrepreneurs, owners and executives who are so completely lost because of their focus on satisfying customer uncertainty that their company is disappearing from under them, if it ever existed in the first place. It is fundamental to business success to identify the asset that makes everything else work. In my business, I call that the Key Component. Everything the business does needs to maximize the return on the key component, which is why my method is call the ROKC ™.
ROKC recognizes that businesses exist because they own and/or control an asset that is used to make a product or service which provides customers with a competitive advantage. That is, it reduces the uncertainty of achieving a specific task. Or, as the article states a “need”. Businesses survive when they can provide customers with a reduction in uncertainty which is valued significantly above the cost of reducing it thereby providing an excess of value the company can reinvest for its future.
Think of it from a financial point of view. You have a balance sheet with one asset and shareholders equity for the same amount. the only to increase shareholders equity is to either make a profit (excess value) or revalue the asset (for example, in the case of trademark that develops brand equity).
It is for this reason it is important to measure the return the company is getting on this asset, the key component, and monitor when it goes down so as to take corrective actions: exit the business, reinvest in the asset, acquire a new asset to substitute the old one or reinforce it.
Once you identify the key component setting strategies, writing business plans,…decision making in general becomes so much easier. The converse is equally true; if you have no key component then you have a job or you need to make one such that the business exists beyond you and the people working in it. It actually becomes investable.
So the next time you want to write a business plan – or, for that matter, do anything else with a business – remember to start by identifying the key component and only after what uncertainty can be resolved for what customer. It makes everything pertaining to the business so much easier!