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Category: The Job

My Professional Opinion on Business Plans

I am a business consultant, day job, some nights, and weekends on occasion. I like theology and the arts. These are the topics that interest me personally, but today I thought that it was time to share a topic that I know well.

And one aspect of business that cannot in overlooked is the importance of a business plan when going into business.

So what is it? This plan? And what can it do for your?

The business plan is the structured systematic overview of the planned start-up project in written form with a planed horizon of usually three to five years.

It includes, in a holistic way, the idea of the foundation and thus forms the basis for the implementation of the business idea.

In other words, the business plan is this, a document that maps out the company's strategy for success.

Can you see why they are important?

It is understood that future development is only a possibility, thus anticipation of, and actual development, is therefore not a guarantee but a goal. There can be not only deliberative, i.e. deliberate, strategies, but also emergent strategies, that is, those that condense due to unintentional insights. This waste of potential such as emergent strategies cannot therefore be foreseen or planned. They can be neglected, however when we regard the business plan as the only planning instrument that can take into account all possible developments is therefore extremely detrimental.

For this purpose, the planning would have to be supplemented with the scenario analysis, but this is also not possible to take into account strategies that arise over time and due to the compression of unintentional orders.

To get the benefit from a plan while remaining flexible you need to focus on several different functions of business. It is easy to focus solely on planning – this would not make sense when planning the company – there must also be room for exploration and learning curves. A well-founded business plan is the basis for a systematic consideration of the company and thus of continuous control.

This focus is not correct.

Not entirely at least.

The following advantages are often mentioned in literature when shaping a plan:

  • Partial or full review of the business concept, meetings for all Deal/No Deal decisions
  • Improve the range of services in the start-up stage
  • Find other, better market opportunities or founding ideas
  • Anticipate requirements/needs that need a certain lead time
  • Anticipate potential problems of the founding process
  • Preparation and thus accelerating future decisions
  • Inclusion of external suggestions for improvement/feedback
  • Better understanding of common tasks
  • Think about the foundation – how it promotes the learning process

These advantages are juxtaposed with another set, one which is also often mentioned:

  • Opportunity cost of time to gather information
  • Changing environment conditions make existing information obsolete and require planning to be adjusted
  • Danger of reinforcing misconceptions about the future and making bad decisions as a result
  • Risk of being discouraged by emerging complexity/difficulties
  • Labor-intensive activity without real feedback whose effect becomes visible only later
  • Discouragement from external criticism or exposing weaknesses

The important distinction between the business plan and the business model is to recognize that, during the development of the business model, the benefits are put first, while the business plan only serves to help others convince the business model.

So, and this is the crucial thing, the business plan is basically just an instrument for convincing others of the validity of your idea. This is also understandable because the business plan is the document that is handed over. While the founding team should be more convinced of the business model than the actual plan, others need to be more convinced of the business plan. The fact that the business plan is therefore a record of earnings of the business model should therefore be taken for granted.

When professionals collaborate it is the the opinion of the company founders themselves, the knowledge of the industry which is a key factor in the success of the business: When asked which factor they consider is particularly important for the success of the company, industry knowledge weighed the highest on the list. A competent management team came next, followed by innovation, financing, business plan and placement in the market.

Weigh the following considerations following hypotheses that the importance of a business plan determine future business success:

The hypothesis that: An above-average business plan indicates an above-average successful business.

  1. The number of analyses during formation is related to the company's success.
  2. If the competition analysis had a positive influence on the foundation, there are likely to be fewer discrepancies later.
  3. The more intensive the planning, the more successful the company.
  4. The more realistic the planning, the more successful the company.
  5. The more diverse the targets of the business plan, the more successful the company.

All of these have been rejected. And the last has actually proven to create a negative connection. Meaning that the more diversity will lead to a deterioration in the relationship between the plan and success.

The importance of detailed planning of the business results in certain periods where it should be considered less significant than the founders attempt to create a successful business model in the market.

Thus, it is less to follow the approach in order to merely increase access. A business plan should therefore be used as a tool to persuade and strengthen the assumptions of the model since they are subject to a continuous review.

Aesthetics & Heuristic Organization

I once read a paper early in my career about aesthetics as a means of heuristics in the field of organizations. This was a boon for me because it pushed me in a direction that I may have overlooked at that time.

Today I want to visit some of those concepts and maybe you too can see the benefits of aesthetic heuristics.

Before we continue it would be pertinent to look at the topic of aesthetic organizational research, the organization represents a contact resulting from the human ability to utilize all senses to produce knowledge.

When we follow this approach, the area in which knowledge is generated is further developed in languages and in processes that cannot be verbalized or are very difficult to verbalize, such as gestural languages or intuitive processes. The ability to produce knowledge thus begins not only with communication, but already with the ability to sense and perceive.

Moreover, this approach is not systematic, but emphasizes the heuristics with which organizational life takes place, and does not follow the myth of rationality.

Unlike rational and intellectual knowledge, aesthetic ability is heavily dependent on heuristic mechanisms, which is not logically detectable, but nevertheless binds the organization to a reality that is at least as powerful as behavior certainties.

The aesthetics do not follow rationality so much as obey forms such as hieroglyphs, gestures, myths and metaphors.

As a result, the rational analysis has shifted the discussion away from the claim that such a claim is capable of recognizing facts in the most appropriate way in the best possible way, but rather an aesthetic view is required that interprets, since only in this way is the system really relevant and can be examined and, above all, can reach the right and targeted conclusions. The aesthetic knowledge corresponds to the post-modern understanding of organizations, since this is also partial, fragmentary and modest and has far more to do with the postmodern consumer and customer than the generalizable, universal and objective Knowledge of rational analyses.

Passive perception, that is, attention, is therefore not synonymous with aesthetics, since aesthetics are a tool of contemplation and observation, and actively and not only passively interferes in the processes of perception. But aesthetics are also not synonymous with artistic understanding, since there is no processing of materials here, but only a consideration. Moreover, aesthetics are not an emotion caused in particular by a sense, but a heuristics that arises from several experiential impressions, i.e. a mesh, and should be used for this purpose. Thus, the approach calls for far more than the analytical approach, since here the observer also integrates into the observation process viewer. Wanting to rely solely on analysis does not engage at the very moment without aesthetics, when the observer must reach conclusions without support, and this is exactly what happens with every analysis when data is used.

So there will always be a moment when the observer has to intervene in what is happening. Aesthetics in the field of organizations therefore always, not only with expirations of language, but already to include processes and unverbalized gestures and mimics in order to arrive at a synthesis rather than just an analysis.

In conclusion you can see how important aesthetics are as a tool for organization when the aesthetic nature of the subject are taken into account. When this happens full potential is achievable with less direct involvement; that is through indirect means, i.e. engagement through passive perception through aesthetic heuristics.

Thoughts on Pricing

While I would like to avoid being cliché, pricing is often an under utilized and oft misunderstood strategy. So today I wanted to look at contribution margin-based pricing with you in my continued series of business related pieces.

What is contribution margin-based pricing? It is a is a pricing strategy which works without any mention of gross margin percentages. Many people are unfamiliar with it but I had the good fortune to have an amazing professor in college that saw the benefit at looking at intensely at pricing strategies that were not commonly utilized in the US at the time.

The main draw to the strategy is that it maximizes the profit derived from a company's assortment, based on the difference between a product's price and variable costs. You can calculate that by taking the product's contribution margin per unit. Then taking one's assumptions regarding the relationship between the product's price and the number of units that can be sold at that price you arrive at the product's contribution to total firm profit; This is a contribution to the operating income, which is maximized when a price is chosen that maximizes the Contribution Margin Per Unit X Number of Units Sold.

Depending on the level of employment of the strategy, a distinction is made between fixed and variable costs, which together result in the total cost.

We will look at that in just a moment.

However, first let us look at the required contribution, and how the cover can also be derived from the invoice. The contribution per unit sold is based on the net selling price minus variable costs.

Price – Variable Costs Per Unit = Contribution Margin Per Unit

The contribution does not take into account the fixed costs, i.e. the costs required to maintain the company. A contribution to cover occurs precisely when the sales revenue per unit is greater than the variable costs. The contribution to cover is thus the short-term price floor and is used precisely if it is to be decided whether:

Performance or foreign reference:

  • Acceptance of additional orders
  • General pricing policy

In order to reach the profit zone, either the price per unit must be increased or more customers gained through marketing measures in order to increase the net selling price than the total cost ( profit). Depending on the price policy, the price must either exceed the total cost, in the long term at least, or be higher than the contribution to cover; Aware that the short-term applies only to additional orders or the decision in pro/contra own performance. The contribution statement can also be used to inferred the operating result by making the sum over all units sold.

Unlike the commonly applied coverage contribution bill, this is used in connection with the Profit Center to figure out what coverage the Profit-Center bears in the general fixed costs for the company.

In many cases, the contribution statement still takes into account sales proceeds with which this profit center in particular works. In particular, this applies to pricing policy within market structure. So the net selling price is not set, but the gross selling price minus the cabling reductions like discounts.

Otherwise, the bill remains the same.

To put it simply, variable cost is the contribution to cover minus fixed cost, resulting in a profit/loss scenario per unit sold.

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