Recently I started reading Rework by Jason Fried and David Heinemeier Hasson and if first impressions are anything to go by, this book is going to be great. Amazon describes it as “a different kind of business book – one that explores a new reality”. One of the first (short, sharp) chapters is called “Planning is guessing” and I couldn’t agree more. It starts off with “Unless you’re a fortune-teller, long-term business planning is a fantasy”. The last couple of months have taught me the truth behind this statement and the danger of ignoring it.
Making business decisions based on a guess is an extremely dangerous strategy. This is doubly pertinent in a small business where cash is your life blood. Our company has been guilty of this on a number of occasions and by not reviewing these decisions on a consistent basis, we have found ourselves in a compromised position more than once.
We set a sales forecast in February of 2012 based on our best estimation (guess!) of sales grow in all of our markets. At the same time a budget was created based around this sales forecast, including some fairly aggressive spending on sales and marketing. As the story goes; the year started well with the sales forecast exceeded for the first 8 months, but there was no plan in place if things didn’t go according to script and they didn’t. November hit and so did the handbrake on sales. We were well below forecast and cashflow started becoming tight.
January has been an interesting month so far but on the positive side, this situation has forced us to take a hard look at our business and make some changes that will improve our company moving forward. The lesson we have taken from this situation is to continue guessing in the future, but to constantly reassess those guesses and adapt as things change. The main advantage we (small businesses) have over our behemoth competitors is our ability to be agile. Use this advantage to your benefit not only from a product development perspective, but also to improve your company.