By Richard Harshaw
I am not a big advocate of written business plans— at least, not those 10-chapter MBA thesis projects that a Harvard B-school graduate student would write. Those tomes are fine for getting a loan or impressing an imbecile to buy shares in your venture, but they are not much use to a small business person for the day to day running of a struggling business.
But I am a proponent of a written business plan for any small business. It’s just that it needs to be short (no more than 10 pages) and as wordless as possible. Which is why I have become a fan of Michael D. Ames, a professor of business at California State University (Fullerton). He wrote a paper titled “Rethinking The Business Plan Paradigm”.
In a nutshell, Ames advocates a practical approach to business plans, not the stuffy MBA format so popular with bankers and professors. He states that plan must focus on just three elements:
1) Processes.
2) Revenue generation (“throughput”).
3) People.
Let me elaborate on these three points as they touch upon an HVAC business.
- The plan must focus on your processes. Often in a workshop, I will have a contractor come up to me during a break and show me his P&L and ask, “What’s wrong with this?” I usually reply, “The gross margin is weak and the net profit is pitiful.” He then usually asks, “How do I fix it?” I reply, “I don’t know!”
He usually looks at me like I just slapped him with a cold large-mouth bass. I go on to explain that their numbers are the results of what they do day in and day out—their processes. I cannot tell them how to fix their P&L until I know how their processes work (and don’t work).
So how are your processes? Lean and efficient, or wasteful? Address broken or lame processes in your business plan.
2) The plan must improve your revenue generation (“throughput”). Throughput is how much in sales you do per employee. The national average right now is around $163,250 (but this varies a lot from state to state and even county to county). Take your total sales (either last fiscal year’s or where this year will probably end up) and divide that by your total employee count. That’s your throughput. If it is above $163,000, you are already doing well. If below that line, find ways (through process improvement) to raise it.
3) The plan must have people at its heart. Whatever your plan spells out, you must remember that if it is going to happen, it has to happen with the help and involvement of your people. This is often where the traditional business plan breaks down. The best-laid plans of mice and men will crash if there are no people pulling at the oars.
So let’s combine this into a single driving statement to help an HVAC business owner create a simple but powerful business plan:
Write a plan that focuses on process improvement by using your people more effectively to raise your throughput.
Get with your top managers off-site for a day or so and ask yourself The Big Question: Why do we have the problems we do? Hint: the first answer you get won’t be the right one. You need to learn how to drill down to the true answer. Use the Toyota Five-Why method—ask “Why?” over and over until uncover the real cause. (You’ll be there in five cycles or less.) Focus on fixing that real cause, not the smoke screens that hide it.
As you identify the real causes of process paralysis, focus on cures that (a) your people have the talent to achieve, and (b) make it possible to sell more with the same (or fewer) people, thereby raising your throughput. Then write simple statements that identify the cause, how it will be fixed, and who will be responsible for it. Attach measurable milestones to each element of the plan so you can track progress.
Such a plan would address perhaps 3 or 4 real causes (maybe up to 7, but don’t go beyond that—you’ll get so confused with all the changes that you’ll lose your way) and take maybe 10 pages to write.
Write it, print off copies, give them to every employee with an assignment in the plan, review it with everyone involved, and then go do it—and measure the numbers month by month to see if you are making progress. If not, revise the plan. If you are, enjoy it—and get ready for a big tax bill at year-end!
