Many entrepreneurs start a business because they suffer from what author Michael Gerber terms in his book, The E Myth, as ‘entrepreneurial seizures,’ meaning they’re really good at what they do and think they could run their own business better than their boss—or they want the freedom of owning their own business.
So you start a painting business and you go along for a few years, running it by the seat of your pants. Once you’ve had some success and want to grow, you start to get some advice from other painting contractors, from the PDCA, and from consultants. You put more structure into your business in order to grow it and keep more of the profits.
At that point, many businesses, even some of the successful ones, drift into doing year-by-year planning, thinking one step down the road, until the owner wakes up and realizes, “Wow, I’m 50 years old and I don’t want to be doing this forever the same way I’m doing it now.”
I often hear things like this from business owners: “How can I plan five to 10 years out? Who knows what the economy will be like? Who knows what the labor market will be like? I’m not even sure what I want to be doing five to 10 years from now. Lots of stuff can change! So I’ll just keep planning in the short term … it’s served me well so far.”
That kind of thinking can keep you in a holding pattern in your business. Sooner or later, you’ll need to think about the future. Do you want to work in the business until you drop? Unlikely. Do you want to sell your business at some point? Would you like to transfer your business to your children or employees? Do you want to keep receiving a good living from your business without having to work in it? If you really want to make a change and see the kind of results that will help you achieve your dreams for your life and your business, you need to take the long-term view and start planning for your future.
What does long-term strategic planning look like, and how do you do it?
IT STARTS WITH YOUR VISION
You’ve likely heard the phrase, ‘Begin with the end in mind,’ popularized by Stephen Covey in his book The 7 Habits of Highly Effective People.
It’s important to start with a visioning process. I encourage business owners to first look at your personal life and envision where you want to be and what you want to be doing in your life overall in the next three, five and 10 years. Connect the actual year to the age you will be at each point. This makes it real. Say you are 40 this year in 2016. You’ll realize that in 10 years, in 2026, you will be 50, and in 2036 you will be 60. What do you want your life to look like at those points? This includes not only your relationship to your business, but your family, friends, lifestyle, hobbies, etc. Next look at your business. Where do you want your business to be in those same time frames? This includes revenue and profit targets, number of personnel, organizational structure, target markets and service niches.
Once you’ve done this exercise, you’ll have much more clarity on what you want both personally and for your business in the long term.
PLANNING FOR REVENUE GROWTH
After you’ve done your visioning process, you should have arrived at rough revenue targets for three, five and 10 years from now. Your short-term plan ideally will support those future targets. For example, if your current year budget/profit plan shows that you will gross $750,000, and your three-year target is double your business to $1,500,000, then your one-year plan should probably aim for about $1,000,000, so that you show a feasible projection for getting from here to there in three years. You’ll want to know your gross profit margins, direct-cost percentages, as well as variable-cost percentages and fixed costs in order to project out what your net profits should be in future years. If you are tracking these numbers now, you’ll be in a better position to project them more accurately for the future. Keep in mind that you’ll need to add infrastructure along the way in terms of overhead, personnel, equipment, office/shop space, and marketing costs.
PLANNING FOR GROWTH IN ORGANIZATIONAL STRUCTURE
It’s important to know what your projected ‘billable’ hours are to produce your revenue targets. I suggest this in short-term planning as well, so that you always know how many field workers you need to hit your current year monthly and annual budget targets. The same applies to your long-term planning. You’ll likely need about 10 to 12 full-time-equivalent workers to produce $1,000,000 in revenue, depending on your hourly bid rate and your team’s productivity. It’s vital to have a good hiring plan to make sure you have the workers you need to achieve each phase of your long-term strategic plan.
You also want to plan for changes and additions to your personnel overhead. This includes estimators/ sales people, project managers, operations managers, office managers, and assistants. I suggest drawing out an organizational chart for the positions your company has now, and then additional charts for what it should look like in three years and in five years. Check in with your vision to see where you want to be in terms of your duties and time dedicated to the company in those time frames.
For example, let’s say you have one salesperson now, but you are doing half the sales in your company. If in three years you want to be out of sales completely, then you’ll need to plan to increase the capacity of your current sales person and bring in another sales person in the next year or two to start doing more of the sales, particularly since you’ll likely be planning for increased revenue along the way.
PLANNING FOR GROWTH IN SERVICE NICHES AND TARGET MARKETS
Typically, when you are planning for growth, you’ll need to devise a strategy for expanding your revenues by one (or a combination) of the following ways:• Increase your market share in your current target market of customers
• Add new services to sell to your current target market
• Add new target market segments
• Increase the geographic area of your target market
Each of these strategies for growth needs a plan, marketing strategies, and a marketing budget. If you plan to increase your market share of your current target market, you’ll likely need to increase awareness of your company, differentiate yourself from your competitors, increase repeat business, and improve your close ratio.
If you plan to add new service niches or new target market segments, you may also need to hire or train for new skills, as well as define and invest in new marketing strategies to reach new markets and promote new services. This all adds up to a clearly defined marketing plan that should be updated annually and reviewed quarterly.
THE NUTS AND BOLTS OF PLANNING
Who should be involved in your long-term strategic planning process, and when and how should you do it?
You will probably start the planning process by yourself or with your business partner, if you have one. But I suggest that you involve your management team along the way. Getting the team involved allows them to have input into the process, and they are more likely to buy into the plan and take ownership for their part in implementing it. You may also want to include an outside advisor like your business coach, CPA, or other trusted advisor in the process.
An annual planning session or retreat is an important time to review past progress and set new measureable goals and strategies to achieve them. Plan for an entire day (or maybe two). It’s a good idea for the annual planning session to be held off-site to get you away from the day-to-day environment and interruptions.
At the end of the planning session, you should have a workable plan for the year, and each person should know what their responsibilities are to make it a reality. I then suggest breaking the year into quarters and identifying measureable targets and initiatives to be implemented in each quarter.
Quarterly planning sessions can be scheduled for a half day to review progress and plans for the upcoming quarter. If targets aren’t being met, this is a good time to discuss challenges and how to overcome them; then make revisions to the plan if necessary.
On a monthly basis, you’ll want to check in on key performance indicators and progress toward initiatives to ensure that you are on target with your plan. For example: Are you hitting your sales targets? Have you hired the people you need? Are your profit margins where they should be? Are you getting enough leads from your marketing strategies? Are your customers giving you glowing reviews? Are you where you need to be in implementing your new software or getting your training program up and running?
THE FUTURE IS COMING, ONE WAY OR ANOTHER
Strategic planning and implementation of your plan will help you get to an outcome you choose, rather than one that happens to you. There are tools and resources to help you navigate your route and arrive at your destination. Commit to your vision. Create a structure that will get you there, and get support when you need it.
Linnea Blair, owner of Advisors On Target, is a business coach and small-business expert. She works with contractors to develop best practice business management and marketing strategies for a sustainable business. Linnea can be found at AdvisorsOnTarget.com or on Twitter@AdvisorOnTarget