Thursday, October 21, 2010

How to Write a Business Plan

There are many types of symbols. Money from investors, banks or financial organizations is one such kind of symbols.

A successful Business Plan (=a successful manipulation of symbols) is one which brings in its wake the receipt of credits (money, another kind of symbol). What are the rules of manipulating symbols? In our example, what are the properties of a successful Business Plan?

(1) That it is closely linked to reality. The symbol system must map out reality in an isomorphic manner. We must be able to identify reality the minute we see the symbols arranged.

If we react to a Business Plan with incredulity ("It is too good to be true" or "some of the assumptions are non realistic") - then this condition is not met and the Business Plan is a failure.

(2) That it rearranges old, familiar data into new, emergent, patterns.

The symbol manipulation must bring to the world some contribution to the sphere of knowledge (very much as a doctoral dissertation should).

When faced with a Business Plan, for instance, we must respond with a modicum of awe and fascination ("That's right! - I never thought of it" or "(arranged) This way it makes sense").

(3) That all the symbols are internally consistent. The demand of external consistency (compatibility with the real world, a realistic representation system) was stipulated above. This is a different one: all symbols must live in peace with one another, the system must be coherent.

In the example of the Business Plan:

Reactions such as: "This assumption / number/ projection defies or contradicts the other" indicate the lack of internal consistency and the certain failure to obtain money (=to manipulate the corresponding symbols).

(4) Another demand is transparency: all the information should be available at any given time. When the symbol system is opaque - when data are missing, or, worse, hidden - the manipulation will fail.

In our example: if the applicant refuses to denude himself, to expose his most intimate parts, his vulnerabilities as well as his strong points - then he is not likely to get financing. The accounting system in Macedonia - albeit gradually revised - is a prime example of concealment in a place where exposition should have prevailed.

(5) The fifth requirement is universality. Symbol systems are species of languages. The language should be understood by all - in an unambiguous manner. A common terminology, a dictionary, should be available to both manipulator and manipulated.

Clear signs of the failure of a Business Plan to manipulate would be remarks like: "Why is he using this strange method for calculation?", "Why did he fail to calculate the cost of financing?" and even: "What does this term mean and what does he mean by using it?"

(6) The symbol system must be comprehensive. It cannot exclude certain symbols arbitrarily. It cannot ignore the existence of competing meanings, double entendres, ambiguities. It must engulf all possible interpretations and absolutely ALL the symbols available to the system.

Let us return to the Business Plan:

A Business Plan must incorporate all the data available - and all the known techniques to process them. It can safely establish a hierarchy of priorities and of preferences - but it must present all the possibilities and only then make a selection while giving good reasons for doing so.

(7) The symbol system must have links to other, relevant, symbol systems. These links can be both formal and informal (implied, by way of mental association, or by way of explicit reference or incorporation).

Coming back to the Business Plan:

There is no point in devising a Business Plan which will ignore geopolitical macro-economic and marketing contexts. Is the region safe for investments?

What are the prevailing laws and regulations in the territory and how likely are they to be changed? What is the competition and how can it be neutralized or co - opted? These are all external variables, external symbol systems. Some of them are closely and formally linked to the business at hand (Laws, customs tariffs, taxes, for instance). Some are informally linked to it: substitute products, emerging technologies, ethical and environmental considerations. The Business Plan is supposed to resonate within the mind of the reader and to elicit the reaction: "How very true!!!"

(8) The symbol system must have a discernible hierarchy. There are - and have been - efforts to invent and to use non-hierarchical symbol systems. They all failed and resulted in the establishment of a formal, or an informal, hierarchy. The professional term is "Utility Functions". This is not a theoretical demand. Utility functions dictate most of the investment decisions in today's complex financial markets.

The author(s) of the Business Plan must clearly state what he wants and what he wants most, what is an absolute sine qua non and what would be nice to have. He must fix and detail his preferences, priorities, needs and requirements. If he were to attach equal weight to all the parts of the Business Plan, his message will confuse those who are trying to decode it and they will deny his application.

(9) The symbol system must be seen to serve a (useful) purpose and it must demonstrate an effort at being successful. It must, therefore, be direct, understandable, clear and it must contain lists of demands and wishes (all of them prioritized, as we have mentioned).

When a computer faces a few tasks simultaneously - it prioritizes them and allocates its resources in strict compliance with this list of priorities.

A computer is the physical embodiment of a symbol system - and so is a bank doling out credit. The same principles apply to the human organism.

All natural (and most human) systems are goal-oriented.

(10) The last - but by no means the least - requirement is that the symbol system must be interfaced with human beings. There is not much point in a having a computer without a screen, or a bank without clients, or a Business Plan without someone to review it. We must always - when manipulating symbol systems - bear in mind the "end user" and be "user friendly" to him. There is no such thing as a bank, a firm, or even a country. At the end of the line, there are humans, like me and you.

To manipulate them into providing credits, we must motivate them into doing so. We must appeal to their emotions and senses: our symbol system (=presentation, Business Plan) must be aesthetic, powerful, convincing, appealing, resonating, fascinating, interesting. All these are irrational (or, at least, non-cognitive) reactions.

We must appeal to their cognition. Our symbol system must be rational, logical, hierarchical, not far fetched, true, consistent, internally and externally. All this must lead to motor motivation: the hand that signs the check given to us should not shake.



Using this theory of the manipulation of symbols we can differentiate three kinds of financing organizations:

(1) Those who deal with non-quantifiable symbols. The World Bank, for one, when it evaluates business propositions, employs criteria which cannot be quantified (how does one quantify the contribution to regional stability or the increase in democracy and the improvement in human rights records?).

(2) Those who deal with semi-quantifiable symbols. Organizations such as the IFC or the EBRD employ sound - quantitative - business and financial criteria in their decision making processes. But were they totally business oriented, they would probably not have made many of the investments that they are making and in the geographical parts of the world that they are making them.

(3) And there are those classical financing organizations which deal exclusively with quantifiable, measurable variables. Most of us come across this type of financing institutions: commercial banks, private firms, etc.

Whatever the kind of financial institution, we must never forget:

We are dealing with humans who are influenced mostly by the manipulation of symbol systems. Abiding by the aforementioned rules would guarantee success in obtaining funding. Making the right decision on the national level - would catapult a country into the 21st century without having first to re-visit the twentieth.

Business – Strategy and Execution

Every company aims to formulate good strategy and execute that strategy well. But many times it is found that it was either good strategy, bad execution or bad strategy and good execution. Why and how to avoid this?

Let us begin with what is a strategy? In simple terms, it means the plan to achieve the desired goals or results. If any organization has well defined goals, and can develop a strategy to achieve them, it should be half the battle won. But it is seen that execution fails. Why should that be so? It may be the fault of the team that executes the strategy, or certain unknown factors that unexpectedly or unknowingly creep in while executing the plan.

What should be done? Ideally the team that forms the strategies should consider the factors such as who are the people who will execute, does the company have the capacity to execute, what if any unexpected change or event occurs while executing, what are the risks involved, and so on. No strategy can be created without taking into account the ability of the people who will be executing it. One may create a great marketing plan but if the field marketing staff fails to understand and execute the game, it is bound to fail and then the blame game begins.

Can a company make a single team that not only creates the strategy but is also responsible to execute it? This will eliminate many such hiccups on the way. The problem is expertise. I am a good strategist and not a good executor. You are a bad strategist but a good executor on the ground. What if such arguments are presented by the team under formation? All right, how about creating a strategy and keep the execution team in the loop throughout the process of creating strategy? This creates another set of problems. The views of both the teams may be so different that no positive outcome will ever result.

I have discussed in brief about these factors above. In real life, more complications arise and especially in large organizations, the complexities increase. The only solution for the top management is to set goals and discuss them with every one. After getting every one in confidence, create strategies and let every one participate in the strategy formation. Decide about what is totally achievable and why may be achievable. Let the team that will execute commit itself to achieve what is totally achievable and promise them with rewards if they manage to achieve the other part also. The synergy between the strategy makers and the executors will ultimately decide the final outcome.