Ask a Hundred Business Owners

Ask a hundred owners of established businesses three questions. Does the business have a model for the next three years? Does it have an operating plan? Is there a number the business is measured to, and could you say it now without looking? In my experience, which is now eight years of sitting with the people who run these businesses and thirty years before that of looking at companies from the outside, ninety-eight of the hundred will answer no to all three. Not one of them is careless. Most are among the most capable people I have met.

This matters because the usual explanation is wrong. The usual explanation is that owners who do not plan are lazy, or disorganised, or allergic to spreadsheets. None of that is true of the people I meet. They are organised enough to run payroll, deliver for clients and keep a team together through years that would have finished most of us. They are not avoiding the floor because they cannot be bothered. They are avoiding it because they do not know what they do not know, and nobody in their world has ever shown them what a floor looks like.

Think about where a business owner learns the job. She learns it by doing it. She learns marketing because without marketing there are no customers. She learns the product because the customers complain when it is wrong. She learns to hire because the work outgrows her. At no point does anyone sit her down and show her a twelve-month model, because a model does not shout when it is missing. A missing model does not generate a complaint, an unpaid invoice or an angry email. It just lets the business drift, quietly, in whatever direction the roof and the first floor happen to be pointing.

The two who do have a model usually have it for one of two reasons. Either they came from a background where models were the job, finance or consulting or a large company's planning cycle, or they once ran out of money badly enough that they swore it would never happen again. Nobody arrives at the floor by accident. You arrive there either because you were trained to or because you were frightened into it.

The response is not to feel bad about being one of the ninety-eight. It is to notice that the thing missing is a piece of knowledge, not a piece of character, and that knowledge can be acquired in an afternoon.

Here is what the two have that the ninety-eight do not. They have a page that says where the business is going over three years, in numbers, not sentences. They have a plan that says what gets measured each month and who looks at it. They have a single number they could say out loud if woken in the night. That is the whole of it. There is no secret technique, no software you have to buy, no qualification you have to hold. I have the qualifications and I can tell you they are not what matters here. What matters is that the three things exist, that they are written down, and that someone looks at them.

If you are one of the ninety-eight, start with the third question, because it is the smallest. Decide the number the business is measured to. Cash after all costs, each month, including what you pay yourself. Write it down somewhere you will see it. Then build backwards from it: what revenue, at what margin, with what costs, gets you there. That is the beginning of a model. The operating plan is the list of what you will check, and when, to see if the model is coming true.

The afternoon it takes is the best-spent afternoon of the year. It is also the one that gets postponed indefinitely, because nothing is on fire, and the floor only announces itself when something is. If you want a reason to do it this month rather than next, it is that the year is nearly over, and the owner who walks into January with these three things written down is in a different position from the one who walks in hoping. Tomorrow I want to look at a question I ask in rooms full of owners, and the silence that always follows it.

Continue reading: The Question Nobody Answers Out Loud →

The session: The Nine Fears, and the floor underneath your business. Wednesday 2 December, 5pm UK, free →

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The book: The Science of Getting Rich and How to Apply It →