The standard advice for entrepreneurs today is to draw up a business plan. In fact, it’s usually a requirement if you’re seeking financing of any kind. But many business owners fall prey to a common fallacy when composing these plans.
They presume the business plan is also a document that will guide them in operating their business. It isn’t. It has one main purpose: to extract funding, usually in the form of a loan from a banker or an investment by someone who thinks like a banker and wants a predictable return on their money. Lenders or lending-style investors prize predictability above most other things. They want steady, albeit unspectacular, returns, and to avoid risk (and often change) because it interferes with that predictability. To meet these demands, entrepreneurs usually skew their business plans to present an alluring picture that attempts to convey that desire for predictability. A business plan is essentially a rosy snap-shot of the future, hidden within a very patterned and detailed format aimed at convincing lenders that the entrepreneur will, in fact, provide those steady returns with little risk. But that creates an underlying fiction. While the entire plan aims to convince lenders there will be no surprises down the road, the nature of business is that there are always surprises. And today, they’re occurring with increasing speed. PROBLEM The idea of a business plan originated in the very predictable industrial and retail sectors, and so it is usually a static (often templated) document that provides a step-by-step map for process-oriented minds, common among accountants and engineers. But most business today is much more dynamic and rarely follows defined patterns and processes. Since the business imperative today is to continually explore new territory, disrupt and innovate, and carve out new niches, there’s obviously a chasm growing between the traditional business planning approach and the requirements of the new world. This chasm was illustrated recently when the Gastown tourist attraction Storyeum sought bankruptcy protection in August and closed its doors in October. A $22.5-million series of below-ground theatres on Water Street, Storyeum presents films and plays about B.C.’s history to tourists and students on educational field trips. CEO Danny Guillaume’s big idea is that history has, for too long, been stuffed into musty government museums or dry-as-dust history books that are completely unsuited to today’s appetite for entertaining education, or “edu-tainment.” Guillaume is a business start-up veteran who previously brought the big-box concept to video rental with West Coast Video and to pet supplies with Petcetera. He applied a version of the concept to education when his Historical Xperiences Inc. opened the Tunnels of Moose Jaw to highlight the history of gangsters and gun molls that lay beneath the downtown core of that prairie town. After that success, Guillaume moved to Vancouver in 2004 with Storyeum, which his research showed was appropriate for the Vancouver market. But after two years, the plan unravelled. Expected to attract a million visitors annually, it averaged only 200,000, largely because the expected tourist hordes that were going to fund the grand idea didn’t show up. Also, it appears the historical storytelling approach didn’t exactly resonate with the public – the product didn’t fit the market. To gain traction, a service-oriented entertainment operation needs to be marketed heavily, and the reality is there wasn’t enough money left over for marketing once Storyeum was built. In the first year, lenders and quasi-lending investors were tolerant, if perhaps edgy. By the end of the second year, they started to panic and drove Storyeum into the sheltering arms of the bankruptcy trustees. Buffeted by unforeseen winds, Storyeum couldn’t adapt without money, but couldn’t get money if it didn’t execute. SOLUTION Obviously, the best practice for a modern venture is to stay flexible so it can react to situations as they appear. But that’s hard to pull off when the rubber hits the road in day-to-day operations. Most entrepreneurs who have been there will tell you that it’s very difficult to focus on the big picture when you’re constantly dealing with problems. It’s the classic “how do you see the edge of the swamp when the alligators are biting your ass?” question. Entrepreneurs have to be visionaries, but are often forced by organizational incapacity – and investors – to spend their time managing problems and dealing with vexatious details. This can lead to continual micro thinking and, as a result, the business usually suffers. Entrepreneurship is an art, a constant balancing act between what a business requires and what lenders and organizational capacity demand. It’s like a big race: entrepreneurs have to focus on the finish line while lenders and managers are concerned with the individual strides that take them there. Then along comes some unpredictable event that throws that running rhythm off and forces the runner to think about some detail, like how a big blister is growing on his or her foot. This tension between big and small usually means that for many entrepreneurs, the big picture fades. Their focus is diverted by immediacy and, admittedly, sometimes by the general murkiness of that vision. They start making decisions to quiet all those voices telling them what to do. Some advisors suggest that entrepreneurs create a parallel plan to deal with this dichotomy between the stasis of the business plan and the dynamism of the marketplace. This kind of creative scenario planning, which might be written down or merely maintained in the mind, should always be reactive and flexible so it can turn the operation to solving problems created by unforeseen circumstances. Guillaume tried the alternative-plan technique, but his creativity wasn’t welcomed by investors worried that he was wandering off the set path. Also, by refining his concept with the Moose Jaw venture, Guillaume was, in a way, using a version of a strategy that is becoming more common in service business. Instead of detailing every step and following the map to the letter, you launch the business as a kind of exploration of a market. But this means more tension. Lenders and investors tend to like the “go big or go home” approach – it provides better returns – and usually frown on businesses exploring markets with their money. Lastly, he set up a group of advisors, or mentors – people who have weathered the entrepreneurial storms and now help others deal with them. At the time of writing, it looked like none of Guillaume’s adaptive moves worked. He couldn’t conquer all the problems that led to investors baying for a quick solution. So he played the final flexibility card: he sought protection under the Bankruptcy and Insolvency Act on Aug. 18, a radical manoeuvre that’s designed to give a business breathing space while it restructures and finds new investors. Perhaps, as a kind of sick validation of Storyeum’s market problems, a similar operation in Victoria, BC Experience, crashed a month later. After less than three months of operation, BC Experience racked up $8.5 million in debt and much lower-than-expected revenues due to “record low” tourism numbers. It, too, fled into bank-ruptcy protection when its 228 creditors, led by RBC Royal Bank, balked at further debt. Guillaume, who’s believed to have lost about $3.5 million of his own money in the Storyeum venture so far, said in an interview he wasn’t sure what the outcome of his bankruptcy protection would be. He wasn’t even sure whether he would play a pivotal role in the newly restructured company; new investors might decide it’s time for someone else to run it. But he still hopes for one prime objective: that his original vision for the business is maintained – somehow. LESSONS
- Find the right partners. Most entrepreneurs are desperate for money; but make sure to pick a financing partner who not only has it, but will understand the business you’re in.
- Find some friends. Friends, mentors or guides who know what you’re going through can help you recognize that everything doesn’t always work out and that it might not be a personal thing.
- Fight the firefighting. The short-term thinking of young companies forces entrepreneurs to be in perpetual firefighting mode. But they have to take time to revisit their vision and recommit to it regularly.