“Serendipity – The faculty or phenomenon of finding valuable or agreeable things not sought for.“
Merriam-Webster Online Dictionary
If you play it right and are always on the lookout, serendipity can play a very large part in the successful running of a small business. Many people call it luck, and that’s an OK word for it to, but that implies you’re just sitting back and letting it happen to you. No, serendipity is what you do with unanticipated events that come along to your business – and it can even be bad luck that turns into a valuable or agreeable result for you. But, before we tackle this concept, let’s discuss for a minute about the do’s and don’ts of writing your business plan.
Let’s get the big question right out on the table – should you write a business plan? I’m definitely a contrarian on this, and in general, I’m not a big fan of business plans. My feeling is, you need a back-of-the-envelope (figure of speech) business plan when you’re first creating the strategy for your hoped-for new business, and you’ll need a more formal, but brief as possible, business plan when you’re pitching to a banker for a loan or to an investor. More on that later.
Do a Google search on “should I write a business plan”. When I did as I was writing this, the three top hits were from entrepreneur.com, one titled 10 Reasons Not To Write a Business Plan, another titled Why You Must Have A Business Plan, and a third (more wishy-washy) titled Do You Really Need A Business Plan? Following that are dozens of pages of hits that are mostly from companies hoping to sell you some software, or a template, or consulting assistance for the task. It’s no wonder so many first-time entrepreneurs are confused about this, wasting huge amounts of time, resources, and money when they could be doing something more productive.
When I was writing my small business entrepreneur book,[1] I went through a bunch of Google search hits that strongly advocated writing a business plan and came up with several gems that are almost laughable (if it wasn’t for the fact that many people actually buy into them):
- it’s the single most important thing you’ll ever do for your business
- it’s absolutely crucial for the success of your business
- it will show you know where your company will be in five years
- it is the antidote for businesses that fail due to poor planning
- it will keep you from straying too far off your original idea
- it will provide the rationale for hiring new employees, or renting new business space, or acquiring new assets
As I wrote in the book: “consider the first bullet above – that a business plan is the single most important thing you’ll ever do for your business. Can the person who believes this be for real? Consider Jeff Bezos (founder of Amazon.com), who supposedly wrote his business plan while driving from New York to Seattle to start the business he’d already planned in his head. Was his business plan the most important thing he did … more important, say, than the creation of his basic website that actually became Amazon.com?” I think not. In fact, in the early Amazon years, it took three tries to get the final Amazon Marketplace off the ground, which is the single largest unit of amazon.com. Does anyone even remember Amazon Auctions and zShops that were the first two flops?
And how would you like to be naïve entrepreneur in 2007, just before the Global Financial Crisis of 2007-2009 hit, who bought into the idea that a business plan “will show you where your company will be in five years”? If that person didn’t scrap that stupid advice at the first sign of the economy racing down the toilet, they likely weren’t even in business five years later.
As Jason Cohen writes in A Smart Bear Blog:[2] : “At the beginning you don’t know anything about what your business will look like. Your product will evolve to fit the market. You’ll test marketing messages on AdWords and make unexpected discoveries about what works. Good and bad luck shape your company. You have no answers, no predictive power. Nor should you artificially pin yourself down! Even a “plan” buried in a drawer makes you less likely to consider the radical new idea that changes everything and makes you successful.”
So, what should you do about a business plan, when should you create something, and how much? As your idea for a start-up begins to gel, and primarily for your own planning purposes, write down enough in a brief version of a business plan so that you have a somewhat clear idea how your business will hopefully start out. At this stage, the only person looking at it is you, but if you can, see if you can get a business advisor to review it and give you an opinion.
As your plans takes shape, and if you’re considering an SBA loan to get the venture off the ground, you’ll need to polish this up, modify it a bit, and prepare to submit it to a banker (or three or four, depending on how many it takes to get a “yes”). For this version of a business plan, keep it to no more than 15 pages, written very precise and to the point, and for the specific purpose of your banker reading it to approve your loan.
Include:
- a list of the detailed steps needed to getting the business up and running – essentially your checklist of what it’s going to take
- detailed descriptions of your products/services – this could become the basis of your initial marketing campaign
- establish estimates of your product/service pricing – this will be crucial for Cash Flow/Budget projections
Along with your business plan, create your Cash Flow/Budget spreadsheet, containing the following:
- a detailed list of the sales volume for your products/services, breaking out month-by-month how much you hope/plan to sell in the first year – this helps you develop revenue projections that will be the foundation of your Cash Flow/Budget
- a detailed list of every expense required to produce the sales volume you’ve forecast
- a detailed list of every day-to-day business expense you’ll have – this will become known as General and Administrative Expenses in your Cash/Flow Budget spreadsheet
- with this information, you can now expand the spreadsheet to include Cost of Sales numbers, and Gross/Net profit margins. (I have an entire chapter in my Start-Up book on how to create and use this spreadsheet, and a template spreadsheet is available for free using a link at the beginning of Chapter 5 in the book). This could easily be one of the single most important things you create in the planning and execution phases of your business
Once you’ve completed this, you’ll essentially have a business plan, but it doesn’t have to be in a professional format, it doesn’t have to be bound and ready to distribute to every new employee you hire, and it certainly isn’t intended to be the living and breathing document that drives your business life for the next five years.
As the business starts out, and on a weekly/monthly basis, pay close attention to your Cash Flow/Budget projection spreadsheet to see if sales and expenses are on target, and update the projections as necessary.
So, let’s explore bad luck and serendipitous events – the things that just happen. Whether you like it or not, “things” outside your control are going to happen, without advance knowledge or consent on your part. How you react can determine if your new business fails or survives – or better yet, thrives.
Hypothetical examples: six months after you open the doors of your retail store, the City Council decides to repave the street in front of your business, killing drive-by traffic that you counted on (and you hadn’t been listening out for city news). Or, just as you begin to feel the start-up struggle is lessening, a hurricane, tornado, earthquake, or other natural disaster strikes. Or, you break your leg in a skiing accident – and being up and on your feet is mandatory for your new business. Or, a strategic alliance that you’ve grown accustomed to for profitability suddenly turns sour, giving you a huge revenue loss.
If you think stuff like this won’t happen, you’re likely to be blindsided and your business could be in the tank in no time. Obviously, a good chunk of money in the bank can help you survive any of these, but typically, a new start-up – particularly for a first-time entrepreneur – won’t have lots of extra cash just lying around, so the speed that any of these affect your business can be dizzying.
The key to surviving a bad luck or serendipitous event is to immediately recognize it when it occurs, then react in a solid businesslike way, and determine whether it can be the best thing that ever happened to your business.
Here’s a real-world (and true) example. Most of you probably recognize a perky and bold redhead named Flo, who stars in the TV commercials for Progressive Insurance. If you’re like me, though, you might also wonder how Progressive seemed to come out of nowhere to become one of the most well-known auto insurers in the U.S. Well, it resulted from a very good decision after a piece of very bad luck.
In 1988, Progressive was somewhat of a bit player in the auto insurance game, ranking 13th nationwide. That year, California voters passed Proposition 103, forcing insurance companies doing business within the state to reduce their rates by 20%, which is far below most company’s net profit margin. Now, most companies would simply walk away from the business in California, but Progressive CEO Peter Lewis didn’t. Questioning why voters favored this proposition, he learned that “people simply hated dealing with insurance companies, so they revolted”[3] From that knowledge, Lewis and his team created their “immediate response” claims service, making claims adjusters available 24 hours a day, every day, driving right to the customer’s home, or to the scene of an accident – something unheard of from other auto insurers. Next thing you know, customers voted with their business choice, flocking to Progressive as never before.
Lewis calls Proposition 103 “the best thing that ever happened to his company”, and it now ranks 4th nationwide. Now that’s a serendipitous result from a very bad piece of luck.
Here’s another real-world example, this time from an extremely good piece of luck (the following is excerpted from my book, Start-Up). In 1980, Microsoft was barely five years old, and was dabbling in a variety of hardware and software areas of the nascent microcomputer world. It got its start developing a Basic programming language compiler[4] for the incredibly low-function – but world’s first – microcomputer, the MITS Altair. With the huge success with hobbyists of the Altair, it was all the tiny Microsoft (100 employees) could do to keep up with demand for expansion of this Basic compiler, plus a few other things they were working on.
At the time, Bill Gates’ mother, Mary Gates, was on the national United Way Board of Director’s executive committee. In an interesting twist of fate that you rarely hear about, during a coffee break at a United Way Board meeting, Mary had a chance conversation about her son’s newly formed business, Microsoft, with another Board member, John Opel, who also happened to be Chairman of the Board of IBM. Later, Opel mentioned what he’d heard about Bill Gates’ microcomputer software business to a few other IBM executives. Shortly after that, IBM reached out to Microsoft.
Initially, IBM was interested in subcontracting to Microsoft to develop a version of Basic that would run on the soon-to-be IBM PC. But in some quirky turn of events, IBM ended up contracting for a CP/M-like operating system[5] – which Bill Gates, in his incredible audacity didn’t have, but he led IBM to believe he did. After the deal with IBM was inked, Gates quickly purchased an operating system called QDOS (Quick and Dirty Operating System), written by Tim Paterson, owner of the tiny Seattle Computer Products company, lock, stock, and barrel for $50,000, apparently not telling Paterson of their plans for it with IBM. In an incredibly shrewd deal, and after a frantic year of effort to marry the operating system to the IBM PC design, Microsoft was now able to formally license the newly renamed MS/DOS (as in Microsoft DOS) to IBM, with a royalty to Microsoft for every PC sold that was loaded with MS/DOS. And the stroke of genius – Microsoft retained ownership rights to MS/DOS that enabled them to license it to anyone else who came along – which turned out to be IBM PC-lookalikes.
Now, your first thought is likely to be, yeah, sure, this is nothing more than a silver spoon-in-the-mouth moment, first getting IBM talking to Microsoft, followed by an incredible coincidence that laid MS/DOS in Gates’ lap. But in fact, Microsoft’s success really derived from Gates having the incredible business sense to capitalize on a situation that dropped out of the blue (as in Big Blue). Some might call that luck, when in fact it’s more a case of seeing an opportunity, and then acting on it like a good entrepreneur should – with guts, accepting a lot of risk, and then going all out to make it happen.
Can This Apply To You? Let’s Look At One More. Both of these stories might be tossed off as being in the realm of highly-placed entrepreneurs, where the concept of serendipity doesn’t apply to a small-time, first-time entrepreneur. Well, it doesn’t.
Two months after graduation from Oklahoma State University in Stillwater, OK, Stan Clark and a buddy opened Eskimo Joe’s. Using $1,200 of his meager life savings, they rented a ground floor space and built out a bar that catered to the 18-year old college crowd that was literally next door. The bar took off, and was soon known as Stillwater’s Jumpin’ Little Juke Joint. But the good times weren’t destined to last in the current business plan. The Oklahoma state legislature increased the drinking age from 18 to 21, a huge blow to the bar’s target market.
Seeing opportunity rather than a setback, Stan quickly added food and other beverages to the mix, extended his open hours, and focused even more on merchandise sales from their instant-hit logo – a smiling Eskimo Joe and his trusty Husky, Buffy.
Today, Eskimo Joe’s employs around 550 people, operating three restaurants, clothing stores selling Eskimo Joe’s merchandise, and a slew of other businesses. The company’s annual sales top $18M, and Stan jokes that all this was possible because he figured out that “more people eat every day than drink every day!”
With that early-on drinking age change, a lesser entrepreneur might have concluded that there were just too many obstacles to clear, and watched the business slide into oblivion. Not Stan – he ripped up any business plan he might have had at the time, saw a serendipitous situation for what it was, and hasn’t looked back since.
So, let’s conclude on the question of business plans. Sure, you’re going to need a business plan to flesh out your early business ideas. You’ll then need a crisp, brief business plan (no more than 15 pages) to sell your banker on your ideas when you go in for a business loan. But most importantly, what you need is to watch for both good and bad events that jump in the way, recognize one when it occurs, and determine if it’s actually showing you the way to a better business idea than you’ve ever had before.
And rather than fixate on sticking with your business plan, keep your eyes and ears to the ground for any serendipitous whisperings that come along, study and analyze each one very carefully to see if it suggests a wise course change, and then follow your instincts (and hopefully they’re good).
[1] Start-Up: An Entrepreneur’s Guide To A Successful Small Business, available in Kindle or paperback format from Amazon, at https://www.amazon.com/dp/B01D6W9EGE.
[2] Jason Cohen, Don’t write a business plan, A Smart Bear Blog, December 14, 2009, https://blog.asmartbear.com/business-plan.html. Jason’s “take” on this is spot on, and in his blog post he debunks all of the reasons I’ve listed here.
[3] Mentioned to Lewis by Ralph Nader, his old college chum and the well-known consumer rights activist.
[4] A compiler is a software product that converts human commands into machine language that can then tell the computer what to do
[5] CP/M – an acronym for Control Program for Microcomputers – that was the most popular operating system for the Intel 8080/85 based microcomputers of the day.
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