Running a business can be complicated. Successful businesses tend to evolve as they adapt to the market, serve their customers, and build their brands. Some businesses appear to be more adept at this than others and seem to be better at anticipating challenges and strategically overcoming them. I don’t think they have a crystal ball or some other magical way to see into the future (although that would be nice), but rather a commitment to regularly evaluating where they are, looking at potential challenges and opportunities in the future, and defining a plan to best position their businesses to meet them.
When I started my career I was told, “Those that fail to plan should plan to fail.” Although an oversimplified sentiment, over the last 30 plus years of my career, I’ve found it to be true. With that in mind, I recently spoke with Sabrina Parsons, CEO of Palo Alto Software, about their approach to business planning and why it’s important for companies through every stage of a business.
Ty Kiisel: Hi Sabrina, tell me a little about Palo Alto Software.
Sabrina Parsons: Like our customers, we consider ourselves to be a small business. We understand what it takes to start with your first employee and grow to 50 employees. Tim Berry, our founder started Palo Alto in 1988 and we now offer several software products designed to help business owners, who might not have a lot of sophisticated financial or operational experience, plan and forecast with simple-to-use tools.
Ty: Don’t most people assume that business planning is really an exercise for events like starting a business or applying for an SBA loan?
Sabrina: There are a lot of people that feel that way. Nevertheless, business plans aren’t just for startups or those seeking a loan—that’s really a myth about small business planning. Small businesses, the Main Street businesses we work with, need to ignore that myth if they want to build healthy and successful businesses.
Did you know that 60 percent of businesses that fail do so because of cash issues? Many small business owners don’t understand the importance of regular planning and forecasting; and it’s hurting their businesses because they haven’t planned for potential challenges and don’t have any kind of strategy for dealing with them.
Ty: Potential challenges aren’t the only reasons a business owner should set aside time for business planning though, right?
Sabrina: You’re absolutely right. Many business owners miss great opportunities by failing to regularly go through this exercise. Big companies devote time to regular planning. Comparing actual performance to the plan is part of how they measure success. Regular planning also helps them position their businesses to take advantage of potential opportunities within the markets they serve. This is a big business behavior small businesses should be mirroring.
Ty: Is there a measurable impact to regularly planning?
Sabrina: Yes, we believe there is. The data we look at, regardless of the stage a business is in, suggests those businesses who regularly set aside time throughout the year to engage in planning activities grow faster (30 percent faster according to one 10-year study).
Ty: If that’s the case, what keeps small business owners from doing it?
Sabrina: The process can feel cumbersome and complicated. Small business owners aren’t necessarily financial experts. For example, accounting-speak can sound like a foreign language to them. The goal should be to make the process easier to navigate for a business owner who doesn’t have a CFO on the payroll. And, planning isn’t just about financial forecasting either. It’s about all the activities involved in running a successful business.
Ty: Are you seeing any trends you’d like to share?
Sabrina: Yes. We’re seeing a lot of accountants get involved in the process when working with their clients, which is why we believe integrating with a company’s financial software is important. We’re also seeing more women business owners interested in strategic business planning. Almost half of our customers (40 percent) are women. We’re also seeing younger business owners driving a more technology-driven approach. They expect to use online tools that are intuitive and easy-to-use.
When you consider that roughly half of all the businesses that start today won’t make it to their fifth birthday, business practices that can improve the odds of a successful business just make sense to me. Creating a detailed, accurate, and realistic business plan is a good investment in your business—for both startups and more established businesses.