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Business 16Stanford Department of Continuing EducationClass # 7, 11/9/09
Business Plan to Operating Plan
Business Plan
o Defines the Business & Strategy
o Overall goals
o Major milestones
o Overall headcount
o Overall spending plan
Operating Plan
o Defines Tactics
o How do I accomplish my strategy?
o Logistics
o Resources
o Critical paths
o Contingencies
o Sensitivity analysis
To start an Operating Plan
o Define milestones
o Back track events leading to milestones
o Define interdependencies
o Determine what resources are required
o Determine when resources are required
o Also known as GANTT charting
o Microsoft Project
Tweaking the Operating Plan
o Now comes the hard worko Now you need to ask, “what happens if this step takes 2 extra weeks?”
o You need buy-in from your partners or the people actually doing the work
o You need to consider how much extra money you will burn if you have a failure along the way
o You need to take into account that it takes a long time to hire good people
o You need to establish failure and success criteria
Tweaking the Operating Plan
o You need to establish failure and success contingencieso If you have higher than expected demand, can you grow fast enough to keep up (AOL, Google, Facebook, Intuitive Surgical)o If not you leave money on the table, and
leave room for a competitor
o If you have a failure, can you isolate the pathway from other critical pathways (everybody else)o Especially important when deploying expensive
assets, like sales people, clinical trials
o Fast action may save your company
Using the Operating Plan
o Weekly or regular meetings to compare progress with the OPo Track where you are
o Make sure you are measuring the right thingso Technical devt progresso Saleso Cash managemento Margin
o Focus on the things that can kill you firsto Failure analysis
o Why are we failing?o Where are we consistently high or low?o Is there a pattern?o Do we understand the process?o Is it the plan or the people?
Using the Operating Plan
o A key is always buy-in on milestoneso It may become clear that certain milestones are impossibleo Bad economy?o Seasonal effects?o Adoption issues?o Management?
o Motivating people to stretch yet not demoralizing them is the essence of managemento Don’t give up too easily
o You can often still hold people to overall goalso Don’t be afraid to re-plan and change out
irrelevant milestoneso Keep your eyes on the prize
Using the Operating Plano The Operating Plan should rule the lives
of everybody not concerned with the strategic directiono It swaddles line employees and gives reassurance that even in chaos there is order
o It defines what is really importanto It is often the source of evaluations for compensationo People will do what they are compensated foro Compensation requires measuremento Measurement leads to results
o You can’t change what you don’t understand
o It is defined by completion of projects, not their beginning
The Operating Plan defines when you need to raise
moneyo It shows you when you have achieved significant risk reductions in the business (when it is attractive for others to invest)o Perceived risk reduction is risk reductiono Comps are commonly known in every industryo Don’t get trapped into a plan that has no
real risk reductions for long periods of timeo It tells you when you are going to need big
infusions of capitalo It tells you when you should consider mergers
(before embarking on big capital infusions) or other outside help
o Execution or planning failures may force a Plan B
BUT Operating Plan Reality Check):
o A great operating plan may only result in the perfect execution of a stupid business plan
o You can still execute well and fail
o A good operating plan will still not tell you if it is a good investment
Re-plan
o Don’t wait too longo Make sure you get it right this time
o Be conservativeo Sandbag
o Make sure it is not an annual occurrence
o See previous class on hiring and firing
