Perspectives: A Conversation with Tim Berry, Business Planning Expert

Tim Berry is president and founder of Palo Alto Software, founder of bplans.com, and a co-founder of Borland International. He taught starting a business at the University of Oregon from 1998 through 2009. Tim is the author of books and software including Business Plan Pro, published by Palo Alto Software, and The Plan-As-You-Go Business Plan, published by Entrepreneur Press. He has a Stanford MBA degree and degrees with honors from the University of Oregon and the University of Notre Dame.

Tim built Palo Alto Software from zero to 40 employees and up to 70% market share without outside investment. He has consulted with VCs on software startups, and with young companies on bringing in venture, angel investors, business loans, and investments from friends and family members. He also consulted for 14 years with Apple developing various, highly successful international business plans.

Tim’s main blog is Planning Startups Stories; he also appears on several other blogs. He is the father of five and has been married for 41 years.

What is a business plan – and what is it not?

There’s this old mythology of viewing a business plan as a hurdle to be overcome … as a document that once completed, is ‘done’ and everything in it has to be followed just because it’s in the plan. That’s dangerous thinking. Entrepreneurs, founders, and others who should be benefiting from business plans are finding experts who are saying not to do business planning. But what they are really saying is don’t freak out over the plan – they are not saying to not do the planning!

A business plan is not a long document done once in order to impress somebody outside of the company. It is a document that shows what is going to happen and why, and contains a collection of measureable and trackable steps with start dates and end dates, budgets, projections, and connections between the elements. Its purpose is to steer the company and move it forward. A plan is the first step in a planning process, and unless you need to print it out, don’t. It stays on your computer because it’s a plan — your plan.

What is the difference between a business model and a business plan?

A model can be part of a business plan. Business model is a post dot com term. We didn’t use the term before. A business plan is about how or whether a company is going to generate revenue; but today we have these oddities that we didn’t have before – the Facebooks and Twitters that have huge valuations without revenue. Before it was assumed you’d make revenue – and then came the dot com phenomenon. We recognized there could be value in acquiring eyeball real estate. A business model is part of the planning process, but it’s falling into misunderstanding. For more about business models, I recommend the book Business Model Generation by Alex Osterwalder and Yves Pigneur.

What do you say to the person who tells you they don’t need a business plan?

You may or may not need a document to show to outsiders such as potential investors or the bank. If you don’t need a plan to show to outsiders, maybe you think you don’t need one at all. But don’t you want to set strategy? Steps? Measurements? Processes to make corrections? If you said yes to any of these, well that’s the business plan. The plan is not the documents. It’s what you think should be happening in your business — when and how. And you can’t track a plan versus actual unless you have something in writing. As Dwight D. Eisenhower once said, “Plans are useless, but planning is indispensable.”

Why do so many founders fear the business plan?

This can be broken down in three ways. First, for the most part, people have bad memories of doing papers in high school, college, or grad school. These were formal, scary, and hard to do. But a business plan is not that! It’s not the document, but what is going to happen. You can’t get all caught up in the writing of the plan and dreading endless edits, etc. It’s only going to reside on your computer, and only you will use it.

Next, a lot of people think that if they write down goals, it will limit their freedom to operate. That’s just false. Reviewing a goal in March or April for a goal you set for May gives you time to review where you’re at. Is it still relevant? Or does it need to change? A plan doesn’t restrict your freedom to operate. In fact, it makes it easier to change course.

The third is what I call the ‘crystal ball and chain.’ It’s the fear that some team members have that their collective efforts to put down their performance goals is management’s attempt to get the goods on them and fire them later. That really is a misunderstanding. Management needs to assure the team that the goals are set so that the company can measure and focus on how it’s doing in terms of performance, and so that management can help each person succeed so that everyone is achieving.

You said the plan makes it easier to change course. How often should changes to the plan be made?

There’s a saying that it’s better to have a mediocre plan and change it, than to have a great one that you stick to. No, you can’t change your plan whenever the wind blows. But there is no virtue to sticking to a plan just because it’s a plan. Plans change when assumptions change. Look at the plan versus actual. If it indicates a need for a change, you then ask yourself whether you are implementing well. The answers may point to management issues. Do you change the plan because assumptions have changed, or have you failed to implement well? This is where humans come in — forget about the algorithms.

How often does Palo Alto Software review its own business plan?

As soon as the company grew to three employees, we began bringing in lunch every third Thursday to meet and review the plan versus actuals and results. My daughter Sabrina, who became CEO in April 2007, now holds the meetings on the second Thursday of every month in the mornings, so our U.K. team can be present as well.

How has business planning changed over the years?

I’m not sure we can say that the changes in technology have made things faster, but we have more tools today and the information flows better. Plans now exist as modules somewhere on a network where people have access to them. They’re more fluid, flexible, and accessible than back in the old days when they were stored away in a loose leaf binder.

Part two coming soon!

For more from Tim, check out his blog, Planning Startups Stories, and follow him on Twitter @timberry.

Photo by: Nomadic Lass