Mini Episode: The Biggest Failure I See in Business Planning - Don't Make This Mistake (Copy)

Episode Summary

In this mini episode of the Free to Grow CFO Podcast, Jon Blair discusses the critical importance of effective business planning, emphasizing that planning should not be an exercise in prediction but rather in understanding the cause and effect relationships between inputs and outputs. He highlights the risks associated with aligning business inputs around predicted outputs and advocates for a more flexible approach that allows for scenario planning and adaptability in the face of changing business conditions.

Key Takeaways:

• The biggest failure in business planning is not anticipating failures.

• Planning should focus on cause and effect, not just predictions.

• Aligning inputs around a predicted output is risky.

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Free to Grow CFO - https://freetogrowcfo.com/

Transcript

00:00 The Importance of Planning in Business

03:37 Understanding Inputs and Outputs in Planning

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Jon Blair (00:00)

The biggest failure I see in business planning is not planning that something in your plan will go wrong. That was a lot of plans, right? Why? Because something in your plan will go wrong. Hey everyone, welcome to another mini episode of the Free To Grow CFO Podcast where I break down one key concept that will help your DTC brand increase profit and cash flow as you scale. Okay, so today I wanna talk about the fact that planning is not an exercise in prediction. Instead, it's an exercise in understanding the cause and effect relationship between inputs and outputs in your business. Too often I see brands treat planning as the ability to predict what's going to happen. Oftentimes it's around sales, a demand forecast. Planning is about gaining a clear understanding that if you put these inputs into a process or these inputs into action, these outputs will result under certain environmental conditions. Here's the thing. The reason why we don't want planning to be an exercise in prediction is because our predictions are typically wrong.

That's why a bad plan is one that predicts some output will happen and then aligns all inputs in the business around that prediction. That is a plan that has significant risk. I'll give you a very common example that I see time and time again in DTC brands. Your plan is based on the prediction that you're gonna sell $10 million worth of sales in Q4. So you align your PO purchasing plan around hitting $10 million in sales and then you go get the debt capital that's needed to buy that much inventory and then you hire the people that are needed to sell that inventory and operate the business at that scale and that's your plan. So you took a prediction of an output and you aligned all the inputs in your business around that prediction. Why does this have significant risk? Because it boxes you into only two paths, success, you hit that prediction or failure and if you align yourselves around a prediction, that doesn't come true really big sales revenue in Q4 and you don't hit it, that failure may include putting you out of business. So you're boxing yourself into almost a binary outcome. You're betting the whole farm, you're betting your whole business that the predicted outcome, in this case $10 million of sales in Q4 will happen.

And the problem is that a failure is something catastrophic. You're in really bad shape. Alternatively, a sound plan is built around what inputs you would deploy should certain business conditions come to reality. So instead of saying, I'm going to hit $10 million in sales, you can do some planning around how much inventory would I have to buy to hit $10 million in sales.

You can also ask yourself, if I buy enough inventory to hit $10 million in sales, what's the minimum amount of revenue I need to do to not run out of cash? Right? And so you can start toying around with different input and output scenarios to decide what you would do in given business conditions. So essentially this gives you the ability to plan out the actions that you will take with various input resources in real time as events unfold around you. So this improves flexibility. takes you away. Well, it doesn't just improve flexibility. It also reduces risk. And I think those two are really tied together hand in hand. Why does it improve flexibility and reduce risk? Because it unlocks multiple paths forward informed by the most up-to-date learnings and data.

Think through this distinction very carefully the distinction between a plan that I think is super risky, which is predicting an output will happen and all your inputs around that prediction versus building a sound plan in which you plan out scenarios of how you will take action with resources as business conditions unfold around you. Think through this distinction very carefully and use it wisely as you're planning scaling your brand because in DTC things are always changing.