Recently, Gordon was employed by Last Frontier (LF) – an International NGO that specializes in harnessing the power of businesses to provide opportunities to the poor- as an entrepreneurship advisor. He had two immediate assignments to “update” business plans for Signus Holdings (U) Limited which deals in grains and Alpha Seeds (U) Limited, which produces maize and beans seeds. The two companies are partners with whom LF have worked for the last decade. When Gordon inquired why the business plans had to be “Updated”, The response he received from the Alpha Seeds manager was “We need to have it ready, just in case it’s required during fund raising, in that way, we will be ready for such opportunities”. “Well, we don’t need to review the plan then, instead, we need to review the model” was Gordon’s response. To LF, both Alpha and Signus are jewels, since they are the only surviving business partners from LF’s previous programs in Uganda. To the program Director of LF, the business Managers knew their job perfectly well and therefore LF advisors simply need to facilitate them do what they think is right for their companies. The director was immediately upset with Gordon’s response and was worried that just like the previous advisor, Gordon had started throwing “theoretical jargons” such as “business model” around!
The director’s way of thinking is not surprising, because increasingly, development workers use various terms without the requisite meaning/action (we wrote about it in Business Model: Most Used and Least Understood in Development). Like Hughes said in his Book The Business of Excellence; 21st century businesses do not need more plans but few, and instead of making enormously complex detailed tactical plans for a year, two or three, during which everything will change, they only need to make plans for a realistically short time horizon and then re-evaluate. When Gordon further suggested that the exercise would require past company data, not less than 2 weeks of serious engagement with key staff and Board members of the company (all these preceded by serious market research conducted by the company’s employees), he was looked at with such disdain that questions immediately started to arise whether the right person was hired for the Job.
Business plan vs Business Model Canvas (BMC) All the partners (LF, Alpha Seeds and Signus Holdings (U) Limited) had a common and clear school of thought; “As the advisor, Gordon is supposed to revise the business plan and send the finished copy to the businesses”. Even though he was already perplexed by the reaction he received, Gordon pushed ahead nonetheless, with preparations for the BM review sessions. To him, this was chance to demonstrate the practical importance of what he was advocating for. As part of his meticulous preparation, Gordon shared the requirements for reviewing the business plan; including a framework for business environment analysis and business model SWOT analysis as recommended by Strategyzer.com to help the Alpha Seeds team in assembling the required pieces of information. Long story short, two weeks of professional business model questioning and evaluation later, the model was revised and a 1-year business plan (to be re-viewed quarterly) was developed.
LF linked with a European Impact Investor who requested to have the plan and all its attachments such as financial projections, and measurement metrics like Acid test, Z-score and Equity to debt ratios. Since these were already developed during the planning process, they were quickly shared with the investor. The investor was concerned about the past performance of the business but nonetheless impressed with the management tools and plan developed. Presently, he is open to providing soft debt instruments to meet Alpha Seeds’ working capital requirements with a maximum ticket size of 200,000 Euros, a year’s grace period and 6% annual interest on condition that Alpha management implements the model and demonstrates how they are meeting set milestones. “Thanks for your efforts, now I understand why you wanted us involved. I can better manage the process of implementing and tweaking the business model” was the feedback from Alpha Seeds’ Manager to Gordon. Gordon also helped develop customized business scenario planning tools and management tools including key indicators to guide Alpha Seeds’ manager. Like Hughes says “it is planning, rather than the plan, which adds the value”.
Such is a common story in entrepreneurship support work in Uganda. Most people share similar views to that exhibited by Alpha’s manager and other employees of LF (Business managers and “consultants”). To them, a business plan is the ultimate document, which in most cases, is hurriedly/remotely developed by a “consultant” and not actually usable by the businesses. The truth is, Business Plan is a means but not an end. Hughes challenges us in his book that we should not turn means into the end. Such a “plan” is neatly kept in the manager’s/owners’ document cabinets and brandished when asked. A quick query to the manager/owner on contents of the plan however will highlight that they do not understand it much, or not at all. In our view, a business plan is simply an explanation of a business model at a given time. And since we are admirers (and users) of Strategyzer’s BMC, it’s basically an articulation of the nine building blocks of a company’s business model!
The process of developing it is key, which can be outsourced if the skills to do it well is lacking, but the business owner MUST understand, own and drive the process. Key outcomes of a BMC review process include a business performance measurement metrics (profitability, financial and capital structure ratios) carefully developed into easy-to-use tools such as dashboards to monitor progress of implementation. A consultant’s role is majorly to facilitate the process and develop the necessary tools and provide guidance during implementation.
Underlying problems
To appreciate our argument, one should take note that plans are always made with imperfect information. Even as we try to make business plans, there are things we don’t know, there are things we can’t know. And if plan was perfect, businesses would never have to pivot during implementation. Even if the businesses did exactly what a perfect business plan told them to, they still wouldn’t achieve what they intended, due to changes in the external environment.
Just like cash is no longer king for a business, business plan is no longer an ultimate recipe for success. Like Helmuth von Moltke, Chief of Staff, Prussian Army, 1857-87 said, “No plan survives first contact with the enemy”, similarly no business plan survives first contact with the market. What keeps us wondering is why businesses and development workers are still stuck to business plans? Below are probable explanations according to our observation in Uganda.
Outsource mania: In one of the articles in his weekly column in the new vision, Dr. Ian Clarke (An Expat medical doctor and entrepreneur who is now resident in Uganda) observed that Ugandans prefer too much comfort, that they outsource almost anything. This mentality, perhaps in its self an outcome of a number of other factors such as corruption, bureaucracy, etc., has given rise to a number of “consultants” for such services as producing passports, fixing medical appointments at best facilities and meeting the president! There is no way that business development services, a traditionally outsourced service, could therefore survive it. Because of such a mentality, the business owners prefer not to learn or get involved in BMC (re) design, which is tedious and takes time. After all Josh from round the corner can help him/her do it!
Mediocrity: News such as a semi-illiterate masquerading as a medical doctor and “treating” patients in a national referral hospital – the highest public specialist facility in the land- is a common menu in articles of daily tabloids and newspapers, and therefore are no longer shocking to most Ugandans. Similarly, the country is awash with both business consultants and “consultants”. Surprisingly, the latter group seem to be more popular with business owners, because they are affordable and easily accessible. This is because they have low investment costs; hey simply invest in understanding a few jargons, get a few business planning templates based on which they regurgitate deliverable after deliverable for clients. They therefore easily conform to the clients demand unlike a Gordon, who will be guided by due regard to outcomes and quality. After all, the “Consultants” think; “client is the king”. If he/she is ok with mediocre product, I am happy to be in business!
Financiers: Many financiers in Uganda as well, focus on the business plans with attachments such as cash flows and bank details, and rarely focus on helping the business owners/managers to evaluate their business models to predict future competitiveness, a big factor for profitability and debt repayment. Why should they, when this increases cost of operations? We must however acknowledge that this trend is changing, some banks are already focusing on in-house client business support as post debt services to avoid defaults. Perhaps this is as a result of such banks not trusting the work of these “consultants” as well. But a bulk majority still prefer the previous approach. This has encouraged the businesses to quickly produce “plans” as a pre-requisite for access finance.
Entrepreneurship training: Entrepreneurship training programs are major contributors to this mentality. Even government’s flagship entrepreneurship curriculum emphasizes business plan instead of business model! Often times, armed with certificates from such programs, crafty “consultants” who are alumni of such trainings (we know of at least two) set about offering business development services. This thinking of one-size-fits all should and must end!
Limited DBS infrastructure: Lack of innovations that enables the owners keep data to evaluate the business models is another big challenge. Most small business owners still look at record keeping as a tedious undertaking. Even if such a business without financial records in given to the best consultant, no tangible outcomes are possible, as the consultants would be forced to use too many assumptions in testing the viability of the models that the credibility is thrown into question. In Kenya, the digitization of the economy through safaricom has led to innovations such as an app that allows both informal and formal companies to keep records of their transactions for easy measurement of their performance and business model evaluation using their digital transaction records. In Uganda, hopefully with the introduction of MTN’s Momopay, such innovations shall have crop up.
Conclusion
In conclusion, there is need to re-orient popular perception of many business owners/managers, consultants and regulators to actually understand the business model and its importance. It nice to notice that most of the organization or consultant also acknowledge the effectiveness of BMC for this process, but few actually can use it effectively. Good news is that Lunatic Analytics can support you to use it effectively.
Disclaimer: the names of all individuals, organizations or companies used in this article are imaginary and are intended only for illustrations. Any match with a name of a real entity or individual is unintended. However, the situation described are based on real experiences.
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