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BUSINESS PLANS

Garbage In, Garbage Out

Bankers and entrepreneurs explain why business-plan software can never deliver what it promises.
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They might be best-sellers, but business-plan software programs can never deliver what they promise

Entrepreneurs come in all shapes and sizes, but Nancy Russell notes one universal trait: "They all roll their eyes when I tell them they have to do a business plan," says Russell, business-development officer at the Irvine, Calif., branch of the Money Store, a leading Small Business Administration lender with offices in every state.

Why is writing a business plan such a chore? Because business plans are like term papers: you're never sure what information is supposed to be in them, how it's supposed to be arranged, and whether you've caught all the mistakes. Indeed, bankers and investors complain that the business plans they get from hopeful entrepreneurs often are sloppy and missing information. "A lot of the plans that come across my desk are pretty pathetic," says Michael Carter, managing director of Carter & Co., an investment-banking firm in Southport, Conn.

But if you've ever glanced through the ads in any in-flight magazine, you know that business plans don't have to be sloppy or difficult to write. For $50 to $100, the ads promise, you can buy computer programs that will help you create professional, "winning" plans. But do they?

Business-plan software, its manufacturers claim, is fairly flying off the shelves. Two leading vendors, Jian Tools for Sales, of Mountain View, Calif., and Palo Alto Software, in Eugene, Oreg., both report 50% sales growth over the past three years. According to PC Data, a Reston, Va., company that tracks software sales, $12 million worth of business-plan software was sold through retail channels in 1995.

Of course, the marketing hype for business-plan software runs a bit ahead of what the products actually deliver. No amount of automation can turn a lousy idea into a winning business. The garbage in, garbage out maxim still applies. Nor can any of the available software relieve you of having to think hard about how you intend to execute your idea. Furthermore, the software doesn't deliver anything fast. Many users report working full-time for more than a week to draft a computerized plan. You can expect to spend even longer if your business opportunity has "a lot of moving parts" -- several partners, for example -- says the Money Store's Russell.

Another thing the advertising copy doesn't warn you about: business-plan software can actually hurt your chances of raising money. Although it may generate a glossier plan than most entrepreneurs would be able to create on their own, fill-in-the-blank software by definition is going to produce a pretty generic business plan. The question: Can a much-like-the-others plan effectively sell a business and its management? That's what most authorities say the first goal of a business plan should be. Timothy Dineen, founder of Leprechaun Capital, an investment-advisory firm in Lilburn, Ga., believes that investors can spot "canned" plans a mile away. "The most important thing a venture capitalist is looking for is quality of management. You can sabotage your credibility with some of those packages," he says.

So maybe Jake Holmes, owner of Stowe Canoe Co., in Stowe, Vt., did the right thing recently when he whipped up a business plan on his own, using a word processor and a spreadsheet. Holmes, formerly the president of a subsidiary of a Fortune 500 company, says he's never had much trouble getting loans. "As long as you put your ass on the line and commit personal assets, they'll give you the money," he says. His experience may not hold for all entrepreneurs, but it does indicate that sometimes a plan's polish isn't as important to bankers as the CEO's background, personality, and presentation -- and the fact that he or she has skin in the game.

* * *

The Softwareless Program
Stories abound of famous companies whose founder never wrote a formal business plan: Reebok, Mrs. Fields, Pizza Hut, and Crate & Barrel are notable examples. But at some point many small companies -- perhaps when they want to expand or need working capital -- are forced to develop a business plan. Or maybe the need arises when it begins to dawn on a founder that the business is headed either nowhere or everywhere, but in either case it needs a new and better-analyzed strategic focus. There's no inherent reason why software shouldn't be able to help entrepreneurs write a good business plan, improve the plan they have written, or at least make the writing easier. But not all business-plan programs are alike, and none of them can take raw data as input and spit out a polished finished product.

In fact, once they tear off the shrink-wrap, buyers may be surprised to discover that many business-plan packages aren't really programs at all. They're a collection of boilerplate text, charts, and spreadsheets that you modify using your own word-processing and spreadsheet programs. When you install Jian's market-leading BizPlan Builder, for example, you're simply dumping six or seven word-processed documents and spreadsheet files onto your hard disk. There's no executable software at all.

But having templates to organize all your data is power enough, says Don Ritzman, president of Life Base Team, in Santa Cruz, Calif., a producer of outdoor-education and life-skill videos. Ritzman skimmed the shelves at his local Egghead Software before picking up a copy of BizPlan Builder. "I had done plans in the past by hand, but it was tedious and I was never sure that I had covered everything," he says. The Jian package helped him focus his ideas -- and ultimately secure $100,000 in financing from private investors -- for a new venture producing videos about and kits for making Native American crafts.

Scott Shepherd, president and CEO of Northstar Trade Finance Inc., in Vancouver, British Columbia, had manually prepared many business plans in his former life as chief financial officer of a high-tech company. But he still found value in the BizPlan Builder templates. "The program doesn't write the plan for you, but it disciplines you and helps you organize and distill your thoughts," says Shepherd, who used the software to raise $30 million to provide export financing to small and midsize Canadian companies.

Other packages -- among them Automate Your Business Plan (AYBP), from Out of Your Mind . . . and Into the Marketplace, of Tustin, Calif. -- have integrated word processors and spreadsheets that could pass for popular programs like Microsoft Word and Excel. Autumn and Kirk Zamzow, owners of Lookers! Inc., in Westminster, Calif., recently used AYBP to raise $200,000 to open a second restaurant. Autumn says the program's financial sections are particularly powerful: "Most small-business people don't have an M.B.A. and don't know how to calculate things like debt ratios or net-income projections. But the software walks you through that, and having those numbers really impresses lenders."

The Money Store's Nancy Russell, who approved the Lookers! loan, agrees. She says many manually produced plans contain only simple, unsubstantiated financial projections. "I tend to trust the numbers more," she says, "if it looks like the owners have put effort into the plan."

* * *

Computer as Consultant
Not all business-plan software, however, produces credible financials. According to Mark S. Deion, a business-planning and -strategy consultant in Warwick, R.I., "Some software packages generate the same payroll numbers each month, even though the number of days in each month varies." He says that one way bankers look for sloppy plans is by checking month-by-month financials.

Also, most bankers and investors are suspicious of the hockey-stick growth curves that start-ups often predict for themselves. As Brett Silvers, chairman and president of First National Bank of New England, headquartered in Hartford, observes, "It's always a home run at the end of five years."

There's no question that business plans are used to "sell" a business and its management. But there are serious drawbacks to hawking a company's financial prospects too hard. If your loan is approved, many banks will make the plan part of the loan document. "If you don't make the ratios you promised, the bank can put you in technical default," says Deion, who prepares SBA loan packages. He notes that banks in the Northeast have used the default process to get out of entire markets in a downturn.

Unfortunately, evaluating the realism of your financial projections or revising the narrative is beyond the ken of the current crop of business-plan software. Although developers like Palo Alto like to refer to their product as "content-rich software," none of the packages offers anything close to artificial intelligence or expert-system technology.

Palo Alto's Business Plan Pro does "interview" the user before it sets up a template, to determine the type of business (service, retail, distribution, manufacturing, or a mix), the age of the business (start-up or an ongoing operation), and the form sales take (cash or credit). Depending on the user's answers, the software brings up different screens for inputting text or numbers.

Other packages rely on the user to customize the plan. Autumn Zamzow reports that she had to tailor AYBP's output for the restaurant business. She discarded the module on distribution and had to beef up some standardized financial sections to better address such industry-specific issues as food and liquor costs.

There are, however, at least two expert-system products available for handling certain aspects of the standard business plan. One company, Business Resource Software Inc., in Austin, Tex., markets Business Insight and Quick Insight, both designed to analyze marketing strategies. But BRS cofounder Kent Ochel is uncertain whether his company will bring similar expert technology to PlanWrite, its business-plan package. "I've been working on creating the required knowledge base for more than four years, and I still haven't captured all the information necessary," says Ochel. And he doubts that his competitors will bring out an expert-system business-plan product anytime soon, either.

Besides higher costs, a major problem with expert-system-based products is that although they're powerful, they're also more difficult to use. Business Insight, for example, asks users to answer 500 questions about their marketing strategy before it can begin an analysis. Randy Ziegenhorn, president of Ziegenhorn Seeds, a seed wholesaler in New Boston, Ill., says it took him an eight-hour day just to complete the Business Insight questionnaire. The time and financial investment paid for themselves, though. Says Ziegenhorn, "I credit the program with helping me come up with a strategy for differentiating my company in what is basically a commodity business."

Still, Ochel reports that BRS had to simplify Business Insight to entice more people to buy it; Quick Insight is the "dumbed-down" result.

* * *

Planning to Succeed
Even when they do help a company get financing, most business-plan packages fall down in helping users turn plans into reality. Indeed, they seem to treat planning as a hoop entrepreneurs have to jump through to get money -- as though being successful at raising capital were the key to being successful in business. In fact, a good business plan can guide a company's ongoing operations, communicate objectives and milestones to managers and employees, and help track progress toward the company's goals. "You can write a plan that makes your business look fabulous and gets you money," says Holmes, of Stowe Canoe, "but you can still go broke." He ought to know. Shortly after building his new factory, Holmes lost his largest customer to bankruptcy. Now he's scrambling to keep his own creditors at bay while he tries to recover the lost revenue. "I realize now I was undercapitalized. I probably should have borrowed twice what I thought I needed," he says.

Autumn Zamzow reports that she and her husband faced a similar cash-flow squeeze when they opened their first restaurant eight years ago, without a business plan. A long delay in obtaining a liquor license almost caused the young business to go under. Zamzow says a good program like AYBP would have forced her and her husband to work up better projections for how long the restaurant could survive without liquor revenues.

Business Plan Pro is one of the few programs that addresses plan implementation. There's a table for tracking date and budget milestones, and the software actually allows you to keep three versions of the numbers: the plan, the actual, and the difference between the two. Tim Berry, author of the program and Palo Alto's CEO, says, "It's important that plans stay alive and not end up in a drawer." He claims Business Plan Pro helps accomplish that by allowing users to gain access to and revise information quickly. A spokesperson for Jian says that company is working to add such capabilities to future versions of BizPlan Builder.

In the end, whether you're after financing or just looking for a management tool, which business-plan package you choose may be less important than the energy you put into using it. "If writing a good plan scares you off," says consultant Deion, "then maybe you should think about a less-challenging occupation than entrepreneurship."

* * *

Brian McWilliams (bmcw@aol.com), a freelance writer based in Durham, N.H., is a frequent contributor to Inc. Technology and other business publications.


WHAT'S IN A PLAN?

There's no standard format for business plans, but the experts generally agree that a business plan should include the following parts:

? Cover page

? Table of contents

? Executive summary

? Company description

? Markets and competitors

? Products or services offered

? Sales and promotion plans

? Financial projections


OUTSOURCING YOUR PLAN

To avoid the headache of writing a business plan, some small-company CEOs farm out the task to accountants or consultants who specialize in plans. Brett Silvers, chairman and president of First National Bank of New England, says the plans prepared by accountants are the best he encounters: complete and professional looking.

That's what Laurel Hendrickson hoped for when she hired the local office of a national consulting firm two years ago to help her prepare a plan for Global Business Solutions, her $10-million computer consulting and software business in Costa Mesa, Calif. The cost: a hefty $80,000. "It ended up being a very poor investment," she says. "We got busy, and the consultants ended up doing the plan by themselves, without input from us. So it didn't focus on the things we felt were important. Plus, we never learned how to do a plan ourselves." Global's plan is now collecting dust on a shelf in Hendrickson's office.

Even when the help comes cheap, using accountants or consultants isn't always a great solution, says Michael Carter of Carter & Co. "The plans they create may have all the right pieces, but they don't sell the company well."

Worst of all, hiring an outsider to do the plan can and often does mean that the CEO can't explain what's in it -- and investors invariably ask questions.


RESOURCES

Most business-plan software packages are designed to run on either PCs or Macintosh computers and provide outlines or templates of the various sections that make up a business plan. (See "What's in a Plan," above.) Some even include boilerplate text that can be massaged to fit your business, along with a Help system for filling in the blanks and a few sample plans as guides.

Here are seven of the more popular business-plan programs and where you can find them:

? Automate Your Business Plan, from Out of Your Mind . . . and Into the Marketplace, Tustin, Calif., 714-544-0248

? BizPlan Builder, from Jian Tools for Sales, Mountain View, Calif., 800-346-5426

? Business Plan Pro, from Palo Alto Software, Eugene, Oreg., 800-229-7526, http://www.pasware.com

? PFS: Business Plan, from SoftKey International, Cambridge, Mass., 800-227-5609, http://www.softkey.com

? PlanMaker, from POWERSolutions for Business, St. Louis, 800-955-3337, http://www.planmaker.com

? PlanWrite, Business Insight, and Quick Insight, all from Business Resource Software, Austin, Tex., 800-423-1228, http://www.brs-inc.com

? Success Inc., from Dynamic Pathways, Newport Beach, Calif., 800-543-7788

Last updated: Aug 1, 1996




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