by Steve Pavlina, founder of Dexterity Software. Reproduced with permission.
In the Association of Shareware Professionals newsgroups, we often discuss whether or not it’s worthwhile to create a business plan for one’s shareware business. There is often much confusion about what level of planning is appropriate for small companies in our rapidly changing industry. I’d like to shed some light on what I’ve learned about business planning and how valuable it can be to build a successful company of any size.
First, let me define what I mean by "business planning." There are many formal templates for creating a business plan, and I’ve found most to be too unwieldy for the shareware industry. Especially if you are a one-person shop, you want something simple that you’re going to be willing to maintain and update once every quarter. A business plan is not something you create once, file in a drawer, and then forget. Just as an airplane is off course 90% of the time, you’ll be off course most of the time as well, so it’s important to frequently review your plan, revise it, and adjust your heading. For most shareware professionals, I recommend a simple ongoing business planning document in the range of two to five pages.
Planning is essentially the process of making decisions. By setting aside time to sit down and make some decisions, you are literally taking control of where your business will go. Without a plan you will generally achieve a small degree of chaos by default. Remember that if you fail to tend to your garden, weeds will grow by default. In fact, it is often said that failing to plan is planning to fail.
If you’ve never done any serious planning for your business, I recommend you start with the simple approach of setting one-year goals, breaking them down into quarterly goals, and then planning out the steps needed to achieve the quarterly goals one quarter at a time. So you look one year ahead while you plan one quarter ahead. The long view helps to sharpen the short view, and by taking a longer time span into account, your quarterly plans will tend to be more accurate.
Your plan must always be in writing, not in your head, and it should cover the basic areas of your business. Let’s consider each of these in turn.
Sales: How much money would you like to be making one year from today? Sales goals often drive all the other goals of your company, so this is a good place to begin your planning. If you want to double your sales this year, what will you need to do in order to achieve that goal? Break it down into what percentage increase you’d need to achieve in your sales each quarter, and plan out all the action steps needed to reach your first quarter’s milestone.
Cashflow: Consider your cashflow situation throughout the next year carefully. Not paying attention to cashflow is a major reason for business failure. Many venture-capital funded startups blow through millions of dollars in just a few years and then fail simply because they never managed to establish a positive cashflow. Long-term planning helps you foresee upcoming expenses to keep your ongoing cashflow high enough to cover them. When are you going to buy that new computer, for instance? Before you decide to lease an office, take a look at what effect it will have on your cashflow. I’ve found that maintaining a high level of awareness about my cashflow has really helped me take control of my financial situation. I can project when I’ll be able to afford new purchases and what I’ll have to put off to a later date. My rule is that if I want to take on a new ongoing monthly expense, I must first increase my cashflow to cover it. This prevents me from ever entering a negative cashflow situation.
Product Development and Maintenance: Set one-year goals that detail what you’d like to achieve with your product line, including new releases, updates, and add-ons, and determine where you’ll need to be at the end of the next quarter in order to stay on track toward your one-year goals. For instance, if your goal is to release two new shareware products this year, then a ninety-day goal might be to get your first new product to reach the beta stage. The next step is to break this goal down into a series of steps that will allow you to achieve it. Before you decide to develop any new product, you should also decide how you’re going to market it. Many developers build their product line based on what they currently feel like creating — this is a good way to achieve a very mediocre income and a largely random product line that doesn’t benefit much from upselling and cross-promotion. A better approach is to create products that people will want to buy.
Marketing and Promotion: What would you like to accomplish over the next year in terms of marketing and promoting your products and your company? Include distribution of your products, updates to your web site, writing and sending out press releases, and anything else you’d like to do marketing-wise within the next year. Define your one-year outcome in writing, and then break it down into quarterly goals, and finally, plan out the details of what you’ll need to do during the first quarter to keep pace with your one-year goals. Be sure to take into account what level of marketing you’ll need to do in order to keep pace with your sales goals.
Customer Service: This is a simple area that’s easy to overlook. If you want to double your sales, you may also end up doubling your technical support. Is that likely to be a problem for you? Determine what you can do over the next year to help improve the level of service you can provide to your customers and/or reduce the amount of time it takes you to do so. Maybe you could expand your FAQ or establish an autoresponder for your support email address. Anything you’d like to do here over the next year should be written down and added to your plan.
Other Improvements: What other improvements would you like to make to your business this year? Would you like to hire a local college student to help you with some of the grunt work? Do you think you can reduce the cost of your physically shipped products? Set goals for how you’d like your business to look one year from today, break those goals down by quarter, and then plan out the details for the next ninety days.
Now that you have written goals for where you want to be one year from today and a plan for how to get through the first ninety days, give it a good sanity check. Can all this be accomplished in the time you have available? If so, you have an excellent chance of staying on target to meet your one-year goals. If the amount of work seems unrealistic though for the time you have, then your goals probably are unreasonable, so go back and set more reasonable goals, and adjust your plan until you can see that it is achievable.
One of the major benefits of quarterly planning is that you are able to clearly distinguish between the relevant and the irrelevant. You are free to adjust your plans at any point as you gain new knowledge, but your current plan serves as the control by which you evaluate any new opportunity. For instance, if you have a written plan that will allow you to double your sales this year, you would naturally know to pass up any opportunity that would only increase your income by ten percent over the next quarter (assuming that’s all you’d have time to do during that quarter). If you increased your sales by forty percent last year by jumping on several time-sensitive opportunities, but in so doing you didn’t have time to release a new product that would have doubled your sales, then you just lost a lot of money that was yours for the taking. The process of planning increases your odds of landing the true opportunities while avoiding wasting your time on the fakes.
By default, whenever a new opportunity arises, you should ignore it and stick to your plan unless you are strongly convinced that following the opportunity will put you in a better place than would following your existing plan. There are some true opportunities that do warrant your immediate attention, but most things that seem like great opportunities are largely a waste of time.
If you see what looks like an opportunity but have no means to evaluate its potential benefit to you, I recommend that you attempt to acquire more information first. In the meantime, stick to your plan by default. For example, when the adware concept started gaining serious attention from developers, I thought it sounded like an interesting revenue model that might make me some extra money. I already had a written plan in place that showed me a clear route to increasing my sales, so I decided to stick to my plan until I saw some real evidence that creating an adware version of one of my games would be worthwhile. In the end most developers I knew who jumped on the adware bandwagon came back to say that they had wasted their time and that adware generated very little income at all. By sticking to my original plan instead of chasing this uncertain possibility, I was able to achieve a better percentage increase in my sales than many other developers who didn’t make the same decision. I can cite many other examples where sticking to my plan in the face of an uncertain alternative yielded much better gains than I would have likely enjoyed otherwise. If you can write out a plan that virtually guarantees that you will double your income over the next year, it should take a pretty strong opportunity to get to you change course.
One thing that has helped me tremendously in planning is to conduct a simple cost-benefit analysis for each new project I consider. I have literally dozens of ways to increase my income: I could do more online or offline marketing, increase my distribution, send out more press releases, solicit more reviews, engage in host-beneficiary relationships, start an affiliate program, secure more licensing deals, develop and release new products, create new bundling deals, improve my web site’s ability to sell, improve my products’ registration rate, localize my products into other languages, release another add-on to an existing product, sell ads on my site and in my games, launch a new web site, experiment with price changes, and so on.
Any one of those ideas could and probably would increase my income. Even if I work with no plan whatsoever, I can’t help but beat last year’s sales due to sheer momentum. But I’d be working in the dark, never knowing if what I was doing was really the best use of my time. Without a plan, I might increase my sales by 50% this year. With a plan I can recognize ways to do much better than that and with less effort and risk. In creating my plan I estimated the relative ROI for every way I could think of to increase my business. I considered risk factors and worked out a plan that I expect will give me the best payoff for the least risk, money, and time invested.
For instance, after Dweep was released, I did a calculation to see what I should do next. My estimates showed that an expansion pack would likely have the best payoff, and it was low risk as well. I did that, and it paid off better than expected. Then I repeated the planning process and again saw that doing another expansion pack was warranted. The second expansion pack produced results close to my estimates. After that, however, I saw that creating a "gold" version of Dweep would have a better payoff than doing a third expansion pack. It did, but the payoff was still about triple my estimates.
Once you’ve established a plan, you must triage ruthlessly. In other words, absolutely refuse to jump on new opportunities that cannot virtually guarantee you better results than what you already have planned. This requires that you pass up obvious income-generating opportunities in the pursuit of optimization. For my business, after reviewing all the options, I decided to focus my efforts this year mainly on two areas: releasing new products and licensing. Because of this, I can expect to more than double my income this year if I just stick to my plan. This plan also dictates what I won’t be doing this year. For instance, I would be able to increase my income by localizing my products, but the payoff would not likely be as great as my optimal choices, so I don’t plan to do any localizing this year.
I’ve run my business without a plan for years, and I’ve run it with a plan for years. Planning is better. If you’ve been running your business on a day-to-day basis without any sort of long-term written plan, I strongly encourage you to give planning a try for the next ninety days, and see what a difference it makes.