One of the big conceptual foundations of strategy is what I like to call your business identity.

This is what makes your business different from all others: what you want, what you do well, how you do things and what makes you unique.

What You Want

It starts with what you (as the owner of the business) want for your company. Define success for yourself. It isn’t always a matter of market share, sales growth, profitability and return on investment, although those concepts are always nice. In many cases it’s about living well, or living better. Having more time with the kids. Coaching soccer. And sometimes it’s about being right. Showing that something can be done. A lot of times it’s about doing what you want and making money at it. It helps to think this through. You can’t get to your destination if you aren’t sure where you’re going.

There are several levels of goals in business planning. Use one or more of them to define your identity:

1. The mantra: This is a simple sentence or phrase describing what you do. Guy Kawasaki has a nice treatment of mantra in his book The Art of The Start, and he’s made an excerpt of that available for download.
2. The mission statement: Too bad it’s usually just empty hype. A good mission statement actually defines what your company wants to do for its customers, for its employees and for its owners. That can be useful.
3. Business objectives: These are specific, concrete, measurable goals, like sales levels, growth rates, units, profit percentage, gross margin percentages, customers served and so on. If it isn’t measurable, then it shouldn’t be there.
4. The vision: This is a dream for the future. Project yourself forward into time, say three or five years, and describe what you want to see for your company.

What You Are

Then there is that sense of looking in the mirror, as a company, recognizing what your company really is. This includes:

1. Core competencies: What are you really good at? What do you do better than anybody else?
2. Keys to success: They are different for every company. It doesn’t really go by industry, either; one company’s key to success is better parking, another’s is better food, another’s is better service. Or lowering costs. Or more repeat business. Or better marketing.
3. Strengths and weaknesses: The top part of a good SWOT analysis, the nature of your company. Be honest. First identify strengths and weaknesses, and later you can build strategy based on them: Work toward the strengths and away from the weaknesses.

Think of soccer or basketball. You get the ball near your own goal (or basket), and you want to dribble it forward. Ideally you have a plan. You’re going to pass it up the side, and from there a play will develop. Or you have some other plan.

And things change rapidly. The opposing players surprise you by doing something different from what you expected.

You watch the play developing. You keep your eyes up to see the field (or the court), but you also focus on the ball and the details of dribbling, probably at the same time.

This is a good example of planning as you go. You watch the field and the details at the same time. You expect things to change. You expect to react to the change quickly.

So it’s not that you don’t have a plan or that you don’t want planning. It’s that you want planning to be very fast, flexible and adaptive. The goals remain the same, but the detailed plan changes.

Lots of people think of themselves as either words (or concepts) people or numbers people. In business planning, however, it’s hard to separate the two. Even the words and concepts people need numbers–the sales forecast, the expense budget, other metrics–to make their planning real. And the numbers people need to move away from the numbers long enough to think through the core strategy, how their business is different, what their customers want from them, and the rest of that heart-of-the-plan center.

The problems come when people get bogged down. Some people fear writing; they think of the empty page, spelling errors, grammar errors and bad days in school. Some people fear math. They think of arithmetic errors, red marks on papers and not being qualified.

And the magic solution is just keeping it simple.

• As for words and concepts, particularly at the beginning, think of the core as that elevator speech, maybe full bullet points, but not a term paper or well-written prose. It doesn’t matter. Nobody but you is reading it. You can dress it up later when you actually need to show it to an outsider.
• For the numbers, keep them simple. Do a sales forecast. Do an expense budget. Be mindful of the cash-flow traps, watch your cash balance, but don’t think you need a full financial forecast from Day One. Just some estimates you can track and review, and use to manage plan vs. actual. If–and only if–you’re a startup, do your starting costs, too.

You may have a business plan event, in which case you’ll probably want to do full explanations with supporting information, covering the bigger market picture, the team background, company history and a complete financial forecast. That would include sales, personnel, profit-loss, balance sheet, cash flow, even the business ratios and probably a break-even analysis as well, plus maybe what you’re going to do with the money you’re seeking, how much of your company you’re trading for investment and so on. But wait until you need it before you get it.

And for the words and concepts people, you already have somebody running the numbers of your company. You have to have that to survive administration and taxes. If you’re just starting, then you can usually find somebody who understands basic business numbers so you can add those skills to your team. Remember it doesn’t have to be just you; you can build a team with co-founders or partners, or contractors or employees, too. Regardless, somebody will have to run the numbers once you get going.

For you numbers people, I think I know you pretty well even though I was a lit major in college and wrote for a living for years. I discovered numbers in business later, when I got the MBA. Most of you are keeping those concepts in your head– things like positioning, differentiation, strategy and focus–because you think about them through the numbers. Don’t sweat the format, the mistakes or the sentence structure: Just tell your story. And start with the numbers; that works just as well.

Remember, with the plan-as-you-go business plan, it’s start anywhere and get going. Build it as you need it.

That having been said, I want to share a words-and-numbers together story. This is from my book Hurdle: the Book on Business Planning:

In 1974, I switched from general journalism, writing for United Press International from Mexico City, to business journalism, writing for Business International and McGraw-Hill World News. With the switch, I found myself covering business and economics instead of general news, writing for (among others) Business Week and Business Latin America. Because I thought it would be nice to have some idea what I was writing about, I went to the local graduate school at night for courses in general economics, accounting, finance, and marketing.

As I learned about macroeconomics, and how to read financial statements, I discovered that the truth in business is almost always a combination of words and numbers, and can’t be explained with either one without the other. For example, when a Central American government announced a new federal budget that it said was going to both develop growth and reduce inflation, the numbers said that was a contradiction. You can’t do both; you can do one or the other. You could only see that by dealing with both words and numbers.

I went on from there, in that book, to plow through the whole numbers thing as if everybody had a full business plan event to worry about and therefore a full, complete formal plan to do. This was too much, in retrospect. You can track and manage most businesses with the core plan numbers in the sales forecast and expense budget.

A business plan is like that, too. You can’t describe a plan without both text and tables, both words and numbers. The single most important analysis in a business plan is a cash flow plan, because cash is the most critical element in business. With the way the numbers work, however, you can’t do a cash flow plan without looking at the income statement and balance sheet as well.

You really can’t do the income statement without looking at sales, cost of sales, personnel expenses and other expenses, so you need those too. And you’d have trouble doing a sales forecast without understanding your market, so a market analysis is recommended.

And then you have the break-even as part of the initial assessment, and tables for business ratios, general assumptions, and other numbers. Step by step, the business plan becomes a collection of tables and charts around the text.

Although cash is critical, people think in terms of profits instead of cash. We all do. When you and your friends imagine a new business, you think of what it would cost to make the product, what you could sell it for, and what the profits per unit might be. We are trained to think of business as sales minus costs and expenses, which results in profits.

Unfortunately, we don’t spend the profits in a business. We spend cash. Profitable companies go broke because they had all their money tied up in assets and couldn’t pay their expenses. Working capital is critical to business health. Unfortunately, we don’t see the cash implications as clearly as we should, which is one of the best reasons for proper business planning. We have to manage cash, as well as profits.

That’s all true, but not for all plans–only when you’re doing the formal plan for outsiders. With the initial plan-as-you-go plan, some of that can wait until later. I am going to explain all of it in my next book, by the way, but some of it waits for the business plan event, so you do it when you really need it, as your business and plan grow.

So you want to know something you don’t know. Here’s one way to find out.

Get on the phone. Think of somebody to call first. Come on, you can think of somebody. Somebody who might have some idea. No ideas at all? Then call up the local Small Business Development Center, if you have one near you, or the equivalent development agency, if you’re not in the United States. Or call a local bank and ask for somebody who works with business loans. Call the nearest business school. Call your cousin who owns her own business. Call somebody.

Unless you’re really lucky, that first person won’t have the answers you need. Don’t worry. Ask her whom she knows who might know.

Every person you call, you ask who else might know.

Eventually, you’ll find out as much as you’re going to. It’s not magic. You may not get to know everything about every subject. Particularly with business planning, even after a long search, sometimes you still have to guess.

Nobody talked much about business models until suddenly a lot of businesses, which were valued for a lot of money, didn’t have them.

For almost any traditional business, the business model is so obvious that you don’t have to talk about it. Stores sell goods. Restaurants sell meals. Hotels sell lodging. Airlines and taxis sell transportation.

Think of the business model as how you make money. How you get money out of your customer’s pocket and into your bank account.

The new businesses, mainly Web businesses, need to explain how they make money. Some of the most highly valued businesses in the world–Facebook, for example–don’t have an obvious way to make money.

Some businesses still get away with generating traffic, so-called eyeballs, but not money. The underlying assumption in these cases is that the traffic means a likelihood of being able to generate money somehow, some day.

And if you want to be really trendy, use the phrase “business model” to mean type of business. This can get really interesting. Take a look at Alexander Osterwalder’s Business Model Design and Innovation, for example, a blog focusing on new ways to do business. Here’s how he defines the business model:

A business model is a conceptual tool that contains a set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing and delivering this value and relationship capital, to generate profitable and sustainable revenue streams.

Along with that he adds nine points:

1. The value proposition of what is offered to the market;
2. The target customer segments addressed by the value proposition;
3. The communication and distribution channels to reach customers and offer the value proposition;
4. The relationships established with customers;
5. The core capabilities needed to make the business model possible;
6. The configuration of activities to implement the business model;
7. The partners and their motivations of coming together to make a business model happen;
8. The revenue streams generated by the business model constituting the revenue model;
9. The cost structure resulting of the business model.

This is perhaps a bit thick in language, but still, a nice summary of a business. It’s a good list.

Here’s an interesting quote:

Entrepreneurs who say they are overwhelmed by their business rarely have a documented plan in place. Hiring, customer targeting and other important decisions are driven by the needs of the day. It’s what I call the Band-Aid approach to management. It’s patch-driven rather than purpose-driven.

That’s from Susan Schreter of the Seattle Post Intelligencer, in “Inside Entrepreneurship: Make time to create a business plan.”

She’s responding to a reader commenting, “I’d rather spend my time making money than creating documents I don’t have time for.” And that, ironically, is right after asking how to decide whether to hire employees or use independent consultants. Gee, can we connect those dots?

(Via Campus Entrepreneurship.)

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There’s a scene in one of the Monty Python movies. The woman on the table is about to give birth. Frightened, she asks the doctor–a memorable John Cleese character–”Doctor, doctor, what do I do?”

The doctor, looking down at her with a sneer, answers “You? Nothing. You’re not qualified!”

It’s a very funny scene. I’m a man. I’ve been present for several births. I know who does everything. Not the doctor.

And the same strange hesitance shows up a lot when people in business need to forecast. They think somebody else, somebody with more schooling, knows better. They can run the numbers, do an econometric analysis, look at the data better, find the trends.

The truth, however, is that nobody is more qualified than a business owner to forecast her business. You’ve been there, you’ve lived through the ups and downs of it, you have the sense of it better than anybody.

For the record, I spent several years as a vice president in a brand-name market research consulting company. Our clients often thought we knew better, because that’s how we made our living. And most of the time we were just doing educated guesses, like you do when you forecast your own business.

You are qualified. Trust yourself.

And I’m sorry, I just found the scene in YouTube. You can click the link if you don’t see the video below. I couldn’t resist adding it here. The specific “You’re not qualified” moment is at about 1:25:

We focus too much attention on mission statements. Too often they distract us from the real business of bearing down on why and how we’re different, particularly when taken from the customer’s point of view. The mission statement tends to be meaningless, fluffy words.

Here’s a good test: Take your mission statement and ask yourself, honestly, if your competitors’ mission statements couldn’t be exactly the same? Could one of your own team members guess which company is yours if he or she read your  mission statement plus those of four competitors? Most companies’ mission statements are full of promises about excellence, customer experience, and leading-edge technology and such. They don’t mean very much. Words like “excellence,” for example, mean nothing. Define excellence. How would you even know?

Everybody writing a mission statement or even thinking about one ought to spend a few minutes with the on-line Dilbert mission statement generator. Then read Guy Kawasaki’s post How to Change the World: Mantras Versus Missions. Pay special attention to how he suggests mantras might be more useful. This is from that post:

However, you should also create a mantra for your organization. A mantra is three or four words long. Tops. Its purpose is to help employees truly understand why the organization exists.

If I were the CEO of Wendy’s, I would establish a corporate mantra of “healthy fast food.” End of story. Here are more examples of corporate mantras to inspire you:

Federal Express: “Peace of mind”
Nike: “Authentic athletic performance”
Target: “Democratize design”
Mary Kay “Enriching women’s lives”

The ultimate test for a mantra (or mission statement) is if your telephone operators (Trixie and Biff) can tell you what it is. If they can, then you’re onto something meaningful and memorable. If they can’t, then, well, it sucks.

So why bother? Good question. Maybe the mantra is enough, as Guy suggests. But some companies use their mission statements well. They do become part of the background of day-to-day work and long-term strategy development. For those cases, if you’re really going to use a mission statement, then I say you should also remember three points a good mission statement should cover.

1. What are you doing for your customers? Let’s hope this is something that sets you apart, makes you different and that your customers will recognize.
2. What are you doing for your employees? Fair compensation, good tools, professional development, encouragement or whatever. If you’re serious about it, put it in the mission statement. If it’s in the mission statement, get serious about it.
3. What does the company do for its owners? Don’t apologize for needing profits to stay in business or for generating return on investment for those who invested. Say it as part of your mission statement.

If at this point you’re still looking at developing a mission statement, then I recommend Writing a Mission Statement on Bplans.com.

The plan-as-you-go business plan is the answer to what we need from now on to take planning into the core of business, make it management, use it to help grow and direct the future, proactively.

I have a summary of this in my most recent monthly column on Entrepreneur.com.

This is going to be my next book, published by Entrepreneur, due out in the bookstores and on the web in September of this year.

It’s about planning, not just a plan. Make the plan only as big as you need, not a formal document if you don’t need a formal document. Keep it on the computer.

It starts with setting up review schedules, and it also includes metrics, dates, deadlines, specifics, cash flow and the marketing heart of the plan. But it isn’t a complete formal document until you find yourself needing a complete formal document.

For more detail, it’s on Planning Startups Stories.

It’s fun, sometimes, to go back to the old days. Last week in London I was able to talk to Emma Jones of Enterprise Nation, focusing on home offices. Emma then put up a nice post that’s both a reminder of the good old days of my company, and a reminder of how and why we all ought to be planning our businesses. Emma talked to me and Alan Gleeson, managing director of Palo Alto Software Ltd in the UK, and calls her post Business Plan Pros.

We talked about the early home-office days of Palo Alto Software and our present home-office situation, with one employee in Ireland.

Some key points:

So, what were Tim’s and Alan’s top tips for Enterprise Nation members who are about to start on a business plan or about to review an existing one?

1. Do it. Start anywhere. But do start! Writing a business plan is not hard, but you do need to commit to get going!
2. Understand that it is a living document that should be regularly reviewed and revised.
3. Be sure of your market demand.
4. Keep your eyes firmly on cash flow.

Afterward, Alan and I remembered that Palo Alto Software Ltd, the UK subsidiary, started as a home-office business as well.

I’m in London as I write this. Yesterday I was interviewed, along with Alan Gleeson, UK Managing Director of Palo Alto Software Ltd, by Alex Bellinger of the UK-based SmallBizPod. Alex is a natural interviewer, so it was an enjoyable session. We sat in a garden room in my hotel.

You can hear that interview by visiting www.smallbizpod.co.uk.

Validating the idea and understanding the business model are pretty important steps that should come before writing a business plan. That’s hardly a novel idea.

Still, novel idea or not, successful entrepreneur Vivek Wadhwa spells out the early stages very well in a BusinessWeek special report published yesterday, “Before You Write a Business Plan.”

He starts with a short list for validating the idea:

1. Write down your thoughts on the product you want to build and the needs you want to solve. You’ll be detailing your hypotheses.

2. Validate these hypotheses with as many potential customers as you can. Ask them if they will buy your product or service if you build it. Learn about what features they need and what they will pay for, ask them for more ideas, and be sure that there is a large enough market.

3. Build a prototype of your product or offer a test run of your service and again ask potential customers what they think about it. You’ll find that customers usually provide much better input when they can actually try out a product.

Then he also suggests a slightly longer list for developing the business model, as the answers to a series of questions:

1. How are you going to find customers or have them find you? Are you going to advertise, cold-call or rely on word of mouth?

2. How will you differentiate your product or service? There is always competition, so how are you going to set yourself apart?

3. What can you charge for your product or service that’s profitable for you and provides value to the customer?

4. How are you going to persuade potential customers to buy from you? Even great products or services don’t sell themselves; you have to develop a process for closing deals (BusinessWeek, 7/12/05).

5. How will you deliver your products or services to your customers? Are you going to have a direct sales force, sell through distributors or over the Internet? Can you do this cost-effectively?

6. How are you going to support your customers if your product breaks? Are you going to provide a telephone hotline, on-site support or answer e-mails?

7. How are you going to ensure customer satisfaction and turn customers into loyal fans? Your success will ultimately depend on how happy your customers are.

These are good lists to go over as you consider your startup.