Martin Bressler, Ph.D., is an associate professor of management at Southeastern Oklahoma State University, where, through the Small Business Institute program, he’s counseled more than 100 small businesses on how to thrive.
He served as a research panel expert to the 1995 White House Conference on Small Business. He’s also president of the Association for Small Business and Entrepreneurship, a mostly academic group dedicated to researching and supporting small business success.
Needless to say, Bressler knows a thing or two about what it takes to build a successful business. So we caught up with him to talk about the importance of forecasting. Here’s what he had to say.
Let's talk a bit about small-business strategy, specifically having a forward-thinking approach. How important is that?
It's extremely important. Unfortunately, a lot of small businesses I've worked with aren't really in the mindset of thinking forward enough. They're too much focused on the mindset of what's today, or maybe next week, or maybe even in next month. But in order to be ready for the challenges and opportunities that the future holds, you really have to be forward-thinking, and small businesses, just like larger businesses, should develop a good strategic plan, looking ahead to about five years.
What areas are crucial for small-business owners to be thinking ahead?
You need to look at what products and services you might be offering five years from today, [products and services] that could be significantly different than what you're offering at this point in time. Obviously, there's a lot of financial planning. All these things are going to cost money, so you have to develop a plan [for] how you're going to finance this.
What happens when there's an unforeseen situation that crops up?
There are two aspects to it. No.1, a plan is a plan, but it's not something that's in stone. Plans should allow for some flexibility, and certainly when something unexpected comes up, plans have to be altered.
But the second part of that is, when you develop a strategic plan, you do a thorough assessment of risk. Sometimes the risk could be a weather event, such as a hurricane or flood or something like that, and other times it could be financial risk… The contingency part of your plan is a very important exercise to go through. If you don't identify what your potential risks are in your plan, you could be devastated.
Why do you think so many small-business owners are lacking a well-thought-out plan?
A lot of the small-business owners are in very small businesses, what we call micro-businesses, which have 20 or fewer employees. They often get so caught up in the day-to-day types of things that they don't have the time, or they don't set aside the time, to be able to go and really check out those resources.
What are some tell-tale signs that a small business needs help?
The first, of course, is the financial data. You want to be doing some comparison not only by year-to-year; you also want to look at what some of the industry norms are.
You can do some comparisons vis-a-vis what other businesses are doing. There are some qualitative things you can do, too. One of the things I like to do is look at what we call a lost customer analysis. You might be able to identify customers you've had for a number of years who you no longer have and try and find out why you lost those customers.
We're talking about thinking forward, but it sounds like going backward can help you form a solid direction.
Absolutely. You have to look at what past performance has been, and you have to kind of look beneath the surface—not only what you've actually done, but what you should have done and could have done.
Say you're drafting your plan. How do you know you're setting goals that are realistic?
That's a really tough call. There's a lot of what I call educated guessing in there.
I usually say, start with what the market norms are for your projections, unless you're doing something radically different.
It's probably better to be a little more conservative when you're starting out, but be prepared to gear up very quickly if business takes off faster than what you expect.
If that happens in year one or year two, then do you adjust your plan for the remaining three years?
When you look at a five-year plan, it's really five one-year plans.
You'll probably always be looking at, what [the] last year's performance has been, what [you] expect to do this year and so forth. So you're continuously, at least at the end of each year, adjusting your five-year strategic plan.
Is this something that all your employees should be aware of, or is this something that's kind of reserved for the top management?
I believe in sharing as much information with employees as you can. I'm going to give you a football analogy. Let's say it's Saturday, the day of the big game, and coach goes into the locker room and says, 'OK team, I want you to run out there and win.' Obviously the team knows they want to win, but they really need to know what the game plan is. Your employees need to know not only is the objective to make money, but what specific things does this mean for [them].
Any final thoughts on forecasting?
If we look at why some businesses fail, some fail due to overextension or expanding too fast. But also under-extension, which can mean lost opportunities that you'll never see again. And that's why developing a good plan is important, and [developing] as realistic a plan as you can.
Photo credit: iStock