An afternoon weighing up business plans
I have just got back from an invigorating afternoon – a pleasant excursion out of the office. I had been invited to act as a judge, (a sort of “external assessor”), for a business class at one of the local Universities. As part of their course in “Business Administration” they have to form teams and then prepare and present a Business Plan.
This exercise counts as part of their assessment, and the university wanted some practicing businessmen to help adjudicate and give some external element to the assessment.
I have done this before so knew roughly what to expect. This year, however, there were only four teams, so it wasn’t going to be the “marathon” that we’ve had before – or, at least it shouldn’t have been – but as it turned out it took twice as long as we had thought it would … so there is something in the saying that “work expands to fill the time available”.
The plans were handed to me a few days earlier so I had the chance to read through them beforehand.
The marking scheme was quite simple – 20 points on which to judge their performance, then award a mark up to 5 for each. The marks are then totaled and for a “pass” grade they have to exceed a threshold.
I smiled when I saw the marking sheet because although a mark of 5 was supposed to indicate an “Excellent” performance in that particular category, the rubric for 1 was “Needs Improvement” – and I reckon that, almost everything that isn’t excellent, “needs improvement”. In fact, very few things are “perfect” and so it could be argued that even an “excellent” performance can be improved.
On more than one occasion, as a school teacher, I was faced with a pupil who looked at the piece of work as I handed it back whose face fell as the saw the amount of “red ink” on the front page, only to see it light up again when they turned to the last page and saw the final mark. Although the work was good, there may have little mistakes, or points that could have been tackled differently to good effect. Maybe something was missing, but that didn’t mean the piece of work was bad. The “red ink” on an assignment can indicate corrections, or advice on how to improve.
So damaging can be the effect of a mass of red ink, that one school I came across in the UK, had adopted a policy where the first page was always marked rigourously and thoroughly, but subsequent pages were left free of any comment except the final mark. Although I could the logic and understood the reason for adopting the policy, I found that difficult to take and was glad that I didn’t teach in that school.
Anyway, be that as it may, I have known some marking schemes that have been much more complex and although they are more “sophisticated” in that they can target and allow different weightings for particular skills, they tend to be much more difficult to interpret and apply. This system was fair and easy to understand – and hence to implement.
The simplicity and ease of operating a marking scheme is not necessarily a useful guide to its effectiveness. For example, as a novice teacher, in my first teaching post, I was faced with a five point grading scheme, (A to E), and the instructions were that the class was to be divided in the following way: The top 10% of the class were to be awarded an “A” grade, the next 20% – a “B”, the next 30% – a “C”, the next 20% a “D” and the bottom 10% a “D”. The idea was that pupils and parents could see how they had performed in comparison with their peers. I followed the instructions explicitly – and then, “all hell broke loose”. It seems that everyone else ignored the instructions. To make matters worse, one of my classes was a top-set Mathematics class, where everyone had been used to receiving straight “A”s and those to whom I had awarded a “B” were mystified and horrified – and you can imagine the effect on, and reaction of, those who were awarded an “E”. No amount of explanation could appease them. Although I thought was a good scheme in that it should have given clear idea of the pupils ranking in the class, like the rest of my colleagues, I duly ignored the scheme the next time round.
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For this exercise there were three of us who served as judges: the course lecturer, (an MBA but also a businessman with a wide experience in his own right – so not just an academic), a foreign consultant here on a project which is just finishing, (a consultant, but one with a wide in a variety of businesses around the world) and me.
In the past the business plans presented as a part of this exercise have covered a wide range of possible business ideas, from photo booths and specialist cafes to opening a medical laboratory. This year the ideas included a meat packing factory, a Counseling service, Event’s organizing and a company offering Cleaning services, (for offices and apartments).
Now, I tend to be a hard marker – I always have and I have to remind myself that these are just students, and, as such, they are young and relatively inexperienced, indeed, this may the first time they have undertaken such an exercise.
What’s more it is a part of their coursework, so they have to show what they have been learning as well as presenting a business plan. As a result, the final documentation contained things like statistics which might or might not be appropriate in a particular case.
They all contained the essential elements: an executive summary; description of the proposal; a research into the current state of the market – competition, market research to justify the validity of the proposal; a personnel plan; an operations plan; a marketing strategy and plan; and the financial plan with projected balance sheets and cashflow forecasts. One even went so far as to include an exit strategy which I thought showed particular foresight.
Of course, some were better prepared and implemented than others.
Sometimes there are oversights, important issues which are not considered, but on this occasion most of the groundwork had been solid and I was impressed. They had clearly learned from their teachers what should be included, although, as I said, some were better than others.
Sometimes, there were basic errors. On one particular case in the past, for example, a team had underestimated the rental cost in local shopping centres for their retail outlets, and this would have had a big impact on their financial plans and the viability of the business – although, in general, their proposal struck me as a good idea.
This time, some of the plans were based on the idea that the teams had already amassed the funding necessary to establish the business, so they weren’t plans that might be presented to a bank, or investment broker in order to raise finance. Despite this, they managed to present the justification in such a way as to suggest that they really had done the work efficiently and effectively and not just as an exercise or assignment – something I have suspected to be the case in the past.
Each of the three judges tended to concentrate on particular issues. In the past, one of the judges concentrated on the financials. I, on the other hand, tend to concentrate on the question of the clients – without clients, there is no business. One of the things that always worries me when looking at a business plan – my own included – are the assumptions – especially about the level of potential business. No-one knows what the future may bring, and unrealistic assumptions can lead to inflated forecasts and potential disaster as the hoped for business is not forthcoming. I would have preferred to see more justification as to why they had chosen particular levels of business – and possibly different forecasts: conservative; “realistic” and optimistic. This might also mean amendments to, or event different, organization strategies.
Although they all recognized that the businesses that they proposed would be new and have to break into the market, they didn’t seem to address some important points, (for example, the youth and apparent inexperience of the team members). This would be especially important if they were seeking investment funding. In some cases it might well be an advantage, but not in others.
They also seemed to stress that one of their competitive advantages would be that they would offer “quality” of service, however, they also claimed that they would be cheaper than their competitors. Although price might well be an important factor when it comes to trying to gain a competitive advantage, I wasn’t convinced that this was a good strategy for them to follow – but one of the students in particular made a very good defence of their position.
I think that they could have all benefitted from a bit more preparation when it came to the presentations – i.e. they could have rehearsed a bit more … all of them overran and that could be quite crucial if making a pitch for funding to a bank or potential investor.
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All of the proposals were interesting although I am not sure that the plans, themselves, would have got me to part with cash as an investor. As I said, it’s always possible to do better and all of the plans had moments which I felt were in need of improvement. However, I was impressed with the approach of the students and the fact that had undertaken some interesting research and thought through their presentations quite well. They showed a confidence which was refreshing – especially when you consider that they were writing and speaking in English, which is not their native language. I wish I could do so well in Russian.
All in all, it was an interesting experience and I was glad that I had agreed to take part.
Bishkek