Aging strategic plans put older small businesses at risk, advisers say

[caption id="attachment_42582" align="alignright" width="300" caption="Survival rates are shown to decrease for small businesses over time in this graph from the U.S. Bureau of Labor Statistics, though the average number of employees for older companies is higher."][/caption]

Older small businesses are less likely than new companies to have an updated strategic plan, an oversight that North Bay advisers say puts them at higher risk of becoming less competitive or folding in a fast-evolving economy.

Those advisers blame a number of factors that cut across industries, including the sense of economic uncertainty confounding long-term planning and  business owners who think they can stick to a business plan that worked in the past.

The risks of not frequently revisiting a business plan for a small company loom large. At best, owners face missing opportunities - at worst, an outdated strategic plan can lead to a preventable death blow.

“New businesses -- they’ll go through the process. What’s happening now in our ever-changing markets is that you can have somebody who was a great restaurant three years ago, but because of the needs of their target market, they’re no longer playing. They need to reinvent themselves,” said Elizabeth Pratt, director of economic workforce development at the Small Business Development Center at Napa Valley College.

Those businesses, which the U.S. Small Business Administration describes as “an independent business having fewer than 500 employees,” involve approximately half of the country’s workforce.

Only 26 percent of small businesses survive longer than 15 years, according to the Bureau of Labor Statistics.

That rate is the product of many factors, but Ms. Pratt and others said that a common failure to update a business plan affects the curve significantly over time.

At many of those companies, owners are simply too engrossed in the day-to-day operations of the business to revisit their strategic plan, much less look back at it throughout the year, Ms. Pratt said.

That is despite a bundle of high-profile, unexpected events that, seemingly overnight, have hit bottom lines throughout this year. International crises like the Japanese earthquakes and the Arab Spring have raised prices for fuel and products, adding pressure to even the smallest of small businesses and highlighting the importance of revisiting a business plan often, said Lorraine DuVernay, director of the Small Business Development Center at Santa Rosa Junior College.

“It’s really hard for small business owners to take their blinders off. It’s not that they don’t want to grow, but as a small business owner, you’re doing so much just trying to make sure that the bottom line stays positive and you make payroll,” Ms. Pratt said.

In Napa, Ms. Pratt said she’s seen firsthand how one factor, changing customer habits, has caused many well-known restaurants to recently shut their doors.

Small business are inherently better than big companies at reacting to market changes, Ms. Duvernay said. Yet as an outdated strategic plan diverges from the reality of the modern business environment, that flexibility might not be enough.

Developing a plan doesn’t take long -- unlike large companies, a small business owner has to deal with “less moving parts” and can start reevaluating their strategic plan later in their business cycle, Ms. Duvernay said.

“When your plan depends on your peak and your valley, a lot of retail businesses need to start planning a year ahead of time. What are they going to carry for the holiday; how much they are going to carry … production businesses have a different cycle,” she said.

A one-year plan is a must, Ms. DuVernay said, but owners should try to develop a plan lasting 24 months or more despite widespread talk of historic uncertainty in the economy.

A strategic plan is a highly individualized concept that depends on the nature of the business in question, said Ms. Duvernay.  

What remains the same, however, is the focus: advisers recommend that a strategic plan be viewed as an updated business plan, revisiting all of the core concepts about the company.

Those concepts include goals for growth, staffing needs, an updated idea of competition and an examining of customer trends.

Many small businesses can create an effective strategic plan in a handful of pages, said Ms. DuVernay. Even a single-page document can be sufficient for some.

Despite that brevity, a good plan will be revisited and adjusted monthly, she said.

One recent trend that has started to affect businesses in the North Bay is an influx of investment and tourism from Asia, a movement that could lead to new business plans across several industries, said Ms. Pratt. The region’s wine has started to appear with regularity in cities like Hong Kong, and more travelers from the continent have been perusing the county’s shops and other attractions.

“The economy now is really a global economy,” said Ms. DuVernay.

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