The Evolution of Business Plans
The real start of developing any business plan is coming up with the initial concept, idea, or thought. Over time, the plan evolves usually in line with the following progression:
BOTE: Back of the envelope
WAG: Wild-ass guess
SWAG: Scientific wild-ass guess
These acronyms on developing business plans and projections are presented somewhat in jest, but at the same time, they do help you understand the evolution of a business plan and projection model from how an idea is born to how it’s communicated in financial language to various parties.
Whether you apply these acronyms and follow this logic or rely on another creation and development cycle, the same key concept holds. Business plans and projection models should continue to evolve, improve, and strengthen over time as more and more effort is invested to bring the idea to life.
BOTE: Back of the envelope business plan
BOTE usually represents the very first financial projection developed for a business plan: back of the envelope (or back of a napkin at a restaurant).
Yes, even the majority of the most astute and experienced business professionals and entrepreneurs can attest to jotting down the basic concepts, needs, potential sales, costs, and profits of a business idea or concept on a random piece of paper (or with a simple mobile communication device application).
Sometimes you need to get it out of your head and down in writing just to see whether it makes any sense to begin with. You’d be amazed at how often BOTE estimates are used.
WAG: Wild-ass guess business plan
If the idea passes the BOTE test, the next step in the evolution of the planning process is the ever-present WAG (or wild-ass guess). The WAG is somewhat more sophisticated than the BOTE in that it tends to incorporate more thought and some basic research.
WAGs are usually produced by using software tools such as Microsoft Excel and incorporate the basic economic structure of the business, starting with sales and then moving through the remainder of the income statement by capturing costs of sales, operating expenses, and overhead or general and administrative costs. You can then draw two simple conclusions:
How profitable the idea will be
More importantly, how much capital or cash the idea needs in order to achieve success
These conclusions aren’t overly sophisticated, but they’re an early attempt to assign numbers to the idea.
SWAG: Scientific wild-ass guess business plan
If your idea has passed both the BOTE and WAG stages, congratulations are in order because you now can use the much more powerful tool, SWAG (scientific wild-ass guess) to further the development of your business plan.
In other words, the business plan and supporting projection model are actually getting some serious attention and logical consideration. You can begin to use external sources (or third-party data/information) to actually start to substantiate and corroborate the idea’s potential.
The first real form to the business plan and projection models are taking shape. You may be incorporating the use of technology tools to draft the business plan (for example, Microsoft Word), to build version 1.0 of the projection model (perhaps with Microsoft Excel), and to begin to prepare a presentation to summarize the plan (for example, with Microsoft PowerPoint).