Business ideas are interesting, exciting stuff to build a business by, but they are worth nothing (in general) until somebody builds a company around them.

Opportunities are the best of the ideas. An idea is just that. An opportunity is an idea you can implement. You have the resources, and know-how to do it. There is a market. You can make money on it, and the investment will be worth it.

Good business planning filters the opportunities from the ideas. Apply the planning process to the idea to make it an opportunity. Determine the market strength, what exactly is needed, how long it will take, how much money it will take, what people are required. Lay it out into steps.

Not all ideas can survive the rigor of planning. Some fall by the wayside, ending up as interesting ideas that aren’t really opportunities.

Some of the factors that count:

• Risk vs. return. Is what it takes to pursue this idea worth the likely return? This is not scientific. It depends a lot on your business’ attitude about risk, and what other opportunities are available.
• Realism. How realistic are the forecasts? Give them a good look. Are you pushing the forecast to make things work.
• Resources. What will really be required? Think of people, know-how, skills, compensation, implied risk (paying people to build this company up). What are the start-up costs, including expenses required and assets required?
• Market potential. The heart of your sales forecast is the market potential. How much do people want or need the business offering?
• Business potential. How much money can the business make? How will this impact the business? How big is this opportunity, overall?

I talk about the secret sauce a lot, in my seminars and in my class, at the office. It’s definitively another view of the same reality I’m calling the heart of the plan. So that’s one thing to add for the next edition.

The secret sauce is the magic, also called (boring) differentiators, and sometimes competitive edge; Guy Kawasaki calls it “underlying magic” and recommends that it be one of the 10 (or so) slides is a pitch presentation. You can google it and see how people are writing about it, using it to define what’s new or different about some businesses. (You’ll also see some items on McDonalds’ secret sauce for the big mac, and some cooking stuff, but you’ll see what I mean).

This idea of the secret sauce is a good way to explain how you’re different from your competitors. What sets you apart?

Examples? Apple Computer’s secret sauce is design, for example. Michelin tires’ branding tries (in my opinion) to emulate Volve, the safety angle. My favorite restaurant in Eugene, Poppi’s Anatolia, has an extremely spicy version of vindaloo chicken. Whole Foods’ secret sauce is its having established the brand for healthy and organic foods. In cars, just look at the mini-cooper or the Honda Element or the Toyota Prius and you see secret sauce immediately.

The plan-as-you-go business plan is a new approach, a new way of thinking about business planning. It doesn’t really change fundamentals, but it does change the focus. It adds some new angles, and it’s better for you, and better for your business.

What’s the difference? Why do I make the distinction?

Garr Reynolds, in his highly-acclaimed book Presentation Zen, says his approach to presentations “is not a method.”

“Method implies a step-by-step systematic process, something very much planned and linear, with a definite proven procedure that you can pick off a shelf and follow A to Z in a logical orderly fashion.

“An approach implies a road, a direction, a frame of mind, perhaps even a philosophy, but not a formula of proven rules to be followed.”

I like this distinction. It definitely makes plan-as-you-go planning an approach, and not a method. I’ve spent a lot of years working on step-by-step methods to do business planning. Some of them work. Sometimes. But the whole idea of step-by-step, attractive as it is, reinforces the myth of the business plan as a document or hurdle.

What’s the difference? Why does it matter? It’s not that important, but I do want to use the idea of an approach instead of method to emphasize that I don’t want this plan-as-you-go concept to become another list of specific steps, or another list of “do it my way” methods. I want this approach, like this book, like your plan, to be yours, not mine. You take what I’m offering here and use what you want from it, in whatever order you want to use it, and make it work for you.

The military relates very well to planning. In business we talk about battle plans, and war plans, as well as business plans. One of the most recommended books for business is Sun Tzu’s The Art of War. I use Eisenhower’s quote “the plan is useless, but planning is essential” frequently in writing, speaking, and teaching about planning. He makes a critical point.

There’s also the famous line: “no battle plan ever survives the first encounter with the enemy,” often attributed to Colin Powell, but also to Field Marshal Helmuth Carl Bernard von Moltke.

Although you need only the starter plan for the qualifying round, but if you want to move deeper into the business, ! I understand. Just doing the starter plan now is great but maybe you need the formal plan faster. You’ve been asked for it by somebody who might invest, or a bank loan manager, or a boss. Maybe you’re doing it for a business school class. I call these business plan events. When you need the old-fashioned full document, so be it; there’s a business need, so let’s get it done.

We’ll get there, in this book. You can jump there right now, and start writing things down, section by section. I’d rather have you develop your core plan first, then get the essentials including the who-what-when-how-much, the sales forecast, and the spending budgets (a.k.a. the burn rate: the amount of money that flows out of the business each month) but that’s up to you. “Get started and get going” means you can also do it the old-fashioned way if you want.

It’s not for nothing that I always say a business plan has to be your plan and nobody else’s. It can’t be your consultant’s plan. You must know it backwards and forwards and inside out, or it won’t work.

I learned this the hard way, sitting in venture capital offices at 300 Sand Hill Drive, Menlo Park, California (the center of the venture capital world), the business plan consultant on the tail end of the new venture team. I had done the plan, built the financial model, written the text, shepherded the document through the painful coil binding and the whole thing, but I wasn’t part of the team. I didn’t want to be. I was still at grad school, getting my MBA, and my part of this venture was writing the plan, period. I needed the money to pay tuition.

In meeting after meeting, at key moments, the VCs would ask critical questions and all heads would turn to me. I would answer. I knew the plan, backward, forward, and inside out, but unfortunately, I was the only one in the group who did. It was my plan.

It was a good founders team. It included three Silicon Valley veterans; a marketing guy, a technical guy, and a deal maker. They had about 40 years of computer company experience between them. They had a good idea and, much more important, a market window, differentiation, and experience to make it happen.

The three of them never really got into the plan. It was a hurdle they paid me to jump for them. Every meeting generated new changes, so I would go back to the basement computer at the business school, and rerun the financial model. The team of three didn’t include a financial person to learn and manage the model, so it was always me doing the tweaking, which meant I was the only one who knew the plan. I’d rerun my financial model, edit the text, and publish a new version of the plan. They read paragraphs here and there, glanced at the numbers, but they stayed with the strategy, and left the details to me.

Details that, in fact, they didn’t look at. They trusted my faithful recording of their ideas and my financial modeling. They assumed, I guessed at the time, that these were functions that could always be delegated to somebody with special skills while they generated high-level strategy.

They did not get financed. I was disappointed. When you develop the plan and revise it dozens of times and support it and defend it through the long series of meetings with supposedly interested investors, you want it to take flight.

All these years later (that was in 1981), memory of that disappointment is still fresh. I did learn my lesson, though, and I changed my strategy as a business plan consultant. From then on I made sure that any plan I worked on belonged — and I’m talking about intellectual ownership here, conceptual ownership — to the real plan owners, not me the consultant.

If you have the luxury of a budget to pay an outside expert, consultant, or business plan writer, then maybe you should use one. This might be a good use of division of labor, and perhaps you can lever off somebody else’s experience and expertise. However, that will not work for you unless you always remember that it has to be your plan, not the consultant’s plan. Know everything in it, backwards and forwards, and inside out.

Adapted with permission from Planning Startups Stories. All rights reserved

In Chapter Four of his book Blink, Malcolm Gladwell describes how Paul Van Riper, a retired Marine commander, drove the U.S. military to fits in a war exercise called “Millennium Challenge.” It’s a brilliant argument for the plan-as-you-go idea compared with the traditional plan method.

The Millennium Challenge was an exercise designed to test the military’s ability to deal with a simulated war in the Middle East. It pitted a very large team (Blue Team) equipped with a very detailed battle plan , a lot of computer models and simulations, against a very small team (Red Team) led by Van Riper, experienced and self confident and good at making quick decisions.

“Blue Team had their databases and matrixes and methodologies for systematically understanding the intentions of the enemy. Red Team was commanded by a man who looked at a long-haired, unkempt, seat-of-the-pants commodities trader yelling and pushing and making a thousand instant decisions an hour and saw in him a soul mate.”

As you’ve already guessed, Blue Team is the might of the military, and Red Team is essentially one smart guy who starts with a plan and revises it constantly as the battle ensues.

When the game was actually played, Van Riper surprised the Blue Team quickly with a move not in its plans, and as they reacted to that, he surprised them again, and quickly caused considerable unexpected damage to a much larger force. It was all simulated and hypothetical, but the result was that the quick-to-react team with flexible planning beat the pants off the very detailed plan team that couldn’t react to changes.

“Had Millennium Challenge been a real war instead of just an exercise, 20,000 American servicemen and women would have been killed before their own army had even fired a shot.”

That was pretty hard for the military to explain. They analyzed it a lot.

“There were numerous explanations from the analysts at JFCOM (Joint Forces Command Center) about exactly what happened that day in July. Some would say that it was an artifact of the particular way war games are run. Others would say that in real life, the ships would never have been as vulnerable as they were in the game. But none of the explanations change the fact that Blue Team suffered a catastrophic failure. The rogue commander did what rogue commanders do. He fought back, yet somehow this fact caught Blue Team by surprise.”

Implicitly, the problem was the big team full of computers and data trusted a static plan, while the other team didn’t.

Red Team’s powers of rapid cognition were intact — and Blue Team’s were not.

So relate that to the planning we want: planning that responds to rapidly changing reality. Not just “Duh, I can’t plan, I don’t know the future,” and not just “Why plan? Why bother” and not “We have to follow the plan,” but planning as you go.

It’s amazing how long business experts, teachers, coaches, and advisors have swallowed and even spread the idea that a business plan is some sort of standard document, a predictable standard task with a generally accepted set of parameters to define it.

It just isn’t so. Like so many other things in business, the business planning should be appropriate to the needs of the business.

Just about every business needs to build and understand its heart, that core element of strategy that’s about what you’re doing for whom, and who you are and what you want to do.

Beyond that, every business ought to be able to set down some tracks it can then follow and manage, watching progress towards goals. The sales forecast is the most obvious set of tracks. Milestones, like who does what, when, and for how much, are almost always useful. And don’t forget the burn rate.

This isn’t necessarily written down carefully into a formal text. It might be just bullet points, or even pictures; it might even be something you say in a 60-second elevator speech.

And as your company grows, you can grow your plan and your planning. Grow it like an artichoke grows, with leaves — more details, more specifics, more description — surrounding the heart.

Or, if you’re starting your company with a plan for investment or business loans, or if your company is already there and already plans and you want to grow it, then you might go all the way to the more complete formal plan.

What’s important is that you do the planning you need, to run your business better. Not the one-size-fits-all plan, but the just-big-enough plan to give you better planning and management without wasting any time or effort on documentation you won’t use.

“Not enough time for a plan,” business people say. “I can’t plan. I’m too busy getting things done.”

The busier you are, the more you need to plan. Too many businesses make business plans only when they have to. Unless a bank or investors want to look at a business plan, there isn’t likely to be a plan written. If you are always putting out fires, you should build fire breaks or a sprinkler system. You can lose the whole forest for too much attention to the individual trees.

A plan is worth the decisions it causes. If you already know your market, don’t waste time or money doing market research.

Don’t do it just because somebody said it was part of a business plan. But are you sure? Is it worth a fresh look? You decide.

The supporting information isn’t part of your plan; it’s just supporting information. Do you have to prove the concept? Will outsiders be reading your plan, and evaluating it? Does the market research prove something that must be proven? Then include it.

Information in business is worth the decisions it causes. You measure this by taking a guess at what your bank balance would have been without the information and comparing it to what it is because you had the information. Subtract the hypothetical balance without the information from the balance with the information, and that’s the value.

That’s a hard equation to deal with sometimes, and of course it’s based on hypothetical values; but it’s still an important concept to understand. Your business plan shouldn’t include anything your business won’t use. Either it’s going to use the market analysis or it needs to present it as proof of market for outsiders — or you just don’t perform the analysis.