How can you take your cannabis company anywhere if you don’t know where you’re going? In daily life, many of us are accustomed to getting to our destinations with our favorite GPS app — whether we’re trying to find a restaurant an hour away or a coffee shop by foot. So why then do so many businesses try to move forward without knowing how to reach their destination? Without it, your company could be headed down the wrong road and may get lost along the way.
Think of your business plan as a roadmap that outlines where your cannabis company is headed and how it will get there. It’s critical for going in the right direction.
Why You Need a Business Plan
A business plan lays out the way forward, keeps employees accountable and shows investors the company leaders are disciplined. For newer companies, this is especially important.
Fortunately, business plans for cannabis companies can be flexible. So much can change in this volatile industry that I recommend companies take a three-year time horizon with their business plan. Your plan can be revisited when a strategic event occurs, such as a new fundraising effort.
Creating a Business Plan
Getting out the plan’s first iteration should ideally happen as soon as possible. Take some time to craft and hone it. You can start by determining your company’s business objective. What does it aim to achieve? To become a reputable grower in your region and beyond? To become a popular dispensary in every legal state? To develop a vertically integrated entity? Your plan should begin to resemble your vision and show the steps needed to get there.
The key elements to consider for your plan can be addressed in any order, but each needs attention:
– Know your customers: Who are they and how will you reach them? What’s the total available market for what you’re trying to do? You may have an ideal customer in mind, but may discover just a handful of companies or people fit the profile.
– Know your product: What are you offering your customers? How will it be delivered? Will you develop your own branded product, sell someone else’s or will it be a vertically integrated effort?
– Know your people: You need the right people around you, with the skills and talent required, to do this right. What kind of culture will help your company thrive? How will you expand the team as the company grows?
– Know your process: How will the company operate and be managed? How will you know what’s really going on at the company — how much cost is really going into every deliverable?
Build Accountability into the Plan
Your roadmap needs mile markers to see how close you’re getting to your goals, which may need to be adjusted based on changing business situations. There’s no end to the number of metrics you could include, such as revenue, profitability, working capital and return on investment. The important thing is to determine which metrics have the biggest impact on the business and focus intently on reaching those targets.
As an example, for a dispensary, the most important metric may be how many people visit per day and how much they spend at each visit. Consider what product mix your customers purchase and how you’re hoping that will change. You may want 100 people a day visiting your location or 1,000. Are you hoping each person spends $50, on average, or $100? Outside expertise can share industry benchmarks to ensure your metrics and targets are realistic. Once you understand the metrics, a financial plan can show the dollars invested in your business, where that money will be spent and the benefits of those investments.
Gathering the Information
It’s important to have input from across the company for a full understanding of what’s possible and how the various parts of the business will work together. A small manufacturer of cannabis-infused edibles may need just one month to finalize the details, while a company with more complex operations and multiple legal entities may need three months or more to compare notes around the company and tweak the specifics.
Scenario planning can help fill in some of the gaps. What happens if you have only one dispensary? What if you expand? How much investment is required to start a new project? What if demand or prices substantially increase or decrease?
A business plan helps you know where you want to go on your journey. Experts who have experience with financial and business plans can provide valuable perspective in simplifying complex details and finalizing plans that can be followed easily and referenced for accountability. A well-prepared business plan can help cannabis companies navigate the road ahead.
Dave Roberson is the CEO of Kukuza Associates, a Silicon Valley-based consulting firm that solely focuses on the needs of cannabis companies. A subsidiary of RoseRyan, Kukuza draws upon the full strengths and capabilities of its parent company, which entered the cannabis sector in 2014. Roberson fine-tuned his talent for guiding fast-moving companies as a senior vice president for Hewlett-Packard Co. and as president and CEO at Hitachi Data Systems.