November 09, 2009
The Role of Business Planning
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Russ Henke - Contributing Editor

by Russ Henke - Contributing Editor
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First a little background. I have spent the last 40 years of my professional career in high tech middle- and executive-management. Such a career was highly-improbable at the beginning. I grew up in a working-class family in Ohio. No family member before me had even considered college; even then, the tuition alone was far beyond our budgets. Inspired by Sputnik and by JFK’s call to land a man on the Moon by the end of the 60’s, I was fortunate to parlay a facility in high school math & science into some college scholarships. Combined with the work-study program of the University of Cincinnati co-op program, I was able to study mechanical engineering all the
way to the PhD level.

During those years, I was presumably headed for a purely-technical career designing machine tools. But along the way, two key things had occurred. First, I took a company-sponsored course on Professional Management, which defined a manager as having 5 major roles: planning, leading, organizing, controlling (financially), and staffing. Secondly, at the tender age of 22, I began working directly for an unusual high tech manager who expanded the roles of his subordinates well beyond a purely-technical focus. While he certainly preached (1) Technical Excellence, he simultaneously emphasized (2) Business Excellence and (3) People Orientation (making sure all your people understood &
participated in the business and prospered). Since I always seemed to end up in some sort of leadership role in any group I was part of, even in high school, I decided I should at least explore the potential of a management career, emphasizing the three attributes of the mantra listed above.

I was lucky to work with this “unusual manager” for the next 19 years, advancing steadily through the management ranks to become president of the company. The ability to install formal and rigorous business planning processes with wide-participation of the company personnel was critical to that success. I have fostered these principles ever since.

Fast-forward to the present day:

The worldwide economic recession (including the US recession that officially began in December 2007) has had devastating impacts on most existing economies, companies and people. Venture Capital has been hard to find. Millions of layoffs have occurred. Housing, construction, manufacturing … indeed, most economic sectors … have been hard hit.

The EDA Industry, not exactly thriving prior to the downturn, has suffered further during the last 23 months. Semiconductor revenues have been well below previous highs; for example, semiconductor sales in August 2009 declined 16.1% from August 2008, when sales were $22.7 billion. Most EDA vendor revenues have been flat or declining, and, with certain rare exceptions, profitability has been miserable (see, for example,
Tables 2 &
3 in the September 2009 EDA Commentary

Public EDA suppliers have also endured large declines in their equity valuations. Such reductions often constrain acquisitions, which have been for years the lifeblood of Big 3 EDA vendor growth and innovation and the preferred exit strategy for many EDA start-ups.

During these tough times, especially careful and effective advance product, process, and overall business planning become necessities.

Happily, there are signs now that the US recession may have bottomed out. Indeed, the US Commerce Department reported on October 29, 2009 that
the country’s GDP increased in Q3 2009 some 3.5%. This rebound ended the record streak of four straight quarters of contracting US economic activity.

Stocks in general have surged about 50% since their March 2009 lows. Venture capital investments in the San Francisco Bay Area in Q3 2009 ticked up for a second straight quarter, per an October 20, 2009 report from the National Venture Capital Association.

On November 2, 2009, the US Commerce Department reported "that orders to US factories rose 0.9% in September 2009, better than the gain economists had expected. Demand increased for both durable goods, and non-durable goods, helped by strength in autos, heavy machinery and military aircraft." The fifth increase in six months spurred "hopes that a revival in manufacturing will help support an overall economic recovery.”

In October 2009, the
Semiconductor Industry Association (SIA) had reported that the worldwide sales of semiconductors in August 2009 of $19.1 billion was in fact an increase of 5% from July 2009 when sales were $18.2 billion.

But we are still far from being out of the woods. While venture investment was up slightly in the Bay Area, across the USA venture capitalists plugged only $5.1 billion into 616 deals during Q3 2009, down 6% from the previous quarter, according to Dow Jones. The US Consumer Confidence Index released by The Conference Board sank unexpectedly to 47.7 in October 2009, falling for the second straight month as the assessment of present-day conditions fell to its lowest level in 26 years. As if to intensify the misfortune of many struggling citizens across the country, Wall Street firms continued to pay out huge bonuses for 2008 (and will again for 2009), even though some of the
firms were (and are) still partially-owned by taxpayers via TARP bailout money.

Meanwhile, gas prices are rising again (since March 2, the value of the dollar has fallen 18% against the euro, and in that same period, a barrel of oil has doubled in price to around $80). Health care costs remain out of control, and wars continue in IRAQ and Afghanistan.

In fact, several economists go so far as to suggest that some of the recent uptick in US economic growth is just a temporary bounce off the bottom, and it’s not sustainable.

And even if the USA is fortunate enough to experience a sustained economic upturn, increased employment always lags, returning to pre-recession levels only after years in many cases. Despite the fact that President Obama's $787 billion stimulus plan has saved or created more than 1 million jobs, unemployment continues to rise (now 9.8% at press time across the USA with the US economy having lost 7.2 million jobs since the recession began in December 2007).

Unemployment is worse in California (12.2%). Moreover, if “under-employment” is considered, the California Employment Development Department estimates that the under-employment rate in California hit 21.9% in September 2009.

In recent years, consumer spending has represented some 70% of the US economy. So job creation depends greatly on the willingness of consumers to part with their limited funds. But on October 30, 2009, the US Commerce Department reported a 0.5% decline in consumer spending in September. It was the first drop in five months and the biggest since last December. With less money to spend, US consumers may not return to their heavy spending patterns for quite awhile, if ever, significantly impacting purchase of cell phones, smart phone devices, video games, personal computers, flat screen TV’s, and many of the other electronics products so vital to the health of semiconductor and EDA

All of the aforementioned economic woes put an additional premium on effective advance corporate product, process, and overall business planning.

Business Planning is not universal:

As many readers know, some business managers and executives do not insist on formal business planning. There are many reasons for this that we’ll touch on in the sequel.

But there is at least one business activity for which producing an effective business plan is mandatory. This occurs when an entrepreneur wants to raise equity capital from an angel investor or a venture capital firm. This has been so, at least as long as this writer can remember. To confirm, just check out the web sites of any venture capital firm; you will find that submitting a business plan is the minimum price of entry. A business plan is necessary but of course not sufficient for your business idea to be actually considered for funding. For the latter to actually occur, an entrepreneur often must also possess one of the following attributes:
(a) knows the angel or a partner of the VC firm already, or (b) can be introduced to the VC firm by someone who knows a partner already, or (c) has already had a previous well-known entrepreneurial success, etc.

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-- Russ Henke, Contributing Editor.


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