OK, SO A PLAN IS IMPORTANT
BUT WHERE DO I START?
In an earlier paper, I talked about the importance of a Business Plan: Why you need a Plan to objectively evaluate the prospects of the business.
The Plan helps to visualize the concept in terms of market viability, organizational layout, operational structure, and financial feasibility.
It aids to identify your challenges in terms of opportunity timing, competition, and threats from various sources. The working parts of a Business Plan fall into predictable and crucial rivers that run through each other. The business plan is broken into four major areas of detail: The Idea, The Environment, Feasibility, and the Report.
I. The first step of the Plan is the Idea Generation. (Figure 1 above.)
The entrepreneur may come up with an idea for a new product or service or a way to add additional value to existing products or services. Here are the questions to ask about your Idea:
- What problem do you solve?
- Who currently has the problem?
- How will they benefit by you solving the problem?
- Do you think you can make money by solving the problem?
II. The next step is to evaluate the Environmental elements that surround the Idea:
- Are there technology opportunities available? Constraints?
- Review the Idea from an economic standpoint. What is the per capita income, consumption, demographic or population patterns, governmental or legislative policies?
- How about the availability of raw materials, machinery or equipment or human resources? Are these items readily available at a reasonable cost?
You MUST do this phase to analyze your odds of success. After this phase of data gathering, is your Idea still feasible?
III. So, now that you’ve defined the purpose of your business let’s look at the areas of the business to analyze the Feasibility of your business.
- You’ll need to define and analyze the target market – opportunities and threats -- by researching potential customers, market segments and conditions, pricing, distribution and competitors.
- You’ll need to consider the Technical and Operational challenges: Are there sufficiently-available human resources, materials, and machinery that will be required?
- You’ll need to thoroughly understand the nature of the products or services and the target market(s) to determine your marketing strategy. Are you going to market directly to consumers or sell to other businesses? How will it be priced? How will it benefit the customer? What is the deciding factor for a customer? I find entrepreneurs are often overly optimistic about how easy it will be to acquire customers.
- How will your product be produced? Production or manufacturing is the process of converting raw materials into a finished product. Things to consider: Production will be impacted by plant location, availability of raw materials, machinery, labor, transportation, management, and plant capacity. If it’s a service you provide, making sure you have the right staff (and that they are somehow billable) is extremely important in terms of your productivity measurements. Employee retention is also very important. It is very expensive to recruit and train new employees.
- Creating an organization is the development of a team, defining a culture and legal structure (including ownership), and putting together a board of directors or advisors.
- You can’t proceed without financial projections which include a balance sheet, income statement, statement of cash flows, and break-even analyses. When do you expect to be profitable? Manage to the financial plan. The majority of business failures are due to running out of cash.
IV. The REPORT. The format of a business plan depends on its presentation context.
- Over the years there has been a lot of discussion on types of presentations and how much information should be presented. It is common for businesses, especially start-ups, to have three or four formats for the same business plan.
Four examples are:
- An elevator pitch or 30-second speech is a short summary of the plan used to share at a high level your business and what makes you unique.
- A pitch deck is a slide presentation with the content usually limited to the executive summary, key financials and benchmarks. I find this presentation an opportunity to not only share your business model but to solicit input from advisors and investors.
- A detailed well-written presentation targeted at external stakeholders.
- An internal operational plan is a detailed plan describing criteria that are needed by management to measure the success of an initiative. Such plans are more informal.
2. At some point, you will need to create ALL the above Report formats of your Business Plan.
Regardless of the format, the key components/sections to the Report are:
a. An Executive Summary -- a snapshot of your business -- a company description outlining what you will do, what differentiates your business from other businesses, products, services and the markets you will serve.
b. How you plan to execute on these products or services and how many and what types of resources will be needed; How long will it take to achieve the priorities you’ve identified in the plan and the critical risks that may need to be overcome.
c. Your financials -- showing how much capital you expect to need and the assumptions that were used to build the financials; What your costs are and when you expect to be profitable.
d. An Exit Strategy: How will your investors get their money back?
e. Finally, bring all this information to a conclusion and make sure you answer the question of why investors should support you financially.