Just a reminder: Part One introduces the process of idea generation and an overview of what is necessary to take it to another level.
Remember the 4 step process?
- The Idea – It’s Not Rocket Science (unless it is)
- Plan Your Work, Work Your Plans
- Did I Mention Money, Honey?
- The Word is Like Butter – Spread It
The Business Plan
Today’s entrepreneur that has any amount of experience is led to believe that one must have a complete business plan in order to get started in making a business. They are also of the opinion that you only need one if you are going to be raising money, either from public or private investors, loans or otherwise. That is NOT only a misconception; it is also a bad line of thought. The business plan is more than a need to seek money; it is a set of objectives, a statement of purpose and a road map to reaching your goals. A full blown business plan is an absolute for raising money; a more simplified plan can be used if bootstrapping. Speaking of road maps, if you plan on taking a trip and don’t have a map, how do you ever plan on getting to your destination? Guessing just won’t cut it.
The initial business planning process may start out on a cocktail napkin, but it has to progress to a formal document if an entrepreneur is serious about success at any level. Sure, if you plan on being the only employee, work in a very limited niche market; bootstrap yourself completely without any outside financial assistance, then maybe you can work on a simple, one page business plan. There is actually a software program called just that, and it is a simple set of planning tools that might serve you well enough. That’s like owning a job, isn’t it? If you have the slightest idea of growing through a loan or investors, forget that approach and work toward a full blown, professional business plan from the start. It may take time and effort, but well worth it.
My advice: Don’t have someone else write the plan for you; do it yourself and use a business coach. They have the tools, expertise, and motivation (you’ll be paying them) to get the job done right. They should be the scribe; you should be the author.
A business plan is a tool that just doesn’t grow dust on the shelf once the loan or investors are obtained, it should be a living document often referred to. The business plan is a set of goals, opportunities, strategies and plans to reach those goals, what problems might exist in the marketplace to avoid, and a host of other information. It must be referred to by all levels of staff, and adhered to, monitored or adjusted as necessary when market shifts occur.
There are three distinct parts to a formal business plan, and they consist of:
- The business concept– the industry, business formation, product or service information, and your plan for success.
- The market – Customer profiles, their purchasing habits, their make-up economically, competitors and their advantages and disadvantages, and the plan to fit into the market and beat that competition
- The financial aspects – Income and Expense, cash-flow, balance sheet, financial ratios and analyses including break-even, Z Score, Internal Rate of Return.
Within the business plan, these sections also include sub-sections, consisting of the Executive Summary, Management, Product Review or Service Statement, Marketing, Operations, Financial Data and Graphical Analysis for demonstration purposes.
The executive summary is a statement of purpose; a vision and mission statement so to speak. As its title, this section serves as a summary of the entire plan in a nutshell; from marketing to product or service, the competition already present in the market, the management team and a brief amount of financial data. This section will reflect how much money is being sought, how it will be used, and the potential rate of return that the investor or lender can expect for taking the risk. An investor measures risk versus return, and if there is significant risk with a poor rate of return, the answer will more than likely be against your desires. Conversely, if it is too conservative, you may suffer the same result. Be factual, not overly optimistic, but paint as true a picture as you can. It is a bit of “Crystal Balling” so to speak, but don’t think that it will be an easy set of information to convey.
Word of Caution: Keep it realistic, humble, to the point, and written through the eyes of a potential investor or lender. Lenders and investors see business plans every day, and can spot a snow job at a glance. Lenders and VC’s are looking for professional optimism, with a conservative eye, a professional team in place, or a plan to fill the needed positions with the best and brightest available.
This section should be dedicated to the key management personnel, including an overview of their backgrounds, their position and responsibilities in your company. Pay specific attention to the most critical of positions, such as the Vice President responsible for the operations side of the business, or the CFO, who will be managing and reporting the numbers. Further, outline the positions that report to each major management person, showing both existing and future positions and their job responsibilities if their title isn’t clear. VC’s may very well want to add their own expertise, so be ready for adjustments if they seriously consider taking you on as an investment vehicle for their group.
Clarification: I use the term VC’s (Venture Capitalists) loosely, and can mean an investment firm, your own investor group or even your cousin Harry who lends you the money to get started.
PRODUCT OR SERVICE
Here’s where you get to tell everyone about your product or service, and what makes it so special. This section should provide the reader with a clear understanding of the product or service, including any design details, technology (if it has some), why consumers would choose yours over the competition, and a reason why your “Brand” should be the choice of the consumer. This is a very important section, as it is the “emotional reason” that potential investors will get excited about doing business with you. It’s the spark creator that will ignite their desire to give you money: they will have a passion or good feeling and can recognize the value proposition you intend to offer.
Without an effective strategic marketing plan, no product or service will ever leave the gate. In order to position yourself in the existing marketplace, or even if you are creating the niche for your product or service, you need to make a convincing case about how you intend to make your brand positioned at the top of the niche. Included in this section is an explanation of pricing, positioning, distribution, promotions and customer base. This section goes hand in hand with the product or service in its explanation: be creative.
It’s all about expertise in the niche. If you can build the better mouse trap, make it less expensive, be readily available and appealing to the consumer with mice; you are sure to succeed. If you can do all these things and still eek out a sizable profit, then you are indeed destined for stardom. Perhaps you manufacture the product and your competitors have to have them supplied; then you have a distinct advantage worth capitalizing on. Or you can guarantee same day service to a market accustomed to 2 or 3 day turn around; you can reach the top of the niche quickly. The more you can control the supply chain, the better chance of succeeding.
FINANCIAL DATA and GRAPHICS
Here’s where the readers of your plan will want to spend a significant amount of time, so you may as well spend an equal amount of time preparing, reviewing and formalizing it. It comes down to the numbers, and numbers should not lie. You will need to prepare a complete package of reviewable financial documents including cash-flow statements, profit and loss (income) statements, the balance sheet, exception reports, and the appropriate illustrative graphs to help make the numbers visual. Pie Charts, Line Graphs and other types of visual aids help tell the story. If you keep your assumptions and margins in mind, the numbers should reflect a profit of some kind.
Make a mistake or overstate revenues, or understate costs: the numbers will reflect it immediately. Double check the double check, and ask a professional accounting person to review the numbers carefully.
Although this section will take the most time to perfect, it will be well worth it. Lenders and investors see a lot of business plans, and know smoke from fire. If you try to blow smoke, there will be no fire. If you can show a reasonable profit with sound assumptions, your chances for success are reasonable as well.
The fourth part of this four part series of articles will cover marketing and advertising: spreading the word.
For additional information, visit my blog at www.theovercaffeinatedentrepreneur.wordpress.com