business planThe Business Plan Disconnect

Start-up entrepreneurs can get guidance on how to write a business plan from numerous sources.  Most of the sources are quite useful.  The real question is why, despite all the useful information available, most start-up business plans are off the mark.  Where do aspiring start-up executives go wrong?

  • Start-up entrepreneurs frequently develop plans for someone else.  The plan is for you and is the emotional soul of the business.  It needs to be focused on the what, the how, and the resources necessary for success.
  • Plans require constant reviewing, testing, changing, and evaluating alternatives.  It also involves the interaction of all key factors in the business.  For example, estimating the market, marketing programs, profitability forecasts, and sourcing all interact rather than being separate sections.
  • Plans must focus on the needs of the audience and the entrepreneur.  Most start-up plans are too long and fail to cut-to-the-chase.  A Business plan must be on point and precise.  Typically, plans should be 15-30 pages.  If additional details are required, put them in an appendix, but keep it short.
  • All plan assumptions must be tested and retested.
  • Far too many have a business plan that focuses on the owner and fails to impart a sufficient understanding of the business.  Typically, a business plan based on technical capabilities is hard to understand, while a business plan focused on creative capabilities might ignore the financials and goals.
  • Plans frequently focus on critical but mundane issues like legal structure, global market information, financial statements and insurance.  In contrast, topics like forecasting, marketing, and the nitty gritty numbers behind it all are absent

To avoid these problems, I recommend developing the details of the plan first and then putting it together last.

A typical plan outline is at the back of this presentation.

DEVELOPING THE CRITICAL ELEMENTS TO A SUCCESSFUL BUSINESS PLAN

Mission, Goals and Products

The Plan Must Include A Description of:

  • MISSION, GOALS, PRODUCTS, AND CUSTOMERS
  • INDUSTRY AND COMPETITION.
  • MARKETING AND SALES METHODS.
  • OPERATIONS, MANUFACTURING, AND DELIVERY.
  • RESOURCES (people, equipment and facilities) NEEDED TO OPERATE THE PLAN.
  • FINANCIAL
The more you define the mission, goals, and customers the easier and more successful your business plan will be.

Defining your product and services is critical to developing the rest of the plan.  As several people have said, “If you don’t know where you are going any road will take you there.”

The Market and Competition

Your business plan must include focus on three questions:

  1. Why are you different?
  2. How do you communicate you are different?
  3. Do your customers care about the difference?

There are many more questions that need to be answered:

Understanding the customer is critical to success.  Who do you want to sell and how big is the market?  What are their demographics?  Why will they prefer you to the competition?  Where are you located?  How and where do you sell?  Are there any seasonal or geographic factors that affect customer demand?  Can and how do you build relationships, loyalty, repeat customers, and word of mouth?

All through the process entrepreneurs need to state, evaluate and plan for challenges, risks and uncertainties.  What can go wrong?  What will the impact be?  How can the business both assess and reduce the risks?

Marketing and Sales

sales strategy

Sales strategies are dramatically evolving.

Marketing and sales start with a company’s image and brand.  What many entrepreneurs don’t understand is that these characteristics take a lot of work and time to develop.  Facebook, Apple, and Google may be the poster children, but there are thousands of startups that no one knows.

Here are a few factors sometimes ignored to improve one’s brand and differentiation:

  • Freemium programs like samples, test services, and demonstrations;
  • Warranties, guarantees, return polices to ensure customer satisfaction;
  • Basic programs like quality assurance, customer service, and delivery time.

Marketing and Sales used to be simple with the 5p’s and established industry distribution systems.  Everything has changed as a result of the digital world, outsourcing, logistics, and the availability of information.

Similarly, sales strategies are dramatically evolving…  Information, sales data, and multiple agents are rapidly changing.  Varying resources, like Salesforce.com, Amazon, Google, Elance, Etsy, Groupon, Alibaba, and even Crowdfunding, are changing the sales process.

OPERATION/MANUFACTURING/DELIVERY

Operations have become a critical aspect of most plans.  They include production, service, delivery processes, quality control, customer service, inventory control, product development, etc.

Inventory and people management must also be critical elements of a business plan.  Managing resources are critical components of investment, cost, and efficiency outcomes.

Personnel needs, requirements, and excellence need to be primary considerations.  Job qualifications and descriptions, training requirements and performance standards all need to be developed.  There is a huge tradeoff between doing things yourself to keep control and save money and using experts to develop and execute programs in the most effective way possible.  Considerations like outsourcing, pay scales, also need to be part of the administration plans.

Resource Requirements

One normally thinks of capital investment when talking about starting a business.  However, a business plan involves far more complex considerations.  They also need to consider short term requirements to start and test business and long term requirements to grow and sustain the business.

Some of the key resources to be planned include:

  • Capital buildings and equipment
  • Product development and sample costs
  • Leases and leasehold improvements
  • Marketing materials like marketing programs, web sites, and technology
  • Business system requirements like legal, insurance, and accounting
  • Patent and/or trademark requirements
  • Reserve resources to prepare for contingencies for mistakes and delays

Financial Requirements

Plans frequently fail to provide detailed plans and assumptions on topics like:

  • The cost basis
  • Volume and planning monthly for 1 year and quarterly for 3-5 years
  • Cash flow and investment requirements
  • Startup & Administrative costs
The two key elements of your business plan must be:

Why I am different and expect success?  How will the business make money?

Financial plans need to show flexibility.  How do marketing, costs, and sales variations affect profit?

How can our plans be affected by economic, political or social events?

Completing financial plans can help identify opportunities.

Managing receivables and payables can dramatically affect cash requirements.

A startup’s first worry is frequently how to raise money.  The critical dimension is having a great plan.  That requires being able to answer how much money you need, and how you plan to pay the money back.

The plan also suggests the methods of raising money such as equity, debt, and or collateralized loans.  The plan also needs to include provisions for inexpensive financing.

Executive Summary

Every business plan needs a brief 1-3 page executive summary.  You should start with a clear message, mission, goals and processes.  As the business plan evolves, the statement should be modified and improved to reflect the planning effort. Thus, the executive summary becomes a validated and internalized statement of the business and its potential.

Summary

The planning process should be a productive and challenging process to define the business and ensure its success.  Its main purpose is to identify and develop programs to capitalize on the opportunity.  It must also provide an opportunity to discover and plan for contingencies.  The business plan should become a living document and process rather than a document that sits on the shelf.

SUGGESTED OUTLINE OF A BUSINESS PLAN

Cover Sheet

A cover page containing the name of your business, your logo, the name, address, and phone number of the principals, date, and control number to track the distribution of the copies of this business plan.

Table of Contents

Confidentiality Agreement

Executive Summary

A one or two page description of the business plan and tells what you want and why.

Description of your Business and/or its History

What is the legal form of your business, how long has it operated, and who is the owner?

Where you do business?  How big is your company, in terms of customers and sales revenue?

What type of business? W hat products and services are provided?  How successful have they been?

What are the growth opportunities?  Why does it promise to be successful?

Description of your Products and Services

What are the products and services?  What are the distinct benefits of each?

How are your products and services packaged, distributed or delivered?

What patents or permits are associated with these products/services?

What manufacturers or supply sources do you use?

Description of your Customers

Who are the customers?  And how many are in your area?

What are the buying cycles and characteristics of customers?

Why and when do customers buy your kind of product and services?

Can you describe a “most likely customer?”

Description of your Competitors

Who are the competitors?  How many are there?  Where are they located?

What is your advantage or disadvantage in comparison?  How are you different?

Why are customers more likely to use you than them?

Are there any trends or new inventions likely to impact your products/service?

Description of your Marketing Plans

How and where will you advertise/promote your products and services?

Describe how you will use each technique (advertising, networking, PR, and other promotion tactics)?

What are your sales strategies, tactics, and techniques?

How do you intend to attract and hold your share of the market?

What are your pricing and distribution strategies?

Description of your Operations/Organization

How are the business functions organized and who are the managers?

How many employees are required, and what will they be doing?  How will they be trained?

How will employees be paid and are the salaries and benefits in tune with the industry?

What additional skills and specialties will you hire?  What are the costs?

How many and what type of facilities or plant is required?

What factors influenced your choice of location?

How will you keep records and inventories?

Description of your Financial Requirements

How much money will the business receive and how much will it spend?  When and why?

What sources of funding will you use and how/when will each be re-paid?

How will your personal income be impacted by the business?  Who gets the profit, you, or IRS?

Generally, these questions are answered by developing a projection of Future Income and Cash Flow for the next couple of years (in detail by month for first year), Break-even Analysis on Capital expenditures and copies of Previous Year(s) Balance Sheet, Cash Flow, Profit & Loss Statements, and Personal Income Statements.

Other Suggested Sources