If you only take one thing away from this book, take this chapter. This is important stuff. Absolutely no one will take you seriously without a formal, written business plan. And even then, it has to be realistic, well thought out, and well researched.
This is what separates the dreamers from the doers. And I am not going to kid you, it is a lot of work.
However painstaking this exercise is, it is worth every moment you spend on it. The development of your formal, well written, comprehensive business plan forces you to ask questions and address issues that you perhaps have not even considered.
It is meant to be realistic, so if you are doing it honestly, much of the work can be and will be unpleasant.
It will make you realize that there are challenges you have not considered. It will make you learn more about the industry you have chosen to disrupt. It will make you set goals and make you develop strategies. If you succeed in this exercise, it will convince you that this is the path you have chosen for your future and it will energize you like no other.
The key then again here is honesty. You are only hurting yourself and wasting other people’s precious time unless you face facts and deal in the reality.
Another important thing to remember is that this business plan, your business plan, is a work in process. It is a live instrument. It is always changing, it is always growing, it is always evolving. As you get more data, today’s business plan is not your last business plan. Do not hesitate to update it, add to it, enhance it, enrich it, especially as more facts and more data come to your attention.
People came into our incubator. They were convinced that they had THE IDEA. We were intended to provide the location, the programming, the expertise, and the resources to develop and to grow their idea.
All they “needed”, they would then tell us, was $250,000 to launch. Well, more often than not, it turned out that they did not really need an immediate $250,000 to launch. In reality, what they really needed was a better, more focused business plan and $100,000 for a better marketing program.
A great marketing program can rescue a struggling sales strategy.
The point is, before you jump into that cockpit and buckle up for the ride of your life, you need a flight plan. No one will take you seriously without a business plan. You cannot even take yourself seriously without a written business plan.
To you, the young, energetic, optimistic entrepreneur, it is not really even the business plan that is the important aspect here. It is the process. You will hear that time and again. It is all about the process.
The process of writing a serious business plan forces you to carefully examine the market that you are invading with your service or your device or your product. It has to be realistic, as in, based in reality, and not your personal vision of reality. It will be objective, informative, detailed, resourced, and precise.
It must be realistic. You need hard market data and resourced facts to back up and support your claims. There is no emotion to this. Your passion will surface simply in the detailed effort you have put into the process of developing your business plan.
Personally, my focus is on the management team and the financial projections. But I am a former lender, and character is important to me. Generally speaking, numbers do not lie, but financial projections have to be realistic. This is where your strategy and your goals will come into play and manifest themselves. More often than not, I am investing in the management, not just the product or the service.
Many lenders, many investors, your venture people, they will focus on the marketing and sales strategy, since after all, that is how they get paid back.
The point is, every element of your business plan is important to someone scrutinizing your dream. Invest the time it takes to present everything fully, in the very best light. Try not to leave any questions for the investor. Show them that you have considered everything and answer every viable concern in your business plan.
Investors will question your experience, your expertise in the industry in order to predict the velocity of their return. They will question your resources. If they have to question your passion, you have already lost.
And, they are comparing your plan to the other 117 business plans on their desk. If you want their money, that’s your competition. Make the reader want to turn the page and learn more. The best business plans get the dough, pure and simple.
You can obtain many versions of a sound business plan outline anywhere on the internet. But basically, this outline below is what it will always come down to. I will list the outline for you to follow, and do not invent a new one. I will explain each element and I will tell you what to focus on and why it is valuable and important. I will also add some suggestions for complementary material, again, simply because it is imperative to show that you have considered everything you need to launch your business.
Business Plan Outline
Definition of Market
Description of Products and Services
Organization and Management
Marketing and Sales Strategy
Financial Projections and Analysis
#1.) An Executive Summary is exactly what it sounds, a summary. Never more than one page. It is meant to be an introduction to you and your idea. It is your concept and your “ask”. Key word is brief. To get the reader invested, to distinguish your idea, it has to be compelling. Simply stated, this is the Who, the What, the Why, and the How. You will fill in the blanks later, but this is your introduction to the Business Plan.
This is your passion. This is your drive. This is your destiny. This is what keeps you up at night. This is where you make the reader want to share your passion. This is where you want the reader to get involved in this partnership.
#2.) The Business Description more fully describes your concept. You have heard about the elevator speech. This is the detailed description of your idea, presented in a clear and concise and articulate way, so that the reader’s eyes do not fold up into the back of his head.
#3.) The Definition of Market is where your initial research shows up. You need this especially to convince yourself that there is a market out there, that there s a need for your product at this time. This market needs you, and it needs you now. Tell the reader what is missing in this market and why you have the solution. The sooner you get this product out of your basement and on to the shelves of Best Buy, the better off this world will be.
#4.) The Description of Products and Services section is where you explain what keeps you up at night. The concept is clear in your head. This is where you make it clear in the head of your investors. How did this idea pop into your head? What does this product do better than the competition? What industry are we disrupting? Why is this product the answer to the world’s confusion?
You do not need to reveal any secret sauce here. That is your private information and you are right to protect it. With the proper signed non-disclosure agreements much later, your personal intellectual property will come out. But not at this time. You do not want your interviewer abruptly dismissing you only to have him call his fraternity buddy after your session with “his” hot new idea. It happens.
#5.) Organization and Management: This is the section where you describe the current corporate structure. Do you have a sole proprietorship? Is this some kind of partnership? There are many different types of corporations? Which type are you thinking of pursuing.
You are going to have to do your homework on this one. There are many options to explore. It is not uncommon to start one way and change to another as the situation evolves. You will need to talk with an organizational or an entrepreneurial attorney to most fully explore which option is best for you.
There is no real wrong option. Depending on what your goals are, depending on your business development plans, or your growth plans, depending upon your appetite for risk, some options are definitely better for you than others. This will take research and time, but it will force yourself to address many important issues and it will save you a ton of Advil down the road. Invest the time and do it right. Then describe it in this section.
Additionally, this is the section where you get to talk about yourself. What role do you play? What responsibilities do you have? Who else will be in any management position? How are the various corporate or managerial tasks allocated? What qualifications do you bring to the company?
You don’t need a full resume, but the more personal information you are comfortable with sharing with the investors, it is easier it will be for them to judge your ability to lead a company.
Obviously, education and past experience play an important role in this section. Share yours along with the other key members of your team.
#6.) Marketing and Sales Strategy: You could have stumbled onto the coronavirus vaccine in your lab, but unless you know how to properly market this, it stays in the lab. You have vision. You have drive. You have advanced degrees. You have a support network. You probably are not great at every aspect of building and growing a company. Somewhere along the line, sooner rather than later, you are going to budget, and you need staying power.
Today, more than ever, with digital advertising and internet marketing, you will need help. Developing an interactive website, narrowing down your specific target audience, product surveys, feedback on Twitter, this all takes time and expertise. You are trying to develop a product and bring it market. You don’t have the time to develop a comprehensive marketing plan. Call the experts. Then use your time where it is most productive.
#7.) Financial Management: Most likely, you are an idea lady. You have the vision. You have noticed a hole in the universe. You have developed the faster, smarter, cheaper, and more efficient mouse trap. But you don’t even know how to balance your checkbook. This is understandable. It is almost desired. This is where the resourcefulness we talked about comes in. You’ve got a guy. You have noticed you need this. You have talked with financial experts. You are developing a team. You have discussed the need to keep track of income, expenses, purchases, capital outlays, payroll, local and state and federal taxes, financial controls, internet security. You will keep track of every Office Depot receipt. You will meet regularly with your financial expert who understands all of the mundane financial reporting requirements and prepare the necessary reports and statements.
You have this covered.
#8.) Financial Projections and Analysis: This is the language that your investor understands. Do not be surprised if this is the section she flips to right after the Executive Summary. Some people live for this stuff. This is the section you will most likely spend most of your time on. At least it will certainly seem like that to you.
When you get your questions? This will be where they come from. Trust me.
This is not science fiction. This is true hard core financial projections. You need reality based income and expense statements, cash flow statements, balance sheets, monthly projections of your first year in business. Then you will need a five year projection showing business growth, return on investment, operating reserves, capital outlays, cost of goods, every expense from paper clips and rubber bands to office rent and advertising.
You will be quizzed on the source and the substantiation of each and every number you provide.
You need to know and understand this section like your ex-girlfriend’s Facebook page. Act like your life depends on it, because it does.
It is vitally important to explain where you are going, and it is even more important to explain how you intend to get there. And when. I do not believe it can be understated how important this section is to your success in this interview.
Fear not, there are people and resources out there to help with this task. You have to know where to look.
Personally, I always have the entrepreneur include adding the relevant real estate considerations. Office location surrounding area, office lease terms, furniture, fixtures, office equipment, lab equipment, technology infrastructure, parking, access to public transportation, ability to expand, ability to contract (downsize), and of course, cost. It shows that you have considered one of your earliest major expenses and most likely your largest contributor to overhead. It makes you consider your physical surroundings.
These are important considerations: first impressions of your new clients and your prospective employees, customer access, attraction of staff and co-workers, your ability to make customer calls, to get coffee, to eat, to stay and work late, to easily and comfortably transact the business of your business.
It is a very important aspect, and one you need to consider most thoughtfully before you launch. You had better be comfortable because you are going to be there a lot.
Here are the things you need to ask yourself:
Just where is this magic going to happen?
If you have an office planned, where is it located?
What is in the surrounding location?
Is it secure?
Will your employees feel safe?
Is it conducive for business development?
Will customers come to visit?
Is parking available?
Can you rely upon public transportation?
Do you have written lease terms, appropriate for a new business startup?
Have you accounted for initial costs like furniture, equipment, technology infrastructure?
Do you have the ability to expand?
Do you have an escape plan if you need to put the business on pause, or even bail out?
Finally, does the office cost figure into your overhead expenses in your operating projections?
It is all about the process.
Ok, you have waited long enough. Here is the meat of the operation. I gave you the skeleton up above in your outline. Now we put the meat on the bones. You cannot adequately plan your business venture without a careful in depth consideration of the following.
In business plan jargon, you are going to hear the term SWOT a lot, and I do not mean the highly trained first responders who jump out of a van with their high tech laser guided rifles aimed at your business startup, even though this is definitely a hostage situation.
In order to appropriately steer your planning process in the right direction, you should plan to spend most of your business plan focus and development time specifically on your SWOT.
And if I failed to mention it earlier, remember to be realistic.
This is where you include why your business will succeed. How are you different? What distinguishes you from Acme Products down the street? Why are you so special? Why are you better?
How do you compare next to all of your competition, in all aspects of consideration, including cost, location, price, value, management, resources, marketing?
Here is where you explain why you are better, cheaper, faster, and how you intend to break into this specific market at this specific time. Be modest, but be firm. Be genuine and be convincing. But most of all, be able to back it up.
You remember when I spoke about honesty and reality above? Well, this is where it shines.
This section alone will make you focus on things you have perhaps never thought about.
More importantly, it is almost imperative for the reader of your business plan, that is your investor, it is important for her to know that you have carefully considered each of these items and realistically in your process. They will normally and naturally have follow up questions of your business plan, but they will remember that you have carefully considered these important elements and that you took them on.
In the cross examination of your business plan, you never want to be in a position where you have to say “Good question” or “I don’t know” or “I will have to get back to you on that one”. The finished business plan is where the process is much more important than the product.
Investors want to know, what were you thinking when you wrote that?
Your business plan will continue to be a work in process. It will need continuing care and attention, updating, fine tuning, and tweaking. Overall, it will be evolutionary in nature. Today’s finished business plan will most likely not be your last business plan.
Basically, the business plan is you, on paper, or in a power point presentation. Don’t be defensive in your pride of authorship. Accept constructive criticism gracefully. Your next pitch may depend on it.
Just going through this process may change the focus of your business based upon the discoveries you make and the facts you uncover in your research.
You will need to remain flexible and open to this change. You need to recognize that you have to put the original plan on pause while you go off in a new and different direction, based upon your thorough research.
Do not allow for surprises in your presentation, yours or the investor’s.
Nobody likes surprises. Bankers and investors hate surprises. They are quick to judge when they are caught off guard. Either you withheld information, or you should have known. There is nothing in between. Harsh but true.
In your business plan, take equal time to explain what you believe to be your weaknesses. Everybody has them. If you don’t think you have one, well that’s the one. Go beyond explaining what you feel your particular weakness may be. But, and this is important, do not forget to add that even though this is a perceived weakness, you have a plan to overcome that. You have a team, you have a partner, you have resources, most importantly you have a plan. You are aware, you are working on it and it can easily be overcome. Here’s how.
If your weakness is marketing, as is often the case, don’t be afraid to mention it. Simply explain how you expect to overcome your weakness.
Explain why you feel that there is a market for you. Just how do you perceive those opportunities? Why isn’t somebody already doing this? Who is doing this? Just what are you bringing to the party? Why will it work at this time?
So lastly, acknowledge your competition. That could be your largest perceived threat. Explain how you intend to drive market share. How do you intend to exploit the weaknesses of your competition and drive them out of the market?
How will developing technology affect your goals and strategies?
You may be forced to change your business model. Based upon recent research, you may need to adapt to change based simply on new technology, new developments, recent legislation, new management.
These are the most common threats. You have to face them.
You may even be forced to abandon your model if your research proves that the competition is too well positioned in the market, or that your resources are not deep enough to weather the competition or a sudden downturn in the economic climate.
Here’s a good one to consider: Where will you draw from to assemble your labor pool? Qualified labor is a growing threat in today’s economy.
Or, what do you have to pay to attract the kind of employees that you will need? What will you have to offer prospective employees in terms of salary and benefits and working atmosphere in order to attract them to your shop. What training will you need to offer? What investments in their abilities will be required in order to have them work efficiently and to represent your company?
This is why you have to go through this process. This is why the process is so valuable.
You certainly do not want your banker or your investor asking these questions. It has to be considered by you and it has to be incorporated into your business plan document. Take off the rose colored glasses for a while and look at your market realistically.