you may ask why do I need a business
plan why can't I just launched my
business and get to market the
importance of a business plan cannot be
understated first you have to define
your business and how you're going to
compete you need to understand the
market and where is your business going
to occupy its space in that market
versus your competitors you'll need to
clearly define your product and why your
customers should be interested in it
once you've defined that product have a
good understanding of how you're going
to take it to market after you've
decided how you're going to take a
product to market you need to understand
and articulate how you're going to
operate that business and create an
operating plan to support those
operations
now that means you're going to have
people and you'll need a plan for
managing your people and the resources
that come along with them you'll also
need to define the administrative
responsibilities and how you're going to
fulfill them once you've got all that
down you'll need to project your
financial results and create a clear
financial plan that helps you understand
how should the business perform over
time now with all of that done you'll
need to think through what are some of
the major pitfalls that you could face
as you launch your business and make
sure you incorporate those into your
plan now depending on the type of
business you're running not all of these
elements will be relevant however these
are the major components of the business
plan and why you need to put them in
place
the first step in writing your business
plan is articulating the problem that
you solve is this a problem that people
are willing to pay you to fix you'll
need to define who has the problem is it
companies is it individuals spell out
what your typical customer looks like
then think through how big is this
problem how does it show up for your
customers is it a question of things are
expensive and they have a cost problem
do they have a time problem is it a
quality issue with the products that
they're turning out and you can help
them improve that quality when you write
this problem statement you should be
able to take it to your target customers
and they should read it and say I have
that problem
please come fix it and that's where the
demand for your product or service is
going to come from
as you're writing your business plan
having a clear understanding of the size
of the market is going to help you
understand how attractive is the
business you're trying to get into does
the market consist of businesses or is
it consumers how many people are in your
addressable market articulate how does
the market organize itself is it
organized by product by segment by
problem is it organized by geography
spell out some of the common
characteristics of the customers in that
market now how big is the addressable
portion of the profit pool that profit
pool is the dollars that are available
in that market and how much of it can
the problem that you solve address now
some ways that you can size the market
are things like looking at market
research gathering analyst reports even
looking at what some of your competitors
are doing and how they've reported the
size of the market a good market sizing
will tell you what you need to do to
scale your business it will also help
you understand is this an attractive
enough market for me to make a return
you're going to be investing as you
build this business you need to know how
much market is out there that you're
going to be able to capture now
obviously bigger markets are exciting
however niche markets can be just as
lucrative so as you're running your
business plan articulate what the market
looks like and how much of it you think
you can capture
your business plan needs to clearly
define your product explain the product
in simple non-technical terms avoid
buzzwords and also assume your audience
is completely unfamiliar with your
product describe how that product solves
a problem and talk about the benefits in
a very concrete way so as you're writing
your business plan make sure your
product description is clear and simple
and articulates concrete benefits for
your customer
your business plan has to spell out your
revenue model for your product or
service this is a huge determinant of
how successful your business is going to
be how are you going to make money at
this is it going to be a one-time charge
or are there recurring or subscription
charges for your product are there going
to be cross-sell or upsell opportunities
are you going to sell add-ons that
complement the product or service how
are similar products priced in the
market what are your competitors do
what's their revenue model if you're
looking for ideas also ask what are your
customers willing to pay conduct some
pricing market research or look at
competitive offerings and how they're
priced then analyze the value of your
product and the value it creates and
price as a portion of that
don't leave value on the table and your
choice of a revenue model is going to
determine how much of that value you're
going to capture so when you articulate
your revenue model make sure you think
through what's the value you're
delivering and price accordingly
once you've described the market you're
going to compete in and the way your
product solves that problem you need to
do a SWOT analysis and describe why
you're going to win in that market it's
not good enough to just have a product
you need to understand how you stack up
versus your competitors and what your
competitive advantage is going to be
you'll conduct a SWOT analysis strengths
weaknesses opportunities and threats
those are going to highlight
implications for how you're going to
approach the market and compete there so
when you conduct your SWOT analysis
don't just leave it at doing the
analysis think through the implications
of those strengths and weaknesses and
the threats and opportunities you face
and turn those into a plan for how
you're going to compete effectively
your business plan needs to spell out
the major customer and market trends
that you're going to face and more
importantly how you're going to react to
those trends what are the major trends
do they help you or do they hurt you is
the market growing is it flat is it
shrinking is the market fragmented or is
it consolidated and how are people
behaving in that market are you seeing
acquisitions are you seeing divestitures
who makes the buying decisions from a
customer standpoint and are those
patterns changing at all think through
what other products and services do your
customers want and need are there
emerging trends where customers are
asking for new things some of the
sources for this information are things
like market research conducting focus
groups doing some competitive analysis
for your business plan articulate what
the major trends are and the actions
you're going to take either to offset
the negative trends or take advantage of
the positive ones
your business plan should go into great
detail in terms of how your product or
service ranks versus your competitors
now be honest about your standing versus
your competitors I like to create what I
call a moon chart and that's where you
lay out all of your competitors and then
articulate how you stack up versus them
one thing you should never say in a
business plan is we have no competitors
that's not believable and it's risky
because it's pointing out that you have
a blind spot in terms of the market and
where you stand now when you create this
moon chart what you're going to do is
list all of the competitors across the
top and then down the side you're going
to list out all the performance
dimensions and how you stack up and
within each square on that matrix you're
going to spell out whether you're the
best the worst or somewhere in between
and again that's compared to your
competitors offerings this document is
going to help you pitch your idea and
how you're going to position yourself
with your customers so when you look at
your business spell out who those
competitors are lay out the evaluation
dimensions and then compare yourself on
each dimension versus those competitors
then at the end of that section of your
business plan spell out the implications
of that positioning in terms of how
you're going to pitch your product or
your service to your customers
your business plan has to spell out what
the threats are to your product and one
of the biggest threats you'll face is
substitute products
what can replace your product what can
solve the customers problem just as
easily and do it cheaper
what substitutes are competing for the
same dollars that you are and remember
it may not be a direct competitor to you
be able to articulate what those
substitutes are and why your customer is
going to choose your product versus that
substitute so when you spell out your
business plan lay out what those
competitive offerings are and what those
substitutes are and more importantly
what you're going to do to make sure the
customer chooses your product versus the
substitute
your business plan has to spell out your
go-to-market strategy both in terms of
building awareness for your product or
service as well as how you're going to
deliver it how are you going to reach
your customers what are the channels
you're going to use again to market to
them as well as to deliver to them are
going to go direct are you going to go
through distribution how are you going
to build awareness for your product or
service will it be through partnership
or licensing understand the economics of
each of those channels so as you're
writing your business plan make sure you
articulate both types of channels and
understand the economics involved in
each one
your business plan needs to spell out
the value proposition of your product or
your service what are the tangible
benefits that your customer is going to
get from using your product are there
things like cost or time or quality and
you need to quantify these things to the
extent that you can perhaps you include
testimonials in the business plan or
test results if you can't quantify it
because you're selling softer benefits
there's an approach that I call the what
do you have to believe approach for
quantifying it so you need to articulate
your value proposition for your product
or service and to the extent you can
quantify it in terms of the benefits
your customers is going to receive
your business plan needs to clearly
spell out the points of differentiation
for your product or service compared to
your competitors and those points of
differentiation need to be things that
your customer cares about now the
differences need to be substantial
relative to competition by saying you're
one to two percent faster than your
competitors that won't get a customer's
attention 20 percent faster now you have
their attention second they don't just
have to be substantive differences that
to be meaningful if your customer cares
about cost but not at all about speed it
doesn't matter if you're twenty percent
faster so make sure as you're
articulating these points of
differentiation you look at substantive
differences as well as meaningful ones
now knowing how you're differentiated is
going to help you know where to invest
your time and money because this is a
planning exercise and you're going to
focus on those differentiating factors
and where to compete or not compete in
the marketplace this is the part of your
business plan that's going to keep your
strategy focused and staying on strategy
is going to make you more effective and
more competitive it'll prevent you from
chasing work you shouldn't pursue it'll
prevent you from investing in things
that are going to be diluted that your
customers won't care about so as you
articulate your business plan make sure
you think through those points of
differentiation that your customers care
about and that you have a meaningful
performance advantage on versus your
competitors and by spelling those out
clearly you're going to make sure that
you focus on strategy and you have a
more competitive offering
just because you've built a business it
doesn't mean it's safe and in your
business plan you should articulate how
you're going to protect what you've
built how are you going to protect
another company from taking your
customers maybe you look at things like
proprietary rights that you have to the
product or service you may look at
things like patents or copyrights do you
have trade secrets that nobody can
replicate perhaps you put in place some
non-compete agreements or other
proprietary knowledge and skills that's
going to keep your business safe from
competitors taking your customers now
recognize a lot of people want to go
down the patent or copyright path
however that's costly and it takes a lot
of time additionally just because you
have a patent or a copyright it doesn't
mean it can't be defeated there are
companies out there that will infringe
upon your patents there are companies
who will sue you in court and while you
may ultimately win the case it's gonna
cost you a lot of time and money to
defend it so just be aware of the pros
and cons of each of these defensive
mechanisms also don't underestimate
speed and size as defense mechanisms for
protecting your market in your business
plan lay out what mechanisms you're
going to use to protect your business
from the threats you're invariably going
to face
your business plan has to lay out your
product development roadmap that roadmap
should spell out what the major phases
are in product development as well as
the timelines that go along with it
describe what's in your Minimum Viable
Product the first product that you put
in the market what are the features
you're going to release then discuss
what the next level of prototypes are
going to be as well as when that final
product is going to be available and
released into the market the business
plan should also describe your approach
to testing research and development and
what that future product roadmap will be
explain the key risks in your product
development lifecycle and how are you
going to mitigate or account for those
risks when you layout your product
development roadmap lay out those
features and functions at each stage of
development and articulate what the
gates are for you to build that next
level of functionality
the next section of your business plan
needs the layout product or service
delivery how are you going to get your
product in the hands of your customers
if it's a product
who's going to ship it are you going to
ship it the rack through the post office
or UPS or Federal Express are you going
to sell your product through retail if
it's a service are you going to go to
the customer or are you going to deliver
your service remotely or you going to
have the customer come to you to be
serviced and then once you've laid out
how you're going to get that product and
service to them explain the operational
hurdles and challenges you'll face as
well as how you're going to get over
them make sure you lay out the channels
you're going to use to deliver your
product or service and how you're going
to overcome the challenges you're going
to face
a brand is a promise and you should
spell out what you want that promise to
be also lay out why are your customers
going to care why is that promise
important to them then how are you going
to advertise and promote your product or
service in a manner that's consistent
with and builds that brand how are you
going to communicate with your customers
will it be online advertising public
relations
perhaps it's personal selling or printed
materials are there other promotional
opportunities you're going to take
advantage of spell these things out in
the branding section of the business
plan then how are you going to emphasize
your points of differentiation are you
going to point out the problem you solve
and why you're better than anyone else
at solving it so in your business plan
spell out what the promise is that
you're making to your customers why
they'll care and how you're going to get
that message out into the market
pricing is one of the most critical
decisions you're going to have to make
and your business plan needs to spell
out your pricing model as clearly as
possible
you need to understand even a 1%
differential on pricing can have a
disproportionate impact on your total
profitability let's assume your business
has a 10% profit margin if you raise
prices by just 1% on the top line for
revenue you've increased your
profitability by 10% that 1% will go
from your revenue line all the way to
the bottom and your pricing will drive
margin from 10% to 11 pricing is huge do
not under invest in thinking about it so
how do you come up with your pricing
benchmark some of your competitors look
at their pricing model as well as their
price points and use those price points
as anchors for pricing your own service
also determine your pricing model and
the rationale behind it are you going to
sell on a cost-plus basis are you going
to sell on a value basis is it going to
be a one-time fee or ongoing fees or
some combination thereof laying out this
model is critical because you're going
to have to message it to the market as
well as build the model into your
ultimate financial model as part of your
business plan
in the sales section of your business
plan you have to spell out how are you
going to sell your product or service
will you use a sales force or will you
just go direct consumer maybe from your
website if you're using a sales force
what's the sales cycle going to look
like how long will it be what's the
conversion rate from prospect to
customer and make sure in the business
plan if possible have supporting
evidence for that how are you going to
compensate your sales force will it be a
base salary we pay them a commission is
it going to be a combination of the two
because that's going to drive your sales
forces behavior and in the sales section
how are you going to conduct contracting
will you have long-term contracts will
you have certain payment terms that
you're going to expect what type of
salespeople do you need and how are you
going to compensate them and having that
clarity in your business plan is going
to make it clearer how those people will
perform as well as how it will show up
in the financial performance of your
business
another operational area to cover in
your business plan is how are you going
to support your product or service just
because you sell it doesn't mean you're
done what's it going to take to deliver
aftercare to handle returns to deliver
customer service when your customers
have questions how are you going to
staff that service are you going to
insource it and have people within your
organization who do it or are you going
to outsource it to another organization
or are you going to make it self-help
what are the expectations that your
customers are going to have for this
support how many calls do you expect
how many incidents are you going to
handle what's the return rate on your
product going to be and what expertise
is going to be required to handle some
of these issues you need to spell out
all of these operational components in
your business plan because if you don't
think about them you're going to have
operational challenges down the road the
lesson here is think about how you're
going to support your business before
you make any operational changes and
this is exactly what you'll be doing as
you write this section of your business
plan
your business plan needs to lay out your
people plan and that people plan needs
to be built from the bottom up you need
to look at the demand factors that are
going to drive how many people you need
what job families do you need and where
will you hire them from do you need
operational folks do you need finance HR
IT will they be employees or will they
be contractors how are you going to use
vendors to augment your internal
personnel strategy you have to think
through what are the ramped up times and
the training requirements for somebody
just because you say you need someone
doesn't mean they're going to be
effective in the role on the day you
hire them you need to work backward and
say it's gonna take us three to six
months to find this person and after we
have them it's gonna take two months to
train them this all needs to be part of
your people plan how are you going to
staff as you grow your business and
what's going to drive that staffing
growth so if you take on new customers
how many new customers do you have to
have before you hire an incremental
person and when do you achieve those
scale benefits when is that hiring going
to flatten out while the business
continues to grow you'll also need to
lay out how much do these people cost
what's the turnover going to be how much
are the benefits you're going to pay
them all these numbers are going to feed
into your financial plan and by building
your people plan based on the demand
factors as your business grows and
laying out that plan on a quarterly
basis you're going to be able to more
accurately predict what your financials
will look like so as you lay out your
business plan think through all the
different job families and what's going
to drive their growth how much they're
going to cost you and what the pace of
hiring will be
a major component of your operating
portion of your business plan is how
you're going to manage production where
are you going to make your product are
you going to insource or outsource but
suppliers are you're going to use will
you own or lease the equipment you'll
also need to discuss how are you going
to meet demand manage facility
utilization and deal with peak or slack
periods of demand once you've built your
operating plan ask do your operations
match your product strategy and it's
something you should think through in
this section of your business plan
for your business as you write your
business plan think through what your
major inputs are to make in your product
and then who are the suppliers do you
have backups for those suppliers do you
have a diversity of sources to mitigate
supplier risk how are you going to
manage the costs of the things you buy
from your suppliers do you intend have
long term contracts will you conduct a
scheduled bid will you have any partners
joint ventures alliances for key
components supplier risk is a huge risk
for your business if a major supplier
goes down or decides to renegotiate
rates what's your backup plan what
financial risks do you face from
supplier concentration and how are you
going to mitigate those risks
what operational risks do you face by in
sourcing things that you're not great at
things that aren't your core competency
what reputation risks do you face in
your supplier strategy if you partner
with someone or you buy a lot of product
from a supplier and they do something
wrong what's the risk to your business
think through some of the large
companies who have partnered with famous
athletes or movie stars and that athlete
or star does something that isn't so
great and look at the risk that that
company who sponsored them faces these
are all risks that you should be
articulating in the supplier section of
your business plan so understand where
you're going to get your product what
the concentration risks are and how
you're going to mitigate it to have a
clear and compelling piece of this
operating plan
as you build your business especially if
you're seeking outside investment the
leadership team is going to be something
people will evaluate very closely some
investors say they'd rather invest in a
great management team with an okay idea
than in an okay management team with a
great idea
the leadership team matters a lot and
this is your opportunity to show people
how great that team is in this section
of the business plan define who the
executive team is and draw the
organization chart who reports to who
put in the blank boxes with job
descriptions for people you'll hire in
the future you should include brief bios
of each leader and include their
relevant experience that shows how
they're going to contribute to the team
link their past experiences and
accomplishments to the role they'll be
playing in this organization you should
also describe the ownership structure of
the company including decision-making
authority
you may be smart but it's even smarter
to surround yourself with other smart
people this is the role of advisers for
your business and you should spell out
who those advisers are within your
business plan there are several types of
advisers you can pursue there's an
advisory board an advisory board
typically gets brought together during
the earlier stages of your business they
can help you get customers investors
they can help you build out your team
and they may play an ongoing role as
your organization grows there's a board
of directors these people are formally
elected and have legal responsibilities
they're typically not needed until you
receive outside investment and you have
shareholders the board serves as experts
on special topics they'll be responsible
for compensating management and holding
management accountable to shareholders
other advisers you can have our
specialists they're brought in to advise
on a specific topic they're not usually
involved on an ongoing basis and they
can be paid as consultants or you can
pay them with equity and your board
should change as the business grows and
as the needs of the business evolve so
think through your advisory needs for
your business identify who those people
are and what the structure of those
advisory boards will be
your business plan needs to include a
perspective on how you're going to
compensate management there are various
ways that you can compensate your
leadership team you can give them cash
bonus or equity and there are a variety
of forms of equity that you can issue
things like stock or options I highly
suggest you get some legal assistance
from somebody who has done this type of
agreement before when you are awarding
equity that equity needs to vest over
time even for the founders this way if a
founder quits they don't walk away with
a big chunk of equity just for having a
good idea
cash is also tight when you first start
your business so equity tends to be the
preferred way to compensate management
but you have to realize that equity is
the most expensive form of financing and
give it out wisely this is why it's so
important to spell this out in your
business plan deferred cash or a bonus
is another option for compensating
management if your executives don't need
cash right now and doing so it's cheaper
than equity but it preserves the cash
you need to start up the business no
matter what put employment agreements in
place that specifically spell out
compensation because when your business
plan is complete and you think about
taking it in front of investors the way
you're compensating management is going
to have an impact on the return those
investors might get these can be very
complex transactions and you do need
legal and financial assistance as you
set us up but it's a section of your
business plan that has to be completed
especially if you're going to seek
outside investment
when you run a business there are a lot
of administrative matters you're going
to have to handle these are
non-negotiable
many of them are regulatory requirements
which firms are you going to use for
your finance HR legal intellectual
property who's going to represent you
and who on your team is going to manage
administrative matters for your company
there are some key questions you need to
be able to answer as you build your
business plan are all your licenses and
business filings complete and accurate
are you sufficiently insured are you
compliant with all laws like tax law
employment law safety law if you're
doing some manufacturing is your
business legally protected do you have
the right legal structure intellectual
property and copyright protections are
your contract solid and are your
finances correct
are you issuing 1099s and w-2s and
filing your taxes appropriately these
aren't fun things to deal with however
they're critical especially if you get
them wrong so spend some time find some
external service providers who can help
you with this and make sure you have
these things buttoned up before you
launch your business
a major component of your business plan
is your financial plan and the first
step in building that financial plan is
documenting your assumptions what are
you going to assume and what's the
grounding for those assumptions maybe
you look at comparables market research
or basic estimates to figure out what
that ingoing assumption is you'll also
need to lay out what the best case and
worst case scenario is for each
assumption because they'll drive
different financial performance then
explain how large of an impact each
assumption has on your overall financial
performance by having your assumptions
clearly articulated you can track your
financial performance and revisit those
assumptions over time to make sure your
forecasts are as accurate as possible
your financial forecast is the heart of
your business plan without a good
forecast you don't know if you even have
a viable business or what financial
results you can expect when you build
your financial forecasts build them from
the bottom up and build them I month
based on unit drivers so how many
courses are you going to sell how many
widgets are you going to produce
understand how those drive the financial
performance you'll need to build a full
profit and loss statement with all line
items accounted for and use the
assumptions you've already created to
drive that financial forecast
you'll forecast your revenues your costs
how much cash you'll have what your
balance sheet and income statement look
like and if you don't know how to do
this seek professional help from a
financial firm when you build your
forecasts you're going to want to have
several cases build a worse case where
you have accelerated and increased costs
and delayed or lower than expected
revenue build an expected case which
should be conservative and build a best
case which is your costs are as expected
and you have accelerated revenue by
looking at that complete picture you'll
understand what happens if things don't
go well and what happens if things go
great invest the time in building
forecasts that are as accurate as you
possibly can
because they're going to tell you what
your business will look like in the
future and help you plan accordingly
it takes money to run a business and
there are three critical numbers you'll
have to know how much capital do you
have on hand
what's your burn rate and how much
runway do you have capital on hand is
how much cash do you have in the bank
your burn rate is how much money are you
spending every month to pay your staff
to run your business and then runway is
if you look at how much cash you have on
hand and assume no more money comes in
how long do you have before you run out
of money obviously the longer the runway
is the safer your businesses you'll also
need to create a perspective on when
you'll hit cash flow breakeven which is
when is the business generating enough
money enough profit to pay the costs of
running that business every month and
your investors are going to want to know
at what point are you going to hit cash
flow breakeven because that's when you
don't need any more money invested your
business plan should also spell out
where you plan on getting your capital
from will it be from the owners loans
friends and family will you seek outside
investors or grants will you work with
partners who will give you money
also what are you going to use the
capital for by the way the only good
uses of capital in the early years of
running your business are things that
drive sales marketing sales force or
product development if you're spending
money on anything other than those items
your investors are going to question it
so as you're thinking about your
business be very clear about how much
money you're going to need to hit the
point where the business is
self-sustaining
every business faces financial risks and
you should lay out in your business plan
what those risks are and what you're
going to do if they come to pass some of
the risks you might face what happens if
you lose funding what happens if you
don't get that loan or the investment
you are counting on what if you lose a
big customer or the economy turns south
what if that marketing campaign you
thought was gonna be huge turns out to
not work what happens if you get sued
for intellectual property or a major
competitor emerges all of these are bad
things that could happen to your
business but if you think about them now
and plan for them you can put
contingency plans in place you could do
things like cut expenses or lay off
staff you might seek additional loans or
additional investment or the founders
might put more money in you could drop
prices market more offer retention
discounts for some of your customers you
may even say we would sell out to a
competitor or partner with another firm
having these contingency plans in place
enables you to react more quickly so
think through what the risks your
organization faces are and put them in
your business plan along with the
contingency plans to go along with it
as you build your business make sure
you're clear on whether it's a lifestyle
business or if you're looking to exit
because it has huge implications for how
you're going to fund it if your business
is built to exit your investors will
want to know how are you going to exit
will it be by acquisition and who might
buy your company will it be a sale just
to other owners now if you say we're
gonna do an IPO it sounds a little bit
silly especially in the early stages of
running a business so be practical about
saying what your exit might be if it's a
lifestyle business just understand that
you'll get fewer people who are willing
to invest in it when you lay out your
exit plan expect an ROI your investors
will what's the return on the investment
that they're going to get what's the
timing they should expect it on your
investors will want their money back and
then some so your business case needs to
spell out is it going to be a lifestyle
business for you where you're not seeing
external investment and you're just
looking to build something to give you
personal income or is it something where
your investors can expect a return
you
