7 Things Not to Miss When Creating a Business Plan
Updated: Dec 3, 2019
I actually sighed loudly into the phone during the conversation with my customer. It wasn't the most professional thing to do, but I couldn't help myself. This customer had just asked me to write a "quick business plan because the loan agent and landlord wanted to see one." I was trying to be very customer focused and listen carefully to the customer's needs, but the situation put me in a dilemma. I was faced with either doing what the customer asked or what I knew was right for the customer. After our conversation, he went with another consultant.
Plans are Useless, but Planning Is Indispensable
- Dwight D. Eisenhower
My concern lies in the fact that any new business or expansion venture includes tremendous investment from a large group of people. Business owners, financing partners, vendors, landlords, and employees are all going to invest a lot of time and resources into the new endeavor with high expectations for success. And there's a lot that can go wrong with a business even in the best of situations. So why not mitigate risk and provide the best planning possible with a comprehensive business plan based on quality market research and opportunity assessment?
President Eisenhower got it. "Plans are Useless, but Planning is Indispensable", he famously commented years ago. He understood that the plan is the result of exhaustive planning and research. It's the repository for the key takeaways from the planning exercise. As such, the key deliverable isn't the business plan but rather the business planning. Many new business owners miss this fact in their excitement and anticipation of opening the doors. A "quick" business plan necessitates quick planning that directs the business down a suboptimal path. This is your business...your financial future...let's build the best foundation from the start. This isn't the place to cut corners in my opinion. Thorough and thoughtful planning provides a quality business plan. Quick and cursory planning provides something else.
If I've made is this far, you're probably interested in the comprehensive business planning process. While this is highly dependent on the uniqueness of each exercise, there are a couple of areas I consider foundational to the business planning process and the business plan.
I know it sounds silly, but understanding the "why" is just as important as understanding the "how" of starting or expanding a business. This may take some soul searching, but it's helpful to uncover your personal motivation for starting/expanding a business. Passion is a must. If you can't convince yourself of your commitment and energy, you'll probably has difficulty convincing investors and customers. Completing this step will either validate your commitment to starting a business or bring light to your hesitation and concerns. Either way, finish this step first.
Market and Competitive Research
Large organizations have marketing teams that serve as resident market and competitive experts. In small companies, this responsibility is probably going to fall to one of the founders. Regardless, someone needs to understand the market landscape and market dynamics from day 1. Understanding the marketplace and your competitors will help you make decisions on everything from staffing, infrastructure, product creation, pricing, and marketing. It's critical to have a grounded understand not only of the market yesterday and today...but where it will by 2-years down the road. Planning for tomorrow rather than yesterday is a pivotal part of strategic decision making and business planning.
Customer understanding is related to market research obviously, but it takes things to a much more granular level in knowing the customer. In today's hyper competitive environment, it's critical to identify your "ideal" customer and identify their specific needs and pain points. The days of generic messaging and "swiss-army knife" products are in the past. Not every customer is going to look alike.
Product/Service Differentiation Strategy
Your new company/division is going to make widgets...fantastic. Customers in your marketplace buy widgets...even better. Now, how are you ensuring that your widget's product value will compel customers to purchase your widget over other choices in the marketplace. A successful differentiation strategy requires a clear understand of the market, competitors, and customers.
Revenues, Expenses, and Cashflow
Start-ups/expansion don't fail because of market conditions or bad products, but rather because they often simply run out of cash. In these cases, ownership didn't properly account for cost of customer acquisition, overhead costs, or sale cycles. The endeavor simple runs out of runway before taking flight. A honest analysis and forecasting of expenses, revenue generation and needed funding will help ensure your expense don't outrun your revenues. It's helpful to also look at different scenarios and assumptions in this analysis. You might think that you'll easily get 1,000 customers a month to purchase your product at $50. But, what happens if only 600 purchase at $35? Will the business survive? What happens if the build-out gets delayed 3-months because of unforeseen asbestos remediation? Can the business endure the setback? There's obviously a different strategy for companies like Tesla, Netflix, and Amazon with deep investor pockets and the ability to stay in the red for many years. But, many smaller companies don't have this luxury and are dependent on a finite amount of start-up capital. Detailed financial planning helps ensure your dream isn't ended before it begins.
Marketing and Customer Acquisition
In most cases, you're intended market and customer base won't know that your open and available for business. A new business needs to be proactive with a solid marketing plan to maximize exposure and bring customers in the door. Today's marketing options are much more complicated than in past decades.
Sales sheets, tri-folds, trade magazines, mailers, conferences, conventions, paid search advertising, SEO, websites, blogs, social media, telemarketing, strategic partnerships, etc. are all marketing tools that must be considered to help drive customer acquisition.
In many instances, a small start-up can't afford the cost or resources needed to address all the marketing tools. I read an article from a well know marketing automation product that recommended posting to Twitter hourly to maximize market engagement. Hourly?...seriously?...this article obviously wasn't gunning for the start-up and small business market. In reality, a small business doesn't have to worry about ALL the marketing tools, just the most effective ones to deliver the marketing strategy. Remember...marketing strategy first...implementation second.
Assumptions and Variability
Planning is about doing your best to predict the future and assumptions are made to reach a predicted conclusion.
I.e. COGS will be $XX dollars, Avg selling price will be $XX, We'll secure XX% market share after year 1.
A good business plan will transparently justify such assumptions, but it should also estimate the variability in such predictions to "pressure test" the business. If the business plan must have a 'perfect world' situation to succeed, then it's probably a good sign to continue with the planning stage.
Business owners and entrepreneur's aren't risk adverse by any means. But that doesn't mean that a business owner and entrepreneur can't plan well and mitigate risk to help accelerate success. Business ownership is difficult enough with self-imposed handicaps. Let us help you plan for success through our proactive business consulting services.