Book Excerpt
Chapter 1
Business Plan Basics
Why you absolutely need a business plan
A business plan is a written description of your business?s future. That?s all there is to it?it?s a document that tells what you plan to do and how you plan to do it. If you jot down a paragraph on the back of an envelope describing your business strategy, you?ve written a plan, or at least the germ of a plan.
Business plans can help perform a number of tasks for those who write and read them. Investment-seeking entrepreneurs use them to convey their vision to potential investors. Business plans may also be used by firms that are trying to attract key employees, prospect for new business, deal with suppliers, or simply understand how to manage their companies better.
Having said that, there are some generally accepted conventions about what a full-blown business plan should include and how it should be presented. And if you follow these conventions, you?re going to need an awfully big envelope to fit it all on the back. Basically, however, a plan should cover all the important matters that will contribute to making your business a success. These generally include the following:
Your basic business concept. This is where you discuss the industry, your business structure, your particular product or service, and how you plan to make your business a success.
Your strategy and the specific actions you plan to take to implement it. Describe and analyze potential customers: who and where they are, what makes them buy, and so on.
Your products and services and their competitive advantages. Here is your chance to dazzle them with good, solid information about your products or services and why customers will want to purchase yours and not your competitors?.
The markets you?ll pursue. Now you have to lay out what your marketing plan is. Keep it simple, short and to the point.
The background of your management and key employees. Having information about key personnel is an important but often overlooked portion of a good business plan.
Your financing needs. Spell it out in simple terms that everyone can understand. Don?t cut corners hoping you?ll be able to get other financing at the last minute from other sources. Ask for what you will need to be successful.
You?ll express most of this information in words?in plain English, and the plainer the better. There also almost certainly will be a lot of numbers in budgets and other financial reports. Tables, graphs, drawings and photographs are not uncommon. A few plans include actual product samples.
What else is in a good business plan? Hopes, certainly, are there. Dreams, probably. Quite possibly there is passion. But it?s worth noting now that none of these essential motivators will have a high profile in your business plan. They have to be there for you to succeed in business, to be sure, but few if any of the people who are likely to read it are interested in your private emotions about your business.
A business plan is a place to stick to facts instead of feelings, projections instead of hopes, and realistic expectations of profit instead of passion. Keep this in mind while writing your plan and you have a better chance of injecting it with perhaps the most important component of all?credibility.
HOW LONG SHOULD IT BE?
A useful business plan can be any length, from that scrawl on the back of an envelope to, in the case of an especially detailed plan describing a complex enterprise, more than 100 pages. A typical business plan runs 15 to 20 pages, but there is room for wide variation from that norm.
Much will depend on the nature of your business. If you have a simple concept, you may be able to express it in very few words. On the other hand, if you are proposing a new kind of business or even a new industry, it may require quite a bit of explanation to get the message across.
The purpose of your plan also determines its length. If you want to use your plan to seek millions of dollars in seed capital to start a risky venture, you may have to do a lot of explaining and convincing. If you?re just going to use your plan for internal purposes to manage an ongoing business, a much more abbreviated version should do fine.
WHEN SHOULD YOU WRITE IT?
The fact that you?re reading this book means you suspect it?s about time to write a business plan. Odds are you are at or near one of the many occasions when a business plan will prove useful.
One good time is when you are picking a new venture to pursue. A business plan is a very good way to explore the feasibility of a new business without actually having to start it and run it. A good plan can help you see serious flaws in your business concept. You may uncover tough competition while researching the market section, or you may find that your financial projections simply aren?t realistic. On the other hand, a careful business plan that doesn?t predict failure can be a rare comfort and motivator to proceed. You are also likely to need a business plan when you are seeking financing. Bankers, venture capitalists, and other financiers rarely provide money without seeing a plan. Less sophisticated or less unbiased investors, such as friends and family, may not require a business plan, but they probably deserve one. Even if you?re funding the business with your own savings, you owe it to yourself to plan how you?ll expend the resources you?re committing.
It?s also a good idea to realize that writing a business plan is not a one-time exercise. Just because you wrote a plan when you were starting out or raising money to get under way doesn?t mean you are finished. A business plan should be rewritten or revised regularly to get maximum benefit from it. Commonly, business plans are revised yearly.
WHO NEEDS A BUSINESS PLAN?
About the only person who doesn?t need a business plan is one who?s not going into business. You don?t need a plan to start a hobby or to moonlight from your regular job. But anybody beginning or extending a venture that will consume significant resources of money, energy or time, and that is expected to return a profit, should take the time to draft some kind of plan.
Start-Ups
The classic business plan writer is an entrepreneur seeking funds to help start a new venture. Many great companies had their starts on paper, in the form of a plan that was used to persuade investors to put up the capital necessary to get them under way. Most books on business planning seem to be aimed at these start-up business owners. There?s one good reason for that: As the least experienced of the potential plan writers, they probably are most appreciative of the guidance. However, it?s a mistake to think that only cash-starved start-ups need business plans. Companies and managers find plans useful at all stages of their existence, whether they?re seeking financing or trying to figure out how to invest a surplus.
Corporate Managers
If you?ve ever held a managerial position of any stature in a large corporation, you know well the rounds of five-year, three-year, annual, quarterly, and even monthly budgets, forecasts, reports, analyses, and plans you are expected to draft. Many large companies employ sizable staffs that do nothing but plan and assist others in planning, and sometimes one round of planning seems to lead directly into the next, with precious little time for actually implementing all the schemes.
Some people enjoy all this corporate paperwork; others consider it a good argument for entrepreneurship. Either way, it?s hard to imagine running an organization that may employ tens of thousands without careful documentation and controls. Plans serve this purpose in big companies, which is why most business plans are written by employees, not entrepreneurs.
Established Firms Seeking Help
Not all business plans are written by multinational managers or starry-eyed entrepreneurs. Many are written by and for companies that are long past the start-up stage but also well short of large-corporation status. Walker Group/Designs, for instance, was already well established as a designer of stores for major retailers when founder Ken Walker got the idea of trademarking and licensing to apparel makers and others the symbols 01-01-00 as a sort of numeric shorthand for the approaching millennium. Before beginning the arduous and costly task of trademarking it worldwide, Walker used a business plan complete with sales forecasts to convince big retailers that promising to carry the 01-01-00 goods would be a good idea. It helped make the new venture a winner long before the big day arrived. ?As a result of the retail support up front,? Walker says, ?we had over 45 licensees running the gamut of product lines almost from the beginning.?
These middle-stage enterprises may draft plans to help them find funding for growth just as the start-ups do, although the amounts they seek may be larger and the investors more willing. They may feel the need for a written plan to help manage an already rapidly growing business. Or a plan may be seen as a valuable tool to be used to convey the mission and prospects of the business to customers, suppliers or others.
HOW IMPORTANT IS A BUSINESS PLAN?
Kodiak Venture Partners?a venture capital firm that invests in high-tech, early-stage companies focusing on communications, semiconductors and software?believes that a business plan is very important. ?The business plan is an important tool in keeping an early-stage company focused, but the key is to use it in this way and not treat it as a static item: produced once, polished, and set on the shelf,? says Luciana Castro, marketing director.
For the early-stage company, the business plan is often viewed solely as a key part of obtaining financing. A business plan that effectively helps the company obtain financing will clearly communicate the company?s value, the customer problems solved by the company?s product, and the important investments required to bring those products to market. Focus on these items is critical to the growth of a strong company, so a plan that clearly articulates these items should also be used in the management of the growing company.
Jim Caruso, a partner at Telecom Alley Inc., believes that the plan is the roadmap to success. ?But it also provides a sounding board for assessing the viability of the venture,? he says. ?The key point here is that many ventures change direction. These changes are based on the hard look at the business that is provided by the business plan. Therefore, the plan serves to correct failings and set the new direction.?
A business plan?s importance differs based on whether your venture is self-funded or outside-funded, such as from venture capitalists (VCs). Whoever is involved, the business plan provides an agreed-upon description of the venture?s strengths and weaknesses, along with a course of action to capitalize on the strengths and correct any weaknesses. VCs bet on a management team that is capable of creating a winning venture, and this winning venture is described in the business plan.
?A business plan is an opportunity to call attention to flaws in your business expectations,? says Donna Maria Coles Johnson, founder and president of Handmade Toiletries Network in Bowie, Maryland. ?If you think there?s a market for your product, for example, but you fail to conduct market research or participate in business-planning exercises, you could be in for a rude awakening when you try to sell your product.? She believes that a business plan can prepare you to do battle with your competitors because it forces you to determine how you will compete with them in advance. ?You may find that the market is so entrenched that the start-up costs would be prohibitive,? Johnson says. ?It?s best to learn these sorts of things early rather than later, saving time and money in the long run. Preparing a business plan also provides the business owner with confidence. After researching a market?gaining a full understanding of the operational and financial issues involved?a business owner can enter a new venture with confidence rather than fear.?
Ronald Peterson, president of Three Arrows Capital in Bethesda, Maryland, thinks that the business plan is the vehicle to communicate with not only financing sources but also partners, shareholders and employees. ?The business plan has become an indispensable part of growing a modern business,? he says. ?Not only does it help to rationalize the process from production to sales, but it can become a living document that helps you make intelligent and balanced decisions on a day-to-day basis. Not to have a comprehensive, inclusive and current business plan is pretty dumb.?
Centurion Consulting Group develops all types of plans for new and ongoing national and international companies, including strategic, business, marketing, growth, financial, feasibility and operations plans. Barbara Lewis, a consultant with the company, also believes that a business plan is critical to the success of a company. ?Just like you wouldn?t build a house without a blueprint, you shouldn?t build a business without a plan,? she says. ?The company?s ?big picture? is the strategic portion of the plan, which includes the mission, vision, strengths, weaknesses, opportunities and threats. Other essential elements of the plan include the marketing analysis and strategy and the operations and financial analysis and strategy.?
One of the basic problems that she sees in plans is the market analysis. ?Most plans don?t define the market size, identify market characteristics, or have a realistic assessment of competitors,? she says. ?Yet the company?s marketplace is one of the most important issues. Understanding the market goes a long way toward developing a cogent strategy and comprehensive tactical plan.?
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November 28th, 2006 at 9:43 am
a very good idea
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