One of the toughest things about putting together a business plan is designing one to appeal to a broad spectrum of investors.
David Mielach, a staff writer for BusinessNewsDaily.com, compiled responses from experts on this key point: What questions should every business plan answer?
What’s the competitive advantage?
In looking at a business plan, Scott Locke, chair of the intellectual property development at Dorf and Nelson LLP, wants to know what gives the business “a competitive advantage relative to businesses that want to offer the same or similar good and services.”
In addition to an assessment of the competitive landscape, a strong business plan should also determine if there are any intellectual properties (patents, trademarks, copyrights, trade secrets) that might be “barriers to entry by competitors.”
Is it a growing company in a growth market?
According to Walter Recher, CEO of SmallBall Marketing, an effective business plan should describe “how the entrepreneurs will enter the market, apply their investment to prepare them to grow quickly, and participate in the expansion of an industry … with a better-than-average growth trajectory.”
In Recher’s experience, this single factor is the common denominator among both small businesses and hyper-growth companies.
How will you get customers to pay for your product?
Andi Gray, CEO of Strategy Leaders, asks entrepreneurs this simple question: “How do you plan to feed and clothe yourself, and where do you plan to sleep while you’re getting this venture off the ground?”
In other words, the business plan should articulate a strategy for getting customers “to engage at a fee and quantity” that enables the owners to sustain themselves as well as their business.
What’s the plan for staffing the business?
Every plan should include provisions for staffing the “production, sales and finance parts of the business,” says Larry Holfelder, CEO of Connect My Advisors. “Roles should be established for the entity as if it were mature and successful.”
Holfelder suggests assigning multiple roles at first and, as the business grows, filling those roles with the right people.
Including this information in the business plan shows that entrepreneurs recognize they can’t do everything themselves “and that business success revolves around collaboration and management.”
Is the product genuinely innovative?
“Innovative” can have many different meanings, but to Irwin Glenn, Managing Director of Profit Velocity, it means “a new twist on an already-existing technology or services delivered in a new and compelling way.”
A well-designed business plan must determine if the innovative idea can be protected against competition, and if the team can assemble “an excellent group that can’t be stopped from succeeding.”
How realistic are the plans and goals?
For Charles North, president and CEO of the Dutchess County Regional Chamber of Commerce, a business plan must be realistic, “not something that is pie in the sky.”
This doesn’t mean the idea must be reasonable, but the plan must be. Assumptions covering sales, expenses, and the bottom line also “have to be reasonable.”
The more questions your business plan answers, the greater interest you’ll generate among likely investors.
What questions does your business plan answer?
Let’s say you have a great idea for a new product or service—something no one’s thought of before, and which you believe has great potential. Do you jump right in and get going, assuming you’ll take care of any obstacles as they arise? Or do you make sure you’ve got all your bases covered, thus hopefully tipping the odds of success in your favor?
Bob Diener, president and co-founder of a travel site Getaroom.com, believes that while confidence and enthusiasm are necessary for any new venture, no fledgling enterprise will get very far by ignoring the fundamentals.
In this article for The Harvard Business Review blog, Diener offers valuable advice for incorporating those fundamentals into your business plan.
It’s important to be optimistic, Diener says, just not wildly optimistic. Think carefully about the market you plan to enter. “Are you selling a lower margin product that will take time to gain traction? Or are you taking a shot with an app that might be a dud or might attract 100,000 downloads a month?”
In order to manage your finances, tailor your plans to accommodate a reasonable amount of buyer interest and sales. If you’re counting on advertising to draw in customers, Diener says, “Remember that most advertising simply does not work.” Instead, plan to bring in customers via other channels, including word-of-mouth referrals.
Your product or service has to offer genuine value, or it’s not worth your time and resources to pursue. But, Diener suggests, it’s foolish to rely upon your own judgment in this area. “You’re invested in the business, so of course you’ll feel it has value for your customers,” he says. “Gather some outside counsel to be sure the value is clear and easily explained to your target audience.”
Without a clear value proposition, “you’re likely setting up the business for failure.”
If your great idea is something customers already possess, can get for free or is otherwise available from competing businesses, what’s so compelling about buying it from you? Customers must be able to “easily identify and discuss your competitive advantage,” Diener says.
The best business plans answer the “hows” of any new enterprise:
To be successful, Diener says, “You need to be a hawk on the bottom line and ruthlessly manage top line expenses.” A solid business plan can’t guarantee success, but it can “turn failure into a learning experience instead of a catalyst for personal financial ruin.”
Great idea, strong business plan—now you have to get customers to make the all-important purchase. Diener advocates using “inexpensive promotions or contests” to draw consumer interest.
A clever social media strategy is another cost-effective approach to marketing. “Encourage conversations about your brand by asking for reviews or finding a way for consumer-created content that shows off your product’s unique features.”
Attend to these fundamentals—or what Diener calls “non-negotiables”—before you start your new business. It might make the difference between success and failure.
What’s your advice for starting a new business?
No business plan should be written in stone. Business conditions are always changing, the marketplace is always in flux—and your lean business plan should reflect these changes.
But lean “doesn’t just mean thin,” says Tim Berry, President of Palo Alto Software, Inc. Berry argues that a lean business plan, like a lean startup, can be executed more efficiently “by continuously measuring progress and feedback.” A lean business plan “requires rapid changes and fact-based decision making.”
Berry offers five guidelines toward a truly effective lean business plan:
“Strategy” means an unerring focus on specific target markets. What strengths or characteristics link your business to preferred customers and the solutions you offer them? Strategy should be outlined in bullet points, with charts and/or images. Why? As Berry says, “Strategy isn’t text—it’s concepts.”
How closely does your current strategy statement describe your specific value proposition? Is the strategy specific enough to facilitate successful implementation?
According to Berry, eight core concepts serve as the foundation for a successful business plan—market, product or services, production, marketing, sales, distribution, management and finance. Old school (or “fat”) business plans offer elaborate descriptions of each key area, whereas a lean business plan summarizes trends and assumptions, “explaining them in detail only where the detail isn’t already understood.” Again, always include more bullet-points than text.
Use lists and tables of numbers to keep your business plan “specific, concrete and measurable.” Pay special attention to milestones—a schedule of activities and accomplishments, each accompanied by dates, budgets, performance metrics, as well as anticipated expenditures for spending and sales.
The best planning also requires continuously updated projections, “just detailed enough to offer good plan-vs.-actual analysis.” Plan for monthly projections at least six months out, but don’t waste time on monthly projections beyond a year. The goal isn’t to see if you can correctly guess what’s going to happen (spoiler alert: You can’t), but to connect the dots (“like expenses to sales”) so you can make adjustments as needed down the road.
Depending on the audience, it might be helpful to “dress up your plan” with market details, technical background, executive team bios, competitive analysis, etc. As Berry notes, “You might need to prove a market to assure investors or to prove financial stability to assure bankers.”
Remember—business planning and strategy is an ongoing process, not a final event. Review and revise your plan on a continual basis.
A lean business plan is a “living, evolving, flexible thing.” To get the best results, you must conscientiously attend to its care and feeding.
How do you keep your business plan lean and efficient?
No business plan should be written in stone. Business conditions are always changing, the marketplace is always in flux, and your lean business plan should reflect these changes.
But lean “doesn’t just mean thin,” says Tim Berry, president of Palo Alto Software, Inc.
Berry argues that a lean business plan, like a lean startup, can be executed more efficiently “by continuously measuring progress and feedback.” A lean business plan “requires rapid changes and fact-based decision making.”
Berry offers five guidelines toward a truly effective lean business plan.
“Strategy” means an unerring focus on specific target markets. What strengths or characteristics link your business to preferred customers and the solutions you offer them? Strategy should be outlined in bullet points, with charts and/or images. Why? As Berry says, “Strategy isn’t text—it’s concepts.”
How closely does your current strategy statement describe your specific value proposition? Is the strategy specific enough to facilitate successful implementation? (more…)
