1.3 Workbook

The Full Business Plan

Many successful entrepreneurs never write a formal business plan. However, they do create a vision for the future; they do set goals regularly; and they do structure their time to achieve their goals – they just don’t write a formal 30 page document. So why do most colleges and universities offer a course in business plan development? Here are eight great advantages we see in creating a longer and more complete plan:

1. It is essential for raising money from banks, angel investors and venture capital groups. No one will give you money without a professional, well thought out business plan.

2. It forces you to answer questions that will expand your knowledge of your market, competitors, business model, management team, marketing strategies, and financial plan.

3. It teaches you a process of research and discovery you can continue to implement throughout the growth and development of your business.

4. It improves your communication skills. Writing a full plan and presenting it to others helps improve both your written and oral communication abilities.

5. It will help you attract the key talent you need to succeed. A well devised plan can help you find advisors, partners, team members, suppliers, etc.

6. It tests your commitment to launch the new venture. After working through all the issues on paper you will know if the venture is feasible and if you want to proceed.

7. It provides a roadmap for executing your business concept. If you choose to proceed with your startup, your plan specifies what needs to be done quickly to gain traction.

8. It won’t hurt you! It certainly isn’t going to weaken your new enterprise. Rather, it can increase your chances for success.

The only potential harm we see in writing a full business plan is confusing the plan with the actual business. Some aspiring entrepreneurs doggedly cling to their plan and refuse to make necessary adjustments during implementation. The reality is that most plans are obsolete by the time they are printed. If you view your business plan as an ongoing process of educating yourself and devising strategy, it can be a great benefit to your growing enterprise.

In this lesson we will review the various components of an effective business plan. Next we will discuss the important “do’s” and “don’ts” when writing a formal plan. Finally, you will have an opportunity to outline your plan and list the critical content you will include in each section.

Components of the Business Plan

There is no single “best way” to write a business plan. You can organize the data in a variety of ways, and the number of topics and subtopics presented can vary. The type of business you are creating and the products or services you are selling will influence the format. However, here are the common sections that appear in most business plans.

Cover Page

All business plans need an attractive cover page. Don’t get too cute with this page. Just make sure it is clean, clear and professional looking. Include the name of the business, your name and other founding partners, your contact information, and the date of the plan.

Table of Contents

Your table of contents should clearly display the major sections of the plan and the page number on which each section appears. This helps interested readers quickly find specific information they may want to review.

Executive Summary

Your executive summary is the most important part of your plan. It is NOT an abstract, preface or introduction to the plan. Rather, it is a miniature or condensed version of the plan. It will be read more than any other section. It may be the only section interested parties read so it needs to stand alone. An executive summary is generally 2 or 3 pages long, so you need to include a lot of information in a limited space. This means you need to focus on the top priorities in your plan. Make sure your readers understand the problem you are addressing and how your business solves the problem. Also, make sure readers understand who is on your team, how you will market your business, and the investment opportunity being offered. When people finish reading your plan, they should be able to say: So that’s what this company is all about.

Market Analysis (The Problem)

Your market analysis needs to clearly highlight the problem your business is solving. You should include a definition and brief history of the industry, the market size for your products or services, any relevant technology issues, governmental regulations, and key factors for success in the industry. Most important, you need to discuss the major competitors that are addressing the same problem. While secondary research is helpful here, it is much more impressive if you can talk about personal experiences you have had with these competitors. For example, you might visit their businesses, purchase their products, survey their customers, buy stock in their companies to get their annual reports, and so forth. Include anything that shows you really understand the industry, the competitors, and the problem you are solving.

Business Description (Your Solution)

This section should include the mission, vision and values for your company. It should clearly describe the products and services you are selling, the features of your business model, and how the company makes money. Most important, it should highlight the unique competitive advantages of your business and how it solves the problem better than any other company in the market.

Management Plan

This section will include members of your team, their specific roles, and their brief bios. The critical objective is to show why each person is best suited for the specific role he or she will play. It cannot appear as though you just brought together a group of friends, family members or roommates. You should also list any advisors or mentors who are working with your company. In addition, include relevant operational issues such as sourcing and acquisition of materials, production of products, packaging, distribution, and customer service strategies.

Sales and Marketing Plan

Your sales and marketing plan should highlight the specific market segments or customer niches you are targeting. It should include product positioning and pricing, channels of distribution, and any specific customers who are currently buying your product or have committed to buy it when you launch. In addition, it should detail the strategies you will implement to market and sell your products and services.

Financial Plan

Your financial plan should outline the capital requirements to launch the business, the timing of capital investments, and the specific uses for the funds. You need to include three to five years of financial statements that clearly detail sources of revenue, cost of goods sold, payroll, operating expenses, and projected net income. Make sure these projections are realistic. Most savvy investors know that things take longer, cost more, and earn less than most aspiring entrepreneurs realize. Some investors like to see low, medium and high volume scenarios. They want to know that the numbers still work in a low volume scenario. Of course, you must highlight the expected return on investment (ROI) to any interested parties.

Execution Plan

Many business plans do not include an execution strategy, yet this section is critical. It outlines your initial goals, relevant activities, and timing for gaining early traction in the market. Interested parties want to know that you have a clear plan for launching and growing your business. Your execution plan should include four to six key objectives or initiatives you will purse the first year, and the steps or actions you will take to accomplish these objectives in a timely manner. You should always include a complete execution plan in any business plan you write for a new venture.

Here is a detailed summary of what might be included in the various sections of a well written business plan:

The Do's and Don'ts of Business Plans

Here are ten “Do’s” and “Don’ts” to keep in mind as you write your business plan. We have created this list after reading hundreds of plans and observing which ones gain praise from investors and interested parties. Make sure you include the “Do’s” and leave out the “Don’ts.” This will significantly strengthen your plan.

1. Make Sure the Problem Being Addressed is Clearly Defined

   Many aspiring entrepreneurs create cool products or technologies, but they are not linked to a pressing problem or pain point in the marketplace. New ventures that don’t solve a significant problem usually fail. You must convince your readers early in the business plan that the problem is real, pressing and significant. So DO focus on the problem. DON’T ramble on about your products or technology in a vacuum. Quickly and convincingly state the problem and how your business solves the problem.

2. Include as Much Personal Experience as You Can

   The Internet has made gathering information about industries and businesses quick and easy. However, simply reporting everything you have read on the Internet is not impressive to experienced investors. So DO discuss your personal experience with the industry, the problem, the competitors, and the solution you have created. DON’T present a tome of secondary data, reports and analyses available to anyone who searches the Internet. The more you can elaborate on evidence that the problem exists and that your solution works, the better.

3. Be Realistic about Market Size and Desired Market Share

   Over and over again we hear aspiring entrepreneurs say, “This market is gigantic and we only need a tiny percent of it to make millions.” Unfortunately, big markets are usually well saturated; they have a few major players who control most of the market share. Investors know that entering these markets is difficult and often unrealistic. It is actually easier to enter a smaller niche within a market, and pick up a larger share of this niche. So DO define your market carefully and more narrowly, and present realistic strategies for gaining market share. DON’T ever say, “We only need one percent of this market to make zillions of dollars.”

4. Provide Detailed Analysis of Direct and Indirect Competitors

   Readers will want to know that you understand your competition – both your direct competitors and indirect competitors who sell substitute products. So DO acknowledge these competitors, the strengths and skills they possess, and what you can learn from them. DON’T ever say that there are no competitors for your business. Customers always have choices or substitute means of solving a problem, even if their solution is different from what you are proposing. Think through the various ways people may be solving the problem without using your product. The better you understand your competition, the better you can compete with them.

5. Be Clear about Distribution Channels and Sales Cycles

   Businesses have multiple channels of distribution: retail, wholesale, catalogue, Internet, factory outlets, fairs, boutiques, etc. Your business may benefit from one or more of these channels, but you need to be specific. This is one of the more critical factors investors look for; they want to know that you understand your options, and that you have selected the right channels for early sales and distribution; they also want to know that you understand sales cycles in the industry. So DO show that you have selected the best channels for your product, and that you understand how long it will take to obtain buying customers. DON’T be vague about how you will take your product to market, and how long it will take to produce sales.

6. Emphasize Marketing Strategies Relevant to Your Target Market

   Every customer segment has unique characteristics. Where do your customers go for information? How do they gather data? What impact do various messages have on them? Which messages do they respond to best? These are critical questions you need to answer. Your sales and marketing strategies need to effectively reach your audience. Most business plans we read are vague about the information gathering habits of the target customer, and very general about the proposed marketing strategies. The most common strategy we hear these days is: “We are going to use social media.” Social media may work great if your customers are active on Facebook, Twitter, LinkedIn, etc. If not, good luck reaching them through this medium. So DO articulate how your customers gather information, and then propose strategies that reach them. DON’T say, “We are going to market this business with social media.”

7. Base All Your Assumptions on Real Data Whenever Possible

   Financial projections are always based on assumptions. First, you need to spell out any assumptions you are making. Second, you need to present some evidence that those assumptions are realistic. You cannot say throughout the plan that you are assuming “this” or “that,” and not justify these assumptions. So DO acknowledge your assumptions and provide data to support them. DON’T make numerous assumptions based on hope or your best guesses

8. Clearly Define the Roles of Advisors and Team Members

   You have defined a problem and you have a solution. The skill sets you need in your company are based on the nature of the problem and the solution you are providing. Your readers will want to see that you understand exactly what the venture needs, and that you have identified, and hopefully recruited, the right person for each position. For example, you do not need a manufacturing guru if you are not manufacturing anything. So DO outline the skill sets you need in the company, and show that you have assembled the right team. DON’T highlight the skills and experience of team members if it is not relevant to the problem you are addressing and the solution you are providing.

9. Use Simple and Clear Language Anyone Can Understand

   Different groups of people will read your business plan: bankers, angel investors, venture capitalists, partners, team members, key suppliers, etc. Readers need to easily grasp the problem you are addressing, the solution you are proposing, your business model, and how you make money. So DO use clear and common language a wide variety of readers will understand. DON’T use jargon or technical terms that only experts will understand.

10. Keep Your Plan between 15 and 25 pages in Length

    You can write an excellent plan in 15 to 20 pages with 4 or 5 pages of tables and graphs – any more than this is overkill. Most people will not read the whole plan anyway. They will read the executive summary, and then focus on the sections in which they are most interested. So DO write a shorter, more concise, and well organized plan. DON’T write a 50 to 100 page plan.

Outlining Your Business Plan

In this course you will write a full plan for a business you are starting or contemplating. This exercise will help you organize your plan. List the key points you will include in each section based on the unique nature of your business. Having completed the previous lessons in this course, you should already have the information you will need for your management plan, sales and marketing plan, and financial plan. You can use this information in your final plan for this course. Answering the questions below will help you organize your full business plan.

Finally, many sample business plans can be found online. Reviewing these samples can be very helpful when writing your own. Find several with similar products in the same industry as yours and see what you can learn. Here are some useful sites:

• www.bplans.com/samples/sba.cfmNot Found

• www.entrepreneur.com/businessplanNot Found

• businessplans.org/businessplans.htmlNot Found