Business Plan Process

1949: “Where a calculator on the ENIAC is equipped with 18,000 vacuum tubes and weighs 30 tons, computers of the future may have only 1,000 vacuum tubes and perhaps weigh one and a half tons.” 
— Popular Mechanics.

Regardless of the business, every entrepreneur needs to know who their customers are, what their customers need to have fixed, and how much their customers are willing to pay for a solution.

Additionally, every entrepreneur needs to know the potential competition… What they charge, what they do well or poorly, and how to keep one step ahead of them.

The process of building a plan requires a kind of detective mentality; searching for competition, new inventions that may be a threat, and new markets you might otherwise have missed.

Conducting customer research leads to a higher appreciation of their needs, which can help you fine tune your product or service to stay one step ahead of the competition. The more closely you can align what you have to what the customer needs the more likely you are to gain loyal customers. It sounds so obvious when written down and read, but so many companies lose touch with their customer base almost as soon as they start.

In this way the business plan is not simply a document that is produced in isolation on your computer, but a process of open communication between you, your potential vendors, and your most likely customers. Think of it as a living, breathing tool of measure of satisfaction.

Psychologists are keen to point out that there are three perceptions. There is the way you see yourself, the way you think others see you, and the way others actually see you. Although they are usually referring to personal development, the same views apply to your business. How you see your business might differ in disturbing ways from the way customers view it. If you are already in business when did you last stop to check what your customers actually think of your company?

To answer the questions in a typical business-plan process thoroughly, you will have to get away from your desk and go talk to some people. This comes as a shock to some entrepreneurs. Many times I have listened to a business-plan presentation only to learn that the would-be entrepreneur has not bothered to discuss anything with potential customers, distributors, or manufacturers. Perhaps it is because they do not see the business-plan as a process, but those entrepreneurs are usually unable to answer even the simplest questions with confidence.

I also come across many entrepreneurs who think that they can understand their customers without actually meeting any in person. They are wrong. Today’s technology is a great help in gathering data and much can be learned through online tools. To fully gather customer insights, however, the online feedback has to be backed with real-time, face-to-face discussion.

Your prospective customer is not a set of digital fingerprints. Your customer is a real person with real feelings and opinions that often cannot be expressed appropriately online. When you research prospects, your goal is not just to understand the statistical profile of a group, but also to appreciate the subtle nuances of an individual buyer and his or her thought process

Go to the Places Where Your Potential Customers Shop

When I am in the process of turning an idea into a company I find the business-plan process the most exciting part of the start-up phase. To engage with potential customers I usually go where I know they will be gathered in large numbers. Typically, that will be at a major exhibition running at a convention center at which lots of my potential competition will also be showcasing their products or services.

It could just as easily be in a shopping mall or market where I can conduct surveys with prospective customers. Of course, I can reach thousands online, but social media or telephone surveys only get superficial feedback. One must also see the whites of the customer’s eyes.

Occasionally I have rented a small exhibit space at a relevant trade show and then conducted a market research survey with attendees. People love to talk about themselves and answer survey questions, especially if I offer free coffee, bagels, or some other gift in return. What I learn in these events often takes my business idea in different directions than I would otherwise have envisaged. This sounds “old-school,” but it is an essential back up to the kind of information you can gather through specific online networking.

There simply is no substitute for a free-flowing conversation between an entrepreneur and a prospective customer.

If you dismissed the notion of going through the business planning process when you started, and your company is not doing as well as you want now, what do you have to lose by pretending you are starting over and doing this process now. You will likely learn a lot.

Business Plan Structure

If you go to business school or search online for all that free advice about business plans, you’ll learn that the typical business plan has about seven sections; executive summary, basic company overview, management details, industry statistics, marketing plan, amount of finance needed, and financial projections.

If you want your business plan to end up in the trashcan at every investor you send it to, go ahead and do it that way. One word of advice upfront… avoid any and all MBA-speak like “actionable,” “traction,” “granular,” and “deliverables.” They make most investors shudder. Keep to plain English.

For your business plan to have meaning to you or anyone else it must contain real market feedback from potential customers, vendors, or competitors. You need to have frank and detailed discussions with product designers and manufacturers, and discuss your financial plan and forecasts with an experienced accountant… all so you can have a full grasp of the business you think you are in.

You cannot build an effective plan by sitting in a classroom while listening to an expert who tells you what it should contain. Nor can you produce anything of value while sitting at a computer. Above all you must avoid paying a third party to produce a plan for you. That would be suicidal for success. There is one imperative and it is that you must get out and speak with as many stakeholders as possible.

Start in the Middle

For many entrepreneurs it is getting started that causes the procrastination. An easy trick is to start in the middle and not at the beginning.

One of the best pieces of general writing advice I ever received was that rather than trying to start something at the beginning, write through a middle, and then to an end, we should start writing anything that we find fun or interesting and then expand outwards from there. Just write down a story or an anecdote I was advised, and then the creative juices will flow and expand around that core story. The advice works for anything.

I do the same with business-plans. Marketing interests me so I usually start there. That leads to thoughts about packaging and manufacturing and off I go on another voyage of discovery.

I offer the same advice for any entrepreneur who finds the business-plan process daunting. Don’t try to produce a perfect document that follows the standard format you can find on any website. The business-plan is a process for you to get to know your market and prospective customers, so start wherever you feel most comfortable. Once you get started, the rest will come more easily.

Main Elements

Below is a list of questions that you need to be able to answer with complete confidence.

Successful entrepreneurs would have no difficulty answering all of them fully and supporting the answers with actual stakeholder feedback.

1. EXECUTIVE SUMMARY

- What is the $ size of the overall market? How do you know that?

- What is your niche? What need has been expressed by customers that you will satisfy?

- Who are the customers and what will make them smile and return to purchase again and again?

- How does it differentiate from other similar companies?

- How much money is required to start?

- How much follow on capital will be required?

- How will revenue be used to fund growth?

- What is the return on the investment (to your savings and/or outside funding)?

- Why is the venture a good risk?

2. BUSINESS DESCRIPTION

- What type of business are you planning? How do your customers perceive this business?

- What products or services will you sell? What benefit does the customer gain?

- How do you know there is a need to be fulfilled?

- What type of opportunity is it (new, part time, expansion, seasonal, year round)?

- Why does it promise to succeed?

- What is the growth potential?

- In what ways is it unique?

- How does it compare to others?

3. MARKETING

- Who are your potential customers? Can they be segmented? How much do you know about them? Share customer feedback.

- Do you have pre-orders?

- Market segments and data.

- Who are your competitors? How are their businesses positioned? What did they do well?

- What market share do you anticipate? What tactics will ensure it?

- How will you price your product or service? What did customers say about that?

- What advertising and promotional strategies will you use? Why have you chosen them? How have you tested potential effectiveness?

- How will you get people aboard early?

- How will you get customers to pay quickly?

- How will you get repeat business?

- What is the most likely marketing model (e.g. freemium, 7Ps, group matrix)

- Inside/outside/tele/internet sales tactics?

- Description of design, manufacturing, distribution, and the delivery in end user hands.

4. MANUFACTURING & DISTRIBUTION

- Description of design, manufacturing, distribution, and the delivery in end user hands.

- Critical paths and risks.

- What steps are required to produce your product or service?

- What is the history and financial stability of your contract manufacturer?

- What are your needs for production (e.g., facilities and equipment)?

- Who will be your suppliers?

- Availability of labor and materials?

- What will it cost to produce and deliver your product or service?

- What back up manufacturing, distribution and delivery plan exists?

5. ORGANIZATION

- Who will manage the business?

- What experience do they have? Why do you need them?

- How will you structure your organization? Why?

- What consultants and specialists will you need? How will you use them?

- What legal form of ownership will you choose? Why?

- What licenses and permits will you need?

- What facilities are essential?

- Board members and advisors. What value do they bring?

6. CRITICAL RISKS (There is no such thing as a risk-free business)

- Future competition?

- What potential problems could arise?

- How likely are they?

- How do you plan to manage these potential problems?

7. FINANCIAL (no investor will believe you can get this right, but they want to see that you have made a deep analysis and considered cash-flow)

- What is your total estimated business income for the first year? Monthly for the first year? Quarterly for the second and third years?

- What are the full expenses of the business by week and month for the first 12 months?

- How long before revenue flow? Rate of flow?

- What will it cost you to open the business?

- How will you cover personal financial needs?

- What sales volume will you need in order to make a profit the first three years?

- What will be the break-even point?

- What will be your projected assets, liabilities, and net worth on the day before you expect to open?

- What are your total financial needs?

- What are your potential funding sources? How will you spend it?

8. MILESTONE SCHEDULE

- What timing have you projected for this project?

- How have you set your objectives?

- Have you set up your deadlines for each stage of your venture?

- Is there a relationship between events in this venture?

9. APPENDIX

- Include all important documents, drawings, agreements, references, and stakeholder feedback from interviews and surveys.

The litmus test for how effectively you have completed your business-plan process is to share your documented conclusions with some of the stakeholders you interviewed. Ask them their opinions of your proposed marketing plans. Ask them if you have accurately identified their needs and matched them to real benefits of your product.

When you feel you have sufficient insight into your customers, you should be able to summarize the business opportunity succinctly in a five-minute verbal pitch.

The Elevator Pitch:

Whether you want to attract investors or great vendors, you need to be able to distill the key points of your business-plan process into a one-page executive summary, and a five-minute verbal pitch.

Imagine stepping into an elevator at the same time as a woman with a million dollars in her pocket, but she doesn’t know where to invest it. The time it takes the elevator to reach her destination is all you get to sell her your idea. This is no easy thing to do, and it requires much practice.

Budding entrepreneurs sometimes make the same mistakes job seekers do. Many of the unsolicited resumes I receive are pages long. The length isn’t the problem. It’s that the more detailed information you give me, the more opportunity I have to make unchallenged judgments and find reasons to disqualify you as a candidate. A good resume gives just enough information to intrigue me and make me want to call the candidate to learn more.

Like resumes, the elevator pitch needs to intrigue the investor just enough to be prepared to meet you for coffee or lunch to learn more detail at a later, unhurried date. Tease them with your concept, and invite them to learn the details on how it can bring them a significant return on investment. After that it’s up to you and the passion you have for your idea. It is a fact, however, that the best pitch in any situation is one that comes from your potential customer in the form of pre-orders or testimonials. Most investors will forget everything you said except this part. If customers are willing to part with money for what you have to sell you are a success already. It is just a matter of time for the cast in-flow to catch up. Marcelo Bravo is spot in in the clip.

The Business-plan process is not a one-off

The benefits of going through this process are so many that it should be at least an annual ritual for any company. The Harvard Business Review magazine regularly makes the point that to survive long enough to hit a home run, a company must reinvent itself periodically, jumping from the flattening end of one business performance curve to the rising slope of another.

Very few companies make the leap successfully when the time comes. That’s because they start the reinvention process too late. Once existing business begins to stall and revenue growth drops significantly, a company has less than a 10% chance of ever fully recovering.

Accenture’s Nunes and Breene, reporting on the results of their long-running High Performance Business Research Program, point to a striking difference between companies that have successfully reinvented themselves and those that failed. High performers manage their businesses by tracking the basis of competition in their industry, renewing their capabilities, and nurturing a ready supply of talent. By planting the seeds for new businesses before revenues from existing ones begin to stall, these companies enjoy sustained high performance.

After completing the process each year, it is also a good idea to use the summary findings to hold annual reviews with all your vendors, suppliers, and manufacturers. The attitude you want to create is one of teamwork by seeking continuous improvement from those you rely on for services. Share your success with them and thank them for being part of it.

The Executive Summary

When it comes to mapping your thoughts into a business plan for the specific purpose of attracting investor interest you need to be able to distill the key points into a one-page summary. If you cannot summarize it in one page you do not have a sufficient grasp on your business.

In my experience, there is one imperative to a successful business plan that is going to get the attention of serious investors: Get it down to one page. This may come as a shock.

MBAers with a business plan in their hands so comprehensive it’s the size of a thesis. Who has time to read that? Not investors. If you can’t pitch your idea in one page, don’t bother. If the idea isn’t that clear to you, it won’t be to anyone else.

Additional Resources:

‍

Lots to discuss here. Clearly going through the process of a plan is critical to success, but it can be a daunting task. I think off-the-shelf- software and templates are a waste of time and money because the benefit to me is simply getting out and speaking to people.

‍