Note: This article also appeared in Entrepreneur Middle East, and can be viewed on the site here.
It’s a question that every new startup owner has to ask him or herself: do I really need a business plan? Sure, there are plenty of small companies that operate without one, but to give yourself the best chance of success, the answer to this question is, quite simply, that yes, you do need a business plan.
In the UK, research from Barclays indicates that nearly a quarter of small businesses do not have an agreed strategy to support growth, while less than half have a formal documented business plan in place. When you consider that 50% of startups don’t make it past the fourth year, you can see why every startup should give itself the best chance of navigating through those early years by having the solid foundation provided by a business plan.
Still not convinced?
Then consider too that of the businesses that do fail, 46% list the major cause of their downfall as incompetence – and one of the major specific causes of incompetence? Lack of planning, because planning naturally helps you identify weaknesses often well in advance, which then helps you identify what is needed to build up your competencies and develop the necessary skills in the areas where you are weak.
Several key failure factors such as underestimating the market, lack of focus, poor financial and market awareness, and uncoordinated strategy are all listed as leading mistakes made by management – and all could be avoided by drafting and adhering to a business plan that ticks all the boxes.
Initially, a business plan will serve as a roadmap for the first few years of your business’s life. But it can be so much more than that. Your business plan will no doubt evolve and have many iterations, and as such it can be a tool that demonstrates to you and others not only what the foundational elements of your business are, but how you are a forward thinker who is missing no opportunity to constantly strengthen your business.
The business plan should be used to monitor progress, record accountability, draw in potential investors, promote sales, attract future employees, and again, to constantly be introducing new strategic developments that are all about ensuring your business is always growth-focused. The chances of securing investment and growing your business are significantly improved as well, with surveys showing that companies which invest the time in writing a business plan are twice as likely to obtain funding.
46% of business owners of failed startups list incompetence as the main cause of their downfall, and one of the major specific causes of incompetence is lack of planning.
Writing a business plan will hand you the opportunity to review the different facets of your business and give you an insight into how your proposition fits together, where it sits in the marketplace, and also help highlight any gaps in your planning. The best part of all of this is that writing a business plan does not have to be overly taxing. No, we do not want something that takes two people to carry it into a room with your investors. That said, we do want a document that was not cobbled together in ten minutes, because that is just laziness, and let’s face it, smart investors aren’t interested in those who cut corners because they are not willing to put the time in to do the thing right.
So to help make sure you focus on what’s important when pulling it all together, here are 10 key areas of consideration that can make up the parts of your business plan. I will add that there are surely more things you can include, but concise and to the point are always the order of the day.
1. Give a tidy overview of what it is that your business does:
In simple terms, define what you do in the form of an executive summary. Let the reader know what products and services you offer, where you are located, how long you have been in existence, and core achievements to date.
2. Detail where your company is at now and who makes up your management team:
Provide a summary of where your company has gotten to so far, and the current market you operate in. Who are the people involved and already invested in the business? Give a description of your current management team’s size, skill set, accomplishments and experience. This is among the key information that potential financial backers will be interested in. Everyone is looking to back the winning horse, and you and your team need to be that winning horse.
3. Detail your product or service:
Begin by describing the product or service that you offer with a succinct yet informative statement. Then, in greater detail, explain the benefits and value of your proposition. Remember that your audience is not as familiar with your product as you are, so be thorough. You do not want your audience to have to try and fill in the blanks.
4. Know and understand your customers:
What is your market? Are they young or old – or both? What does your customer base do for a living? Do you know what their lifestyles are like? What is your target demographic? Demonstrating that you know who you are selling your product or service to and what makes them want to transact with your business will show investors, colleagues and future employees that you have a firm grasp on how the market you are competing in works. You need to demonstrate that you have clarity of the size and segmentation of your market, and be clear on how you will make money in that market. Explain how your product or service will compete in terms of positioning, pricing and discount structure, product support and service, customer retention strategy, and scope for repeat business or cross-marketing. It is essential to support your ideas with market data and research
5. List your direct competition:
Use your business plan to identify your competitors. You’ll want to be able to see how well you compare to them in terms of operational size, financial results, range of products, reputation and performance. Once you know who they are, what they do, and how they operate, you can then identify what makes you different from them. Establish your USP without being so naïve as to suggest that your concept is so unique that it has no competitors. No seasoned investor will buy that, and anyone with business acumen will know that it is execution that counts, not that idea alone.
6. Set aspirational goals, but keep them realistic:
There’s little to be gained by declaring that ‘this time next year we’ll be bigger than Microsoft’. Likewise, setting a goal to ‘quietly get along’ is also a pointless exercise. You need to set goals that excite and motivate you and your team, but goals that are also achievable. Be realistic. Allow your team to see targets being hit and milestones being reached by setting effective, sensible goals. Plan for steady, sustained growth, and know that it is constant improvement on the innovation and quality front which leads to expansion. Lastly, set both short and long-term goals by establishing your ideas for the next few years while detailing the steps in terms of periods of months at a time.
7. List your risks honestly:
Risk is everywhere and built into business. You need to demonstrate in your business plan that you have identified the risks that you will face, and have a strategy to minimise those potential risks. Incorporate contingency aspects to your plan to demonstrate your readiness to adapt and cope with the potential scenarios, from the minimally bad to the worst-case. Let’s take a very basic example to highlight a random risk: In the US, approximately 140,000 hard drives crash every week, and 40% of businesses that experience a critical IT failure go out of business within one year. How many of us truly prepare for such events?
8. Lay out your marketing strategy:
You could have the best product at the lowest price, but if you’re not able to publicise it to the right audience, you’re wasting your time. You’ll need to make sure that your business plan covers all elements of your marketing strategy – and don’t forget to utilise the technology available to you in today’s modern world. Three billion people use the internet – that’s 40% of the entire population of the planet – and of that base, 80% access the internet through their smartphones. Ignore such stats at your marketing peril.
9. Do the maths:
Include your financial projections for labour, production equipment, marketing, distribution, and much more. In other words, project for everything. According to a study by a large US bank, as many as 82% of startups and small businesses fail due to poor cash flow management – so it’s imperative that you get your head around the numbers at an early stage. Present the financial information as a comprehensive summary rather than a full audit report, to avoid ‘death-by-spreadsheet’. Any potential investors will want to know the key points, such as how much money is needed, why, what for, when and in what form.
82% of startups and small businesses fail due to poor cash flow management.
10. Explain your manufacturing process:
The reader will need to know how the business will operate. What’s involved in producing the product or delivering the service? Detail the resources that will be required and give timescales of the process. Ensure you don’t use overly excessive detail or technical terminology in your explanation, and don’t assume that your reader shares the same level of knowledge of your industry as you.
It’s your baby
Focus on these 10 areas and in no time you’ll have created a comprehensive and effective business plan to ensure anyone both inside and outside your business can get a clear picture of where you are and where you plan to go. And most importantly, do it so you can lead with the support of a well-thought-out strategy.
The above is not intended to be a set structure, so don’t feel that all has to follow an exact order. Put something together that includes the essentials and presents all in a logical order, but allow yourself to bring it together in a manner that you feel comfortable with. Just avoid the fluff and the visions of grandeur, sticking to the hard facts as best as you can present them, while adding just the right amount of visionary attitude.