Step 1: Strategic Planning
Let’s say you have a brilliant idea that puts Microsoft’s Bill Gates to shame, you’re convinced you’ve the driving passion to make it work, and market research seems to flag the green light that the idea is indeed viable. Wait, don’t dive head in yet. “Entrepreneurs are often so passionate about their ideas, they can lose objectivity,” says Nancy A. Shenker, president of the ONswitch LLC, a full-service marketing firm in Westchester, New York. How do you determine if your idea is one that will generate millions of revenue with one that crashes and burn; potentially risking your company at halt? The answer: an in-depth study. One of the research approaches startup entrepreneurs use is the SWOT analysis – which assesses the Strengths, Weaknesses, Opportunities and Threats involve in a new business venture. The end-analysis should be able to tell if your idea has any holes that will need some patching.
Step 2: Success Stories
Ask any successful entrepreneur and chances are – they’re likely to tell you that the success of a well crafted business plan will not only attract and pique the interest of potential lenders and investors; but also be able to squeeze funding out of their conservative budgets. So before you dash off to conquer your outstanding business plan, start by finding out what has worked for others and what didn’t – from the businesses in your industry. While many plans fall through because they’re too long, poorly structured and packaged, loaded with spelling and grammatical errors, or even missing for a call to action; some business plans simply fail due to quirky ridiculous reasons.
Step 3: Key Factors
Crafting a business plan is one matter, while making yours a lasting impression (over thousands that ultimately landed on the desks of bankers and investors) is another. The truth is – 95% of business plans submitted were usually eliminated by the first run. So, present your business plan with complete and detailed information and top it up with hard and verifiable facts of exactly how you intend to operate the proposed business. Here’re four key factors to look out for:
Who’s in the team? What do they know? Whom do they know? How well are they known? William A. Sahlman, Professor of Business Administration at Harvard Business School puts it this way, “A business plan should candidly describe each team member’s knowledge of the new venture’s type of product or service; its production processes; and the market itself, from competitors to customers.”
Is the industry market large or small? Is it growing or slowing? Will it continue to be sustained as a market of opportunity or will it dwindle in the next two years? “Entrepreneurs and investors look for large or rapidly growing markets, says Sahlman, mainly because it is often easier to obtain a share of a growing market than to fight with entrenched competitors for a share of a mature or stagnant market.” Make sure your business plan thoroughly describes the standing of your industry market – one that is large, growing, and marked by opportunities. Explain how your venture idea’s going to fill an unmet need in the market; how it’s going to be built and launched into the marketplace; how it can grow and expand in the range of its products or services as well as its customer and geographical base, and how it can fend off competitors in a long run to come.
On a macroeconomic level, recessions, inflations or deflations, unemployment rates, stock markets rates, interest rates and exchange rates cover every nitty-gritty aspects of your business plan. Why? The answer is simple – they affect your venture’s success. It’s imperative to evidently describe in your plan how aware you are of the new venture’s economic activity, and as such, how it helps or hinders your proposed business. Although it’s necessary to include the former, it’s also important to demonstrate that you know the venture’s context will inevitably change and thus be able to spell out what management can do in the event the context changes and grows unfavourable.
Risk & Reward
In a highly competitive and rapidly changing market, every business start-up is confronted with certain (or uncertain) risks. The risks may range from product liabilities to a company’s reputation and personnel. Consider also the risks of the soaring costs of raw materials such as oil and iron, the resignation of a key partner (who also happens to pinch all your potential clients along with him) and the rise of new competitors in similar markets – all of which should be posed in your business plan, with solid answers as to how to resolve these risks.
“The business plan should candidly talk about the end of the process. How will the investor eventually get money out of the business, assuming it’s successful, even if only marginally so? Investors feel a lot better about risk if the venture’s endgame is discussed upfront,” explains Shalman.
Step 4: Plan Development
You’ve identified the key factors, now, roll up your sleeves and enter the deal structure. All successful business plans should’ve an outline of the essential elements for the proposed venture – being as specific as possible. So you ask, what should be included in the agenda?
Your business plan should consist of:
1. Executive summary
2. Venture idea and Market analysis
3. Company description
4. Management and Operation team
4. Marketing goals
5. Business strategies
6. Timelines and milestones
7. Risks and competitions
8. Financial data
9. Funds required and their uses
10. Supporting documents
11. Exit strategy
Although it may seem like a myriad of information to be presented, keep the plan short and simple by using bullet points with useful illustrations and charts. According to Growthink, which provides professional advisory services to start-ups, SME enterprises and Fortune 2000 companies in the United States, 15 – 25 pages of text is the optimum length, and while it is true that some companies are too complex to be described in 15 – 25 pages, the business plan is not intended to tell the whole story but to create an interest. In short, aim for quality rather than quantity.