Where is your business headed? 7 key components of a solid business plan:
Fig 1: Eiffel Tower construction in phases from 1887- 89 (Source: Public Domain images of the Eiffel Tower)
Fact: 9 out of 10 businesses fail due to poor business planning.(SourCE: http://www.summitbusinesssolutions.ws/docs/reasons_biz_fail.pdf)
If you are the founder/CEO of your business, ask yourself the following questions:
1. Do you know how much business you would be doing by this time next year?
2. Do you have a marketing plan and budget to reach your business goals?
3. Do you have a tracking mechanism for comparing your projections to your actuals?
4. Do you have any exit strategies?
If the answer to any of the above questions is “No” or “Not sure”, you might want to pay close attention to the following 7 key items.
99 out of 100 people have great ideas. Only 10% of the 99 are capable of transforming those ideas into working solutions. In this day and age, having a winning idea means almost nothing. Your idea can be easily copied, mimicked or can be improved and re-sold. Yes, you can obtain patents (a barrier to entry) – but, that takes time, effort, and money. So, what does it take to transform your innovative idea into a thriving business? --- Business Planning.
Once you have an idea, you want to set aside some funds and time to build a solid, practical business plan to ensure you have thought through all aspects of transforming your idea into a workable solution.
Following are the 7 key components to build a solid business plan:
Fig 2: Acuvity Consulting – Business Plan Framework
1. Executive Summary:
The most important section of a well-devised Business plan is the Executive Summary. The Executive Summary section summarizes the business plan in a nutshell and should be limited to 1 to 2 pages and cover all the pertinent details of your business plan. People say that Executive summary should be written at the end. While I agree with that approach, a more streamlined approach would be to simultaneously mark up the content for executive summary from each section as the section is being developed and in the end collate and edit the marked up content to build a comprehensive executive summary.
2. Research and Due Diligence:
- Define the Problem & your Solution(s): Start with what problem are you solving? How is your solution unique? Don’t go too deep into describing your products or services/your unique value proposition here – that comes later. Focus on describing the problem and how your product/service will solve the problem. Also, list what alternative solutions are currently available in the market?
- Conduct Market Research: Do research on Market size, Major Players, Demographics, Geography, Barriers to Entry, Local Competition, Innovation etc. There are several market research databases available online and in public libraries to find this information. This is a time consuming task and you may want to hire someone to do the due diligence.
- Perform Feasibility Analysis: I have had people come to me with “Big Ideas” – such as “I am going topple Amazon” or “I am going to solve Global Warming”, but, when I asked a few basic questions they didn’t have clear answers. I am not saying that they can’t do these things – they just need to take a closer look at what skills, human resources and financial backing are available vs. what is required. If you did the feasibility check and it made sense – then proceed further. If you fell short of the feasibility check – you might want to rethink your idea and strategy and how you go about it.
Always Remember: How do you eat an elephant? – One bite at a time!
3. Define Products/Services:
- Products/Services: Clearly define and provide details of your product(s)/Services(s) with their characteristics defined and elaborated.
- Pricing: Pricing is a science on its own. There are several approaches to pricing product(s)/service(s). Look into Cost based Pricing, Price based Costing, Value-based pricing, and Competitive pricing to optimally price your product/service.
- Unique Value Proposition: Describe and define the characteristics of your products/services and how they differ from your competitors’ products/services. These qualities will help you define your own brand in your marketing and advertising campaigns to sell your product(s)/service(s) in the later stages.
4. Marketing Plan:
A strong marketing plan is a key component of a robust business plan. While it is important to have a great product/service, it may not sell well if it is not marketed to the right audience at the right price and at the right place.
- Market Research vs Marketing Plan:
Tie your marketing plan with your market research – your target demographics and their consumption patterns, price points etc. Compare with your main competition – how they promote their products and services in the market place and how can you position and promote your products/services?
- Marketing Channels:
Thanks to the digital age, we now have more avenues to promote anything than ever before. But, choosing wisely on which avenues to pursue is key for a successful marketing plan. Common channels include:
o Social Media Marketing (Ex: Google Ads, Facebook Ads, Internet Ads)
o Content marketing (Ex: Blogs, E-Books etc.)
o Offline Marketing (Flyers, Print Ads, Brochures, pamphlets etc.)
o TV and Radio Advertisements
o E-mail marketing
o Cold Calling
Developing a combination of the marketing channels that work for you and allocating budget to run those campaigns will ensure bringing in clients at a steady rate for your business.
5. Operational Plan:
- Company Overview:
Organization Details: Here you will list the name of the company, the type of company (LLC, LLP, S-Corp, to C-Corp), Logo, Address, contact information, website etc. Unless you are forming a law/accounting firm, you might want to stay away from personal names etc. This is especially true if your exit strategy is to someday sell your business. It is never easier to part from a business that you build on your own from ground up, but, it becomes much harder if it had an emotional attachment such as your first born’s name or family name.
Always Remember: Avoid mixing personal affairs and emotions with business.
Key Management Personnel: Gather bios of all key management personnel in this section. These bios will come in handy during your pitches to investors or obtaining loans from banks.
Advisory Board: It is a good idea to form an advisory board, if possible. Make sure you select the board members carefully and wisely. The board must consist of seasoned individuals with a ton of experience and the best interest for your company at heart.
- Mission & Vision:
Describe the mission and vision for your company. The Mission and Vision will act as the primary pillars of your organization’s foundation.
Mission: A Mission statement talks about HOW you will get to where you want to be. Defines the purpose and primary objectives related to your customer needs and team values. Ex: "Amazon's Mission Statement: We strive to offer our customers the lowest possible prices, the best available selection, and the utmost convenience"
Vision: A Vision statement outlines WHERE you want to be. Communicates both the purpose and values of your business. Ex: Amazon's vision statement: “To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online.”
- Operations & Functions:
In this section you should draw your functional maps of your business operating model. The key roles and responsibilities are identified and delineated here.
6. Strategic Plan:
- Strategic Roadmap:
A strategic roadmap consists of a timeline for the next 2-3 years with major and minor milestones marked and critical path highlighted with key activities. This roadmap should serve you as a guiding path to where you need to go and is a key part of your strategic plan.
- Key Metrics:
Every business must define success metrics for their businesses. Metrics can include:
i. Financial: Gross Margin, Operating Margin, Net profit margin
ii. Productivity: Monthly revenue per employee, Monthly net profit per employee
iii. Efficiency: Revenue per marketing spend, Cost per Client/Customer acquisition
- Strategic Analysis:
o SWOT Analysis: SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. A thorough and honest SWOT Analysis of your business is an essential part of a business plan to better understand the factors that help or hinder your business. Knowing your strengths help you advertise your products/services better, whereas knowing your weaknesses show areas to improve. You must constantly think through the barriers that you can create for competition to enter your market.
o PEST Analysis: PEST stands for Political, Economic, Social and Technological (PEST) Analysis. This analysis provides insights into various factors that could favorably or adversely affect your business. Conducting a PEST analysis of your business should be part of your strategic plan.
o Exit Strategies: Define your exit strategies for the business. Ex: in 5 years, I would like my company to be acquired by a major player in the market or in 10 years, I want my company to go public. These may seem lofty goals on paper, but, having these goals written down will help you work towards them.
7. Financial Plan & Projections:
In this section, you will have to think through everything financial. You want to estimate your Startup costs, Recurring Costs, Funding Resources etc. to be able to create pro forma Income statement for the next 3 years, along with P&L and Balance Sheet statements. There are several financial models you can use to generate these statements.
o It is very important that you make note of all the assumptions you are making while creating these statements.
o Correct and adjust these statements every 6 months along with the assumptions you made to compare actuals with the projections.
Conclusion: Once you have these components fully flushed out in your business plan, it is ready for prime-time. This plan can be used to obtain financial loans or to create investors pitch decks. Most importantly, this will serve you and your business partners as a good guide on how to conduct your business in all aspects.
It is important to note that a Business Plan is a living document. It’s not something you do it once and forget about it. You must keep it updated every 6 months, by comparing the projections to the actuals, re-assessing market size and players, re-evaluating your products, and updating the marketing plan according to the demographic changes, if any.
Always Remember: Luck is what happens when Preparation meets Opportunity
About the Author: Venkat Avasarala, is the Founder and CEO of Acuvity Consulting, a leader in Business Strategy and Technology.
Subscribe for more articles at www.acuvity.com/blog