Why a Business Plan and why do I need to write it?
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Unfortunately, that is a question potential clients ask us way too often. Also that is the moment a decision is made as to whether our consulting company will be able to work with that client. Why? Because we will not work with a client who will not put their best effort into an idea in writing. A Business Plan is a must.
As a company founder and a Turn-Around Executive, I have learned the hard way that a company needs a business plan. First, to evaluate whether or not the concept for a Start-Up has a chance to be a real business (see How to evaluate an idea for a Start-Up!). Second, to attract the funds needed to take the company into the market. Finally, the business plan numbers will provide an initial KPIs to start operating.
The most convincing argument I know is that business plans create a 30% greater chance of growth! It will also give a Start-Up the best odds for beating the 1 in 10 odds for being around in five years.
While we will work with a client by researching and producing the Business Plan, we insist that the numbers are realistic and that the final Business Plan clearly shows the client’s vision and goals. We never suggest copy and paste formats or accept assumptions, such as customer acquisition rate, that are not grounded in reality.
How to create your own Business Plan
While there are various templates on the Internet that list the sections of a Business Plan and the order in which they are presented, it is important to be aware that the presentation sequence is different from the how you write it sequence.
The following is our recommendation on how to sequence the sections you are going to write. Once completed they can be arranged in the traditional manner or whatever you think is the proper order.
1) The Market and the opportunity
Describe the product or service you are planning and then describe the market. You will need to determine TAM, SAM and SOM. These acronyms basically define what revenue your company can obtain.
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The opportunity is a description of what you perceive the market is and why you are capable of filling the need.
2) THE 3 Year financial forecast
This is a detailed spreadsheet and it forces you to really make sure that your numbers make sense. Detail your assumptions, especially in your sales forecast, and double check the assumptions.
If both sections make financial sense, proceed to complete the remaining sections.
3) The team
Identifying your co-founders is crucial. At this point you should also add a list of other positions you need to fill and describe the functions they will perform.
4) The competition
When you did your market research, you should also have compiled a list of competitors. Pick the top 3 and describe how and why you are going to beat them.
5) THE operations
You will have the underlying data from the proforma and your team sections. Here you should detail how you will operate. In a manufacturing company that should start with how you buy raw materials and end with shipping.
In a SaaS business it is about your platform and how you are going to price and support your product.
Here is where you make sure that the reader understands just how you arrived at your sales numbers. Explain how you are going to reach customers and convince them that they need your product. Also detail your marketing costs and what channels you are going to use.
7) Sources and uses of funds
This section explains how much money you need to raise. You will need to describe how you are going to pay for the funds (i.e. interest, equity). Again, that number comes from your financial forecast.
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8) Exit strategy
This speaks for itself. However it needs to be in writing. Spell out the procedure for valuing the company and how the pie will be divided.
9) Executive Summary
While this is usually the first section that potential investors read, it is written last or next to last if you also have a pitch deck or elevator pitch. The reason is that you will need to live the numbers in your plan and the detail that goes with it if you are going to sell your vision!
a) The Pitch Deck – too many start-ups put way too much effort and money into the appearance of the deck. Tesla’s Pitchdeck as an example had only 15 slides! So try to keep it simple.
b) The Elevator Pitch – if you have done your homework then the “1 minute to state your vision” is easy.
Now that you have a road-map as to how to write your business plan, you just need to start it. Brain-storming your concept is fun. So is doing the research to validate your idea. A well researched business plan is the cornerstone for your future success – enjoy the journey and making your vision a reality.