A Business Plan serves 3 purposes:
- First and foremost a Business Plan provides a framework for the company Founders to consider all the significant elements of defining the customer, how the product/service serves that customer in a “unique” or highly differentiated way, and how management will pull together all the resources needed to develop and launch the product/service and of course make money.
- The Business Plan is used by third parties such as the bank, accountant, attorney and advisors during the formative stage of the business to help guide the Founders through the business formation. In the operational phase, vendors and consultants may use the plan to determine their level of commitment to support the plan.
- Lastly, if the goal is to raise capital to finance the business, the Business Plan is used to communicate the investment opportunity to potential investors.
A great Business Plan achieves this purpose with brevity and clarity.
A great Business Plan has three core elements:
- Executive Summary
- Plan Elements
- Financial Summary
The Executive Summary is the most critical element of a great Business Plan. It is the first thing that is read and creates the first (and often the only) impression on the value and greatness of your business idea.
A great Executive Summary:
- Draws the reader into the business idea and makes them want to learn more and be a part of it.
- It expresses, with clarity and brevity, why the business idea is unique or important to the target market.
- It explains, with clarity and brevity, why the opportunity has exceptional market potential for revenue and growth.
- It highlights a management team with the experience and expertise to execute the plan and deliver results.
- And, if for an investor, how and when the investor will make money by investing in the business.
Plan elements present the core strategies and activities that will be employed to meet the investment goals outlined in the Business Plan.
The challenge faced by every business plan writer is how to strike a balance between being complete and thorough while not getting too long winded in the copy writing. Business plans are often so big that it becomes too complex and difficult to digest and understand, and read in a reasonable amount of time. A great Business Plan is concise, conveys their information with clarity and is easy to read.
The other challenge with business plan writing is how to infuse and embed the unique selling proposition, the core revenue driver, into every chapter of the Business Plan. Why, because failure to deliver the uniqueness to the target market is a major reason businesses fail to generate cash. While this is not true for all businesses, like pharmaceuticals, it is the reality for most B-to-B and B-to-C start ups regardless of the product or service – and without cash flow, businesses eventually wither and die.
A great Business Plan embodies the core strength and uniqueness in every aspect of the business including the management team, the product/service description, the benefits to the target market/ideal customer, the marketing strategy, the sales plan and financial summary.
A great Business Plan is supported by a great team, one that shows depth of experience in the target market (or technology) and an ability to leverage the product’s uniqueness. It affords the Founder the opportunity to present what skills are critical to the success of the business and demonstrate how the management team supports or enables the critical success factors.
If a goal of the Business Plan is to raise investment capital, the depth and experience of the management team takes on a more critical component of the plan and the investor’s decision process. It is often said that - investors don’t invest in business ideas they invest in the people they believe can bring the idea to life and execute the plan successfully. A great investment grade Business Plan uses the managements’ profiles to demonstrate how their expertise will mitigate the investment risk.
An important role of the Business Plan is to provide a concise introduction to the product or service, in the style of an executive summery. This should be followed by a more detailed product or service description based on the product’s features, functions, benefits, value proposition, uniqueness and if relevant, a discussion on technology and intellectual property.
A great Business Plan incorporates and articulates three attributes into the product introduction:
- Why the introduction of the product/service is important (to the ideal target customer).
- Why and how the product/service offering is unique (to the ideal target customer).
- And what economic, social or utility value it has to the target market, i.e., why the prospect cares.
Target Market/Ideal Customer
A frequent Business Plan mistake is the description of the target market. The error lies not in the broadness of the description, but rather in the narrowness of the description. Most markets tend to have many vertical segments, whereas most products or services can typically only serve a specific vertical within a market, where the unique selling proposition is valued.
A great Business Plan focuses in on the narrow characterization of “the” ideal customer" and how they make their buying decision and how your product/service connects (emotionally) with this decision process.
A great Business Plan addresses the 4 P’s of marketing (price, place, promotion and product). Price needs to be discussed in the context of both competition and profit margin. Place, or how and where the product or service will be distributed. Distribution should also incorporate discussion on how the sales channels will be developed in terms of strategy and also in terms of the impact on cash flow. Product always stands by itself with its own section. That leaves promotion which is typically covered in the marketing section.
A great Business Plan talks about how the product/service will be positioned against the competition. It explains what makes the product “unique” and why this uniqueness will drive sales and how this unique positioning can be defended over a period of years.
But, being unique is not enough if no one knows it. A great Business Plan discusses how the company will build its brand with the ideal customer, with a discussion on what marketing vehicles the company will use to communicate this uniqueness to its target market and at what (client acquisition) cost.
Sales Plan and Sales Forecast
A great Business Plan clearly describes how and through what channels (direct, online, 3rd party reps, etc.) the product will be sold.
But aside from the channel plan, a great Business Plan articulates what the sales plan is in those critical first ninety-days after launch. The first ninety-days is when the rubber hits the road, and everyone is watching (early adopters, the whole management team, every employee, the Board and advisors, all of the families who gave you the seed capital, your accountant, attorney and banker), everyone. Great Business Plans show a path to revenue in ninety-days, and really great Business Plans show a path to pre-launch orders of a magnitude that demonstrate product viability.
Another common mistake with the business plan is the sales forecast. All too often you see a sales forecast that says something like “if we get a 10% market share in 3 years, we will be a $50 million company.” That’s like saying I have a New Year’s resolution to lose 50 pounds and if I do, I will only weigh 125 pounds when I am done. What investors and stakeholders want to know is if the plan is to lose 50 pounds, how can you do it, what is your diet, how many calories, how many carbs, how much exercise, etc.
So a great Business Plan has a qualified sales forecast, that goes beyond projecting some numbers (market share, units, average sell price and revenue), and discusses “how you will” sell $50 million of product; Who is your target customer, how many are there, how will you connect and engage with them, how many prospects do you have to connect with to convert one to a sale, how will you convert them to a sale, etc.
Aside from demonstrating product/service uniqueness, this characterization of the sale and sales process is the most critical part of the Business Plan’s characterization of the business idea. Not enough sales means not enough cash.
Operation section summarizes where the company will do business, what facilities and infrastructure is required, and who will process orders, keep the books, manage payroll, do the sales and marketing, and manufacture and engineer the product.
What great Business Plans do with the operations summary is to show clearly how the business will operate the business conservatively in order to manage its cash while executing the plan, until such time as the business is cash flow positive.
Every great Business Plan bases the opportunity on a Return on the Investment, and as such must project revenue and expenses in a P&L Statement, with a resultant Cash Flow statements and a Balance Sheet to show the assets, liabilities and owners equity.
A great Business Plan uses the financial summary as an opportunity to demonstrate great cash management and its effect and timing of return on invested capital.
Rather than using the standard 3 year or 5 year cash flow projection, a great financial summary is based the cycle time line of the four critical cash milestones: (1) Cash consumed before start of revenue; (2) Cash consumed until breakeven; (3) Cash flow until a return on all invested capital is achieved; and (4) When the target ROI is reached and the amount of cash that represents to all shareholders.
A great Business Plan connects with its target reader. It shows why the opportunity is solid, how investment risk is managed, who will make it happen, and what the return on investment will be.