Whether you’re looking to start a brand new business or you’re looking to open up a branch office for a company you’ve operated for quite some time, you require a business plan. Simply put, a business plan serves as a map for an entrepreneur. It not only allows you to visualize the operations in the initial years of running, but it also shows lenders, third parties, or potential investors where your business is headed.
Come to think of it, a successful start-up/organization doesn’t occur without a well laid-out business plan. Basically, it answers fundamental questions like where does a potential owner want his/her business to go, what is the expected revenue and profit, how many personnel they’ll have on board, and so on. Standard information that goes into business planning is easy enough to figure out.
However, there are additional, more abstract things to take into account before putting pen to paper. Read on to know the top considerations budding entrepreneurs should make before creating a business plan.
Your UVP (Unique Value Proposition)
Before you begin to whip up a business plan, ask yourself, what makes my company unique? If you’re starting to launch a new cosmetic store, for instance, you’ll need to differentiate your brand from the several other cosmetic firms out there.
What makes you different from others? Are you going to make cosmetics for a specific persona like young women in their 20s? Is your manufacturing process environment-friendly? Does a percentage of your profit go to charity? Are you open to endorsing plus-size women in your campaigns?
Remember: You’re not going to open a business just to sell a service or product – you’re going to sell an entire experience. Think through the advantages you currently have and outline your USP before diving into the nitty-gritty of a business plan.
Define Legal Structure
Though understandably, the attention of most upcoming business owners is on their startup idea. It is equally crucial that legal and operational requirements aren’t overlooked. For instance, the decision regarding whether you intend to incorporate as a limited company, partnership or sole proprietor is quite important.
Before making a decision, we recommend enlisting the assistance of a local lawyer or research the characteristics of each option through resources like the Better Business Bureau. Likewise, things like drafting employment-related contracts, registering a trademark or a company name, and potential VAT obligations need to be covered.
In addition, don’t overlook the legal requirements associated with a potential exit strategy. Do you want your kids to take over the firm? Would you be selling it down the road? It’s vital to ponder over these questions from the initial stages, as the building blocks of an enterprise (like legal structure) is going to vary depending on the business planner’s preferred final result.
Conduct Market & Competitor Analysis
What’s the purpose of writing a business plan if there’s no demand for the product/service you offer, or people have moved on from the type of product you’re planning to provide them with? Only through meticulous analysis of your target market, you’d be able to pen down precise endorsements.
Simply put, a market analysis is one of the best ways to get familiar with the trends and behaviors of the consumer/b2b market you’re planning to sell to. Tools like Google Trends can give you a rough idea of whether or not it’s viable to enter a particular marketplace.
Another thing you can do is analyze your competitors and their activities. The primary goal of competitor analysis is to explore the strengths and weaknesses of your competitors. Once you know what makes their respective companies successful and what actions have had a negative impact on them, you can create your distinct, well-thought-out strategies to list in your business plan.
Lastly, it could be productive to come up with ideas to create barriers to entry so that your competitors find it difficult to enter your space. A smart approach would be to concentrate on your weaknesses that are often exploited by others – putting a cover on your shortcomings would make you less vulnerable in the industry.
Prudently Gauge Demand Levels
Aside from assessing costs before devising a business plan, one of the trickiest considerations pertain to predicting the level of demand for your item. A rule of thumb is to use conventional estimates on expected demand along with proxies where forecasts are hard to come by.
One can also rely on proxies to assist when the idea is unique and hasn’t been tested before, instead of plucking numbers from thin air, or stating that no comparable figures are available. A popular example is of a tourist development in the UK which failed miserably after a short time running.
A big issue was that the number of visitors turned out to be far lower than the initial predictions and therefore the revenue generated failed to cover a significant amount of expenses. If the entrepreneurs behind that idea had researched the quantity of visitors going to top attractions in the UK beforehand, they’d have discovered counts that represent the upper limit of visitors. It’d be much better to use a proxy instead, as a wildly optimistic assumption could easily result in a downfall of your business.
Pitch for Funding
Depending on the objectives and setup of your venture, you may require funding from a venture capital firm or an angel investor. However, most companies start with a loan, assistance from friends and family, financing from savings, etc. Therefore, it’s essential to have a funding pitch at your desk to ensure you’ll have enough cash flow to start and sustain your operations.
The thing is, a beautifully created business plan doesn’t provide any guarantees of funding. In fact, Guy Kawasaki, the famous entrepreneur, once said that the business plan has the least value when it comes to getting approval for funding. To have a realistic opportunity of gaining the funds you need to inject into your business, it’s better to focus on your pitch.
Not only is a pitch easier improve, but you’ll also get feedback on it. Most angel investors and venture capitalists don’t bother going through an entire business plan. Also, it’s much easier to convert a pitch into a business plan than to see your business plan is placed in the far corner of an investor’s desk.
Select Entry to Market
In a highly competitive landscape or industry, it is vital that you research your route to entry or how you plan to access your customer base. For example, several entrepreneurs take a multi-channel route to market, which is costlier than single-channel paths, but more lucrative as well.
However, we advise you to select a single channel route, one that you think would allow you to connect with your target audience with minimum hassle. Digital marketing, for instance, would be an attractive entry channel, as it’d allow you to track your marketing spend carefully.
As an alternative, you can identify current companies who cater to the needs of a similar industry. The approach could provide a hint or two as to which market entry channel you should adopt. If you’re planning to take a multi-channel route, you’d more likely require funding to set up a brick and mortar shop, though several entrepreneurs experiment with mom and pop shops before diving in.
You’ll come across many entrepreneurs who’re paranoid that their vision for their company is already taken, which forces them to behave irrationally before beginning. In most instances, the idea will be guarded and only discussed in private circles (consisting of friends and family).
However, people in these private circles find it challenging to pose rigorous queries related to the business idea because they do not want to criticize your new venture. In other cases, they lack the relevant experience. Hence, an idea with serious flaws could be implemented as no one was there to point out the shortcomings.
Entrepreneurs are recommended to engage an experienced mentor at the initial stage, someone who can spot the mistakes in their planning and offer recommendations on product design, pricing, and even customer service. Simply put, the individual can help you hone the whole idea before you implement it or speak about it in front of financiers.
If you are not comfortable with numbers, a mentor may also assist you in creating break-even charts. This would help all stakeholders understand how many sales are required to cover the expense of operations, and how much financing is required to start operations successfully. The mentor would also enlighten you about dealing with uncertain sales volume.
Lastly, you could later ask the mentor to independently review your business plan. As they’ll be detached from the business, they’d be able to provide constructive criticism that reshapes the way you launch in the near future.
The great thing about writing a business plan is that you get to decide what to include and what to remove. However, if you do not make prior considerations, you leave yourself open to several risks that could harm your business down the road. Hence, we advise you to be patient, open minded, and look for things you can do to come up with a great business plan.