When we hear the word “business plan”, we immediately think of a document created for the sole purpose of impressing investors, but that’s what a pitch deck is for.
What is a Business Plan?
While a business plan is often written for investors and banks, its primary purpose is actually to guide us through each stage of starting and managing our business. A business plan is a roadmap for structuring, running, and growing our business that enables us to develop a strategic plan for achieving our business goals.
Before creating a business plan, you might find yourself asking this question:
Why do I need to write a business plan?
Data from U.S. Bureau of Labor Statistics (BLS) shows that,
Approximately 45% of the businesses fail within the first five years and only 25% of new businesses make it to 15 years or more.
Where do these businesses go wrong and why do they fail to survive in the market?
Well, most of these businesses lack exhaustive planning that hinders their ability to foresee the challenges and leave them defenseless in the business battleground.
As Eugene Kleiner, a venture capitalist and a pioneer of Silicon Valley, says:
“Even if you have all the money you need, you still need a business plan. A plan shows how you’ll run your business. Without a plan, you don’t know where you’re going, and you can’t measure your progress.”
A study conducted by the University of Oregon showed that completing a business plan correlated positively with success in each of the business objectives that came up in the study, i.e., getting a loan, making a significant purchase, getting investment, recruiting a new team member, thinking more strategically, and growing the company.
“According to statistics, not having a business plan decreases the probability of growing your business by 30%”
Writing a thorough, coherent, and well-organized business plan drastically increases your odds of succeeding as an entrepreneur. Whether you’re an entrepreneur struggling to secure funding or a CEO having a hard time managing employees, creating a business plan is essential for you to efficiently optimize your business and ensure that you establish a profitable and sustainable business.
Creating a business plan is a strenuous task that requires rigorous groundwork. Coming up with an idea for your business, building it from scratch, and then getting it up and running surely sounds like a daunting task but don’t let it overwhelm you. Most people get intimidated because they don’t fully understand what a business plan should include.
While there are no hard and fast rules to writing a business plan, here are six critical questions every effective business plan must answer whether it is designed to procure investment or to serve as a roadmap for your business:
- Does your business cater to an existing need or a problem?
Every business venture is created to solve a problem or to fill an existing gap in the market. First, you need to clearly explain the problem and describe how your business will provide its solution. People need to know which one of their unmet needs can your business cater to or which of their problems can it help them solve. Identifying an existing need that people will be willing to pay you for will increase the demand for your products/services. Research suggests that 42% of businesses fail because there’s no market need (CBInsights). In other words, typically the more critical the problem, the more attractive the market. Some problems are more critical than others.
Thousands of people don’t have access to clean water (critical problem)
There are only two restaurants in this block (mundane problem)
- What is your sustainable competitive advantage?
In today’s digital era, when you have all the information you need to start a business, just one click away, new startups are coming in and fading out of the market all the time. So what makes your business any different? How will you make sure that it will survive the cruel competitive market?
Maybe the problem you identified has already been solved by some other business, but that doesn’t mean that you can’t solve it in a better way, but for that, you need to figure out what makes you different.
Research your competitors, analyze what they’re doing right and what they’re doing wrong. Pinpoint their short-comings and accentuate your strengths.
While emphasizing your strengths will give you a competitive advantage, it might not be sustainable, which means that other businesses can easily duplicate them or exceed them. In order to develop a sustainable competitive advantage, you need to identify your company’s assets, attributes, or abilities that are difficult to imitate or surpass; and provide a favorable long term position over competitors.
- Who are your customers, and how will you reach them?
Regardless of how useful your product is, not everybody is going to buy it. Think of it this way. Do teenagers and grandparents have the same buying needs?
Targeting everyone is a bad idea, and it will cost you more money. It only makes sense to sell your product to a target audience because it will narrow your focus to fulfilling their unique needs. You need to answer one question for this:
Who has the greatest need for your product?
Invest some time in market research to find your target audience and define your target audience based on factors such as age, sex, education, marital status, working status, and geographical location. Defining your target audience allows you to understand your customers better and design your marketing strategy accordingly, which would appeal to them and influence their buying decision.
You can reach your customers in many ways ranging from social media such as Facebook, Twitter, Youtube, and Instagram to even flyers and newspaper ads. And there are less traditional ways to reach your customers as well, including events, billboards, or ‘guerrilla’ marketing. Your business plan should delineate your marketing strategy, i.e., how you intend to reach your customers and maintain an ongoing relationship with them.
- Who are you, and how can you leverage your strengths to build and grow your business?
Identify your strengths, skills, and achievements and analyze how you can contribute to the growth and success of the business. You can choose from a wide variety of skills such as technical skills, leadership skills, or management skills.
Assign a key-role to each of your team members according to their skill-level and achievement. This, in turn, will leverage their strengths to build and grow your business.
Investors are often interested in seeing your track record of achievement so that they can estimate your potential. Your past experiences will give them an idea that you have a hands-on approach for turning your idea into reality, and you’re not just day-dreaming about it.
- What is your operating budget, and how will you make money?
Identify the capital requirements of your business by thoroughly analyzing the current position of your business and what it is that you need to achieve your future goals. If you require outside funding, mention the sources and uses of funds requested.
The financial section of your business plan must provide a detailed report on how much it will cost you to run your business, month by month, and how much you need to earn in order to meet your expenses and make a profit.
This calls for thinking in advance about what price you will charge for your product or service and making monthly financial projections based on the price of your product/service. Most businesses will sell their product or service for some advertised price. Other markets that involve licensing and subscriptions can be a little more complicated. If you’re a startup, it’s best to start simple and gradually make modifications.
Explain the key metrics for your planned business, and compare your business to industry norms. Some examples include revenue per customer, revenue per employee, expense per employee, per-unit profitability, and cumulative units.
- What are the biggest challenges you face?
In today’s ever-changing economy, every business is bound to face challenges, especially in competitive markets. Your business plan should illuminate the challenges you expect to face and how you plan to overcome them. Startups face many challenges, such as a crowded field of competitors, regulatory uncertainties, and financial management. Anticipating these challenges will help your business survive in the market despite the odds.
Your business plan must answer these essential questions whether you intend to build a guideline for your business or impress some investors to secure funding for your business. There are no right or wrong answers to these questions, and no two business plans look exactly alike. You will have to revise the answers to these questions in order to survive in the market as new developments unfold. Your business plan should also evolve along with your company in response to new market challenges and opportunities.
Are you still confused about how to get started on your business plan? Get expert help from our team today!