Why you really need a Business plan

ou just finished conceiving a great business idea and it feels like you’re about to change the world with your revolutionary concept

More often than not, aspiring and existing entrepreneurs question their need for a business plan. If you fall into this category, try to read this write up till the end. First off, what is the simplest definition of a business plan? — It is just that document you have put together to guide your business activities through different stages.

Then, after a few weeks, it suddenly becomes clear to you that the document you spent weeks researching and developing has suddenly become outdated or redundant, especially when unforeseen circumstances slip into the picture. This is even clearer owing to the recent outbreak of Covid-19 pandemic.

In my opinion, as an experienced business plan consultant who has consistently worked every single day on business plans and proposals, there are 2 broad types of business plans. You just need to identify which is best for you;

Strategic Business Plan (For Internal purpose only):

If you’re looking to bootstrap and your startup has little or no real data from actual delivery of services, then all you need is your strategy book. This document need not be longer than, perhaps 3 to 5 pages. This should be an expansion of your business model canvas. Your business description, key partners, unique selling proposition, Key activities, customer segments, channels (marketing and sales), key resources, customer relationship, cost model and revenue model.

You just need to be true to yourself when developing these. Be as real as possible and trust me, you’ll get more clarity as you write.

Carry out some research to garner some awareness about current trends in your industry but DO NOT flood the document with too much research data. You need to be laser-focused on your business model, hence, short and precise sentences and less fluffiness may be more desirable here. Consider it a blueprint for your business.

Do your research, mystery calls to service providers or visits (if possible) to deduce your startup costs. You probably just need to think through your revenue model. Be as exact as possible. How your business will generate revenue and how much revenue will be expected in 3 to 5 years (Note: do not reverse engineer, it is always better to build revenue projections carefully from your unit economics).

Financial Model tip: Prepare for the worst; Understate your revenue and overstate your expenses

This business plan needs to be updated quarterly or bi-annually to ensure that your current happenings are reflected and inform your future strategies.

Comprehensive Business Plan (For External Purpose):

This type of business plan is usually required by financiers (such as banks, money lenders, angel investors and VCs) or institutions (like the immigration) to evaluate the business rationale and the viability and the projected financial health of the business.

Most entrepreneurs, however, find it daunting to prepare business plans that meet up with the requirements and standards of these organizations and individuals. This is not a bad thing, it does not rid you of your talent, mindset or vision… it just means you need help in the form of professional guidance, mentorship or motivation.

It could also mean you need the help of a professional business plan writer who has the requisite skills and experience in writing winning business plans. Click here to check us out at My Business Plan Writers if you need help getting your business plan done!

Let’s further dissect what this type of business plan should cover. There are standard business plan sections, they are:

The Executive Summary: This is the most important section of the business plan. Imagine learning that you could read a 2-page summary of a 60-paged document. Wouldn’t you instantly decide whether to proceed or stop reading the remaining 58 pages? Well, I thought so too. Hence, every business plan writer must consider this section the only lifeline the business gets to articulately present its business model and why it would be successful.

I see a lot of business plans with unnecessary verbiage and statements with no substance in the Executive Summary. As a matter of fact, such verbiages and statements constitute “red flags” for most readers, especially financiers.

The executive summary should attend to the following succinctly:

• A brief introduction of the business
• The opportunity – the problem and solution
• Market validation – A mind-blowing statistic that proves that there is a need for your solution
• The Unique Selling proposition if it’s very strong
• Target market – be as specific as possible; don’t fall into the trap of trying to target everybody
• The business model – how the solution will translate to business and revenue for the company
• Management – especially if they have academic qualifications or relevant experience
• Execution – Briefly – Remember, ideas are nothing, execution is everything!
• Funding need and utilization

This should be followed by the objectives, mission and vision. Keep in mind that your business objectives must be SMART – Specific, Measurable, Attainable, Relevant and Time-bound. This is not the time to allow your fantasy thoughts get the best of you. You need to focus more on the short and then long-term vision you have for the business. Try hard to delineate the most probable ways to achieve this vision – those are your objectives, more or less.

Your mission statement is the most possible short-term position you want to get your business to while the vision is the long term position – here, you need to combine some form of futuristic imagination and originality to arrive at a properly articulated vision for your business.

Then you move to your “Key Success Factors”. These are the resources, activities and business instruments that must be in place for you to achieve those objectives, mission and vision you earlier stated. These must also be very specific, there is really no point deceiving yourself or your potential investors or partners since they would be in place with you for an extended period of time.

Optionally, you may want to validate your business idea by stating the opportunity in the market. This brings us to the “Market Opportunity” section. You basically want to describe the problem or gap in the market, backed up by authoritative sources (such as Forbes, Investopedia, business.com, IBISWorld, PRNewswire, Bloomberg, etc); and how you intend to fill or take advantage of the opportunities presented by the gap to proffer a solution.

The next is for you to EXPLAIN your business and revenue model. Your business model must be succinct. This should present how exactly you intend to monetize the opportunity with your services. It could a B2B/B2C model like Alibaba’s market place or a subscription/membership model like Netflix’s platform. This should be further expatiated with your business model canvas – a business model canvas is simply that little chart that enumerates the most important building blocks of any business (refer to the first type of business plan above for more details).

Now that you have presented some key components of your business, it’s time to go a little corporate. Your product or service (or activities if its an NGO) will be operated under a certain structural arrangement, managed by some people, hence the need for proper explanation.

You may want to conceptualize the business – a little fun story about how the idea came to life. It is even more purposely if the story describes how you identified the problem and solution. If it’s an existing company, you may want to give some background history on what has been achieved so far. Then you state your location or the proposed one followed by the corporate governance structure. Is it an LLC owned 100% by you or you have partners who also own some equity stake in the business? Is it an S-Corp, a sole proprietorship?

It’s now time for you to develop your product and/or services. Here, you must breakdown the entire features of each product or service and chip in how they solve customers’ problems or provide the value they need. If you already have a pricing structure, then let’s have it, however, this must be in tandem with your product assumptions in your financial model. Are you going for the penetration strategy (where you price lower than the competition, sell enough volume to quickly offset your capital expenses)? Or you intend to use the price skimming strategy where you offer premium products at premium prices?

Just before we go into the operational framework of the business, do your research, make phone calls where necessary about the necessary regulations you must adhere with, and what licensing or permits you need to apply for. Then discuss your management team from these 3 perspectives – Their experience, education (that they have or will acquire) and Roles.

The operational framework should be detailed enough to give anyone clear insights into how the backend and frontend work and how these two independent parts connect seamlessly. The best way to approach this is to list, in s step-wise manner, the activities that must be carried out to deliver a product or service.

Another important aspect to touch is your growth plans for the company. Do you into develop and introduce new products to your existing market as you grow or you want to expand to new markets or diversify.

Once you are done with your company summary, then you need to give a detailed report and analysis of the industry, presenting the factors, statistics, market data or trends that validate the establishment of your company. You may also want to analyze with the use of tools like PORTER’s fiver forces of profitability or PESTEL (Which represents the political, economic, social, technological, environmental and legal factors). You also need to present the market need and your target market (If possible, explain your target market segmentation strategy) as well as the Total Address Market, Serviceable Addressable Market and Serviceable Obtainable Market of your business.

You know quite well that your competitors should never be underestimated. In fact, discrediting or underestimating the competition might be the beginning of the failure of your business before it even starts. Hence, you need to analyze your competitors’ strengths and strategies to see how you can ramp up on your part. On the other hand, you should look into how you can gain enough market share as fast as possible by leveraging their weaknesses.

You cannot afford to miss the next part which is your marketing plan and sales strategy. Your objectives, key strategies, implementation and possibly a proposed budget are major areas to tackle. Research sales strategies and decide on which is best for your business with the mindset that you may need to pivot as the need arises.

Analyze your risks by observing the internal and external issues that may occur and devise mitigation strategies to cushion the effect of these issues if they arise. You also need to outline your SWOT – strengths and weaknesses which are the internal factors and opportunities and threats which are the external factors you must out into consideration.

You are practically done with the “Writing” part of the business plan and now you need to present your financial model in a way that is comprehensible. Start with the basic assumptions you based your model on, such as the interest, inflation or tax rate; proceed to the revenue assumptions which should cover everything you considered in projecting the income statement. From your revenue to the COGS, overheads etc. Then you can present summary tables as extracts from your financial model excel document.

Just from the definition and types of a business plan presented, it becomes clear that this document is essential irrespective of the purpose. Starting a business without the type 1 business plan above could be likened to walking with one’s eyes closed.

Similarly, seeking funding from banks, lenders and investors or important applications such as business licenses, visas without a carefully written business plan could be futile. You need to go in prepared and with a high level of conviction about the success of your new business venture.