Create a business plan before you decide to launch or expand your business.
A business plan is an intelligent way to plan to launch your business as it helps you be accountable and prepares solutions for any risks you might face.
This article is for aspiring business minds like you looking to launch a business but unsure of where to start.
Probably you are concerned about the risks of getting the business off the ground.
Above all, you need to define the products or services you offer to the customers in a way they care about.
Perhaps you need to run the operations to support the business and manage many administrative functions for your organization.
Building a business plan doesn’t have to be an overawing process, but must be straightforward with clear-cut components.
Without further ado, let me explain the distinct ways to create a business plan.
Let’s dive in.
Define your business.
You may think, “Why do I need a business plan? Why can’t I launch my business and get to market?”
Do not understate the importance of a business plan.
So, the first step is to define your business and figure out how you will compete.
Second, understand the market your business is going to occupy its space versus the competition.
With that, you will need to define your product clearly, and why people should be interested in it.
Then, decide how you are going to take your product to the market.
Articulate how you will operate the business and flowchart how you will support those operations.
By this stage, you will also need people to manage; you will need a plan to address those people and the resources that tag along.
Define the administrative responsibilities of the people who will operate your business and how you will fulfill their requirements.
Once you have got all that down comes one of the crucial components: the financial projection.
You will need to assess your financial goals or results by creating a financial plan to help you understand how your business performs.
Now, with all of that prepared, you need to think through some of the main pitfalls that you could face as you start your business and make sure you include those into your business plan.
Depending on the business you plan to set up or run, these factors will not be relevant.
However, these are the major components of the business plan and this will help you be accountable in the long run.
You may download the picture below to understand how you define the problem you will solve.
Size your Market.
When you write a business plan, you must clearly understand the market’s size.
Here, I will explain some things that will help you size your market.
- Do you need to find out how attractive the business that you are trying to get into is?
- What are the audiences of the market you are targeting? Is it businesses or consumers?
- What is the size of your total addressable market?
- Is the market organized by-products, segments, geography, or problems?
- How significant is the portion of the addressable profit pool?
- How much of the problem can you solve?
- How much of the total market size can you capture?
- Is this an attractive market for you to make a return?
Phew! Many things to ponder, but the more you articulate your business plan, the stronger your business is.
You can size the market by doing market research, gathering analyst reports, checking what your competitors are doing.
This market sizing will help you scale your business and its needs.
Defining the products and solutions.
- The best approach is to explain the products in simple words. No need to use technical terms.
- Use simple English that will help you define your products well.
- Create the business plan so that the audience is entirely unfamiliar with your product(s).
- Talk about the benefits and how the product/service solves a problem.
Let us compare a product description of the two exact products.
|PRODUCT A||PRODUCT B|
|We offer a top-in-class, captivating learning experience that renders people a comprehensive approach to buy directional communication strategies that leverage market-driven insights resulting in learning uptake as illustrated by the elevated Kirkpatrick score model for twelve months postintervention.||We offer a full-day onsite training course that helps the participants communicate more efficiently and effectively, resulting in a shorter presentation and faster approval of their ideas.|
Product A sounded great as a product, but you do not know what the company sells, and also, the product and its benefit are not clear.
And in Product B, you understand what the product is and how you, as a customer, can benefit from it.
Therefore, as you create a business plan, ensure that your product description is clear, simple, and straightforward.
So the customer will know how they can benefit from your product.
Plan your revenue model.
Construct the revenue model for your product/service has when you create your business plan.
The revenue model determines how successful your business will be, as it reflects how you will make money with your business.
Here are few lines to check when planning a revenue model for your business plan:
- Are the prices of the product or services going to be a one-time charge?
- Will there be any recurring or subscription-based charges for the products?
- Are you going to implement cross/up-sell opportunities?
- How are the prices of similar products in the market?
- Are you planning to sell add-ons that complement the products/services?
- What is the revenue model of your competitors if you need ideas?
You need to conduct pricing market research, compare your competitor’s offerings and products for all of this, then analyze the value of your product or service.
So when you articulate your revenue model, make sure you think through
what’s the value you’re delivering and the prices accordingly.
SWOT means Strengths, Weaknesses, Opportunities, and Threats, a technique that will help you assess your business based on those four aspects.
Conduct the SWOT analysis once you have defined the market to compete in and how your product solves the problem to win in that market.
Remember that having just a product is not good enough.
You will need to understand how you can pile up versus your competitors and the competitive advantage.
SWOT analysis will highlight indications for how you’re going to address the market and compete there.
Let’s look at a business where you may have a strength in your intellectual property, and a key market segment is showing high demand for that product.
A weakness that you have is your lack of distribution capabilities, and your competitors have much more reliable distribution than you do.
Now, this classifies an opportunity for you in terms of how you’re going to market your product.
Because you have that tangible intellectual property and no distribution,
Maybe your business pursues a strategy where you partner for distribution, and you find a channeling partner who has strength in distribution that lacks intellectual property.
So that is a win-win for you to market your product.
Therefore, when you conduct a SWOT analysis of your business, think through all the implications of strengths, weaknesses, opportunities, and threats into your business plan to be effective.
Understand your market
Understand customer and trends
When you create a business plan, the most crucial highlight has to be the primary customer and market trends you will face.
Write about how you are going to react to the customers and market trends.
Here are few questions that will help you answer in your business plan:
- What are the leading marketing trends?
- Do these trends help you or hurt you?
- Is the market expanding?
- Is it flat or shrinking?
- Is it a fragmented market or a merged one?
- How are people reacting and behaving in that market?
- Do you see any acquisitions, divestment?
- Who makes the buying decisions from a consumer viewpoint?
- Do the buying patterns change at all?
- Are there emerging trends where the customers ask for new things?
So, you must think this through, also what other products/services your customers want and need.
You will get an excellent picture of the above questions based on your market research, conducting competitive analysis, or focus groups.
Your business vs. competitors
Your business plan must also explain in-depth how your business ranks versus your competitors.
By business, it is simply your product or service, and be honest about how you will rank vs. the competitors.
One approach is to create a moon chart to lay out all of your competitors and articulate how you stack up versus them.
Remember, never say that you don’t have any competitors when creating a business plan because it is not believable and delicate.
It will also illustrate that you have a blind spot in the market and where you stand.
Let me walk you through some steps how you can create a moon chart –
- Make a list of all your competitors across the top.
- Make a list of your performance dimensions below from how you accumulate.
- Then, within each square on the matrix, note whether you are the best, worst, or somewhere in the middle compared to your competitors’ business activity.
Let’s look at how Apple ranks against its competitors or how they market.
What comes to your mind when you look at Apple? What motivates you to purchase?
I look at the functionality, design, quality, and coolness of the product.
You might look at the apps and the camera. I do that too.
Above all, what everyone sees is the cost of the product.
Though their prices are high, Apple wins on many of those dimensions except the cost.
But Apple spells out and shows, “Heres how we compete, and this is the things that we are the best on and the things that we are not.
And this is how you are going to position yourself in the market.
Does that make sense to you? If not, let me make it simple.
When you look at your business,
So when you look at your business or create a business plan, spell out who are the competitors, and their evaluation.
Then, compare each dimension with your competitors.
Based on your implications of the positioning terms, spell out how you will pitch your product or service to your customers.
Threat of substitutes
Write all the threats to your product when you create a business plan.
And highlight the most significant threats of all that you will probably face to make your substitute product.
To help you with the threat of substitutes, answer the following questions when you create a business plan:
- What can succeed or replace your product?
- What can solve customer problems just as quickly, easily, and cheaper?
- What substitute does the product compete for the same prices as that yours?
- Why will your customer choose your product versus that substitute?
The principal goal for you to articulate is to make sure your customer chooses your product rather than the substitute.
Building a go-to-market strategy.
It would help if you created a business plan to mention your go-to-market strategy in building awareness and delivering your product or services.
Answer these questions to help you build a go-to-market strategy –
- How will you reach your customers?
- What are the marketing platforms you are going to use?
- How will you deliver your products to your customer?
- Are you going to provide products/services directly or indirectly?
- Are you going to go through distribution, shipping, or digital?
- How will you build product or service awareness?
- Will you license or look for partnerships?
Let’s take an example if you are going to go through the distributors.
Distributors take some percent of what you sell; however, the benefit is that they have distribution, helping you to market effectively.
Or, if you go to deliver your product directly to the consumers, you save the distributor’s share, but that does not imply you did it free.
You still have the expenses of doing marketing and getting the product there by yourself.
These concepts of how you’re going to get to market will eventually flow into your budgetary plan.
So as you are creating your business plan, make sure you express both types of channels and know the economics associated with each one.
Define your product
Create a business plan with a clear implication of the value proposition of your product or service.
Here are some tips for asking yourself when you articulate the value proposition:
- What are the substantial benefits your customer gets using your product?
- Are there any things like time, cost, or quality?
It will help if you can quantify these things in terms of the benefits.
Set the Points of differentiation
Create a business plan that shows the point of differentiation for your product or service corresponding to your competitors.
The points of differentiation need to be the facts that your customer cares about, solid and meaningful compared to the competition.
In simple, if you say that you are 10-20% faster than your competitors, that will not get a customer’s attention.
50-60% faster, now you have your customers’ attention.
Again, if your customer cares about the prices but not the speed, it does not matter whether you are 20% or 60% faster.
So, the best approach is to articulate every point of differentiation.
In this way, it will help you stay focused, understand where to give more time, invest more money, and compete or not in the marketplace.
Create a business plan by understanding how you are going to protect your market.
Since you have a business or build a business, it does not mean that it is safe.
The simple question you have to answer is how you will protect other companies from taking your customers?
Now, assume that you want to go down the patent or copyright path to protect other companies.
But tell you what, that is costly and time-consuming.
Also, only having a patent or copyright does not mean you cannot be defeated.
Thousands of companies will take you down or even appeal in court.
Even though you win the case ultimately, it will still cost you a lot of money and time to defend it.
Therefore, understand the pros and cons by laying out all the mechanisms you will use in your business.
Also, do not underestimate the speed and size of those mechanisms to protect your market and the threats you are perpetually facing.
Create a product development roadmap in your business plan.
The critical point for the roadmap has to answer the significant phases in the product development and the timelines that go with it.
Describe what’s the feature you will release in the first product that you will market.
Then examine when you can release the final product on the market.
Some points to note are that you must create a business plan that clearly describes your research approach, development, and testing.
Also, highlight the critical risks in your product development life cycle to plan how you will mitigate or account for any of those risks.
In your business plan, you need to lay out the delivery methods of your product or services.
Let me write some questions that will help you get a rational idea.
- Examine how you will get your product to the hands of the customers?
- If the product has to be shipped, who is going to do that? Are you going to rely on the postal office or FedEx?
- Will you sell your product through retail?
- If it’s a service, will you meet customers directly?
- Will you deliver your service remotely?
- Are you going to provide your service to a specified place?
Once you clear out how you will deliver your product or service, you need to point out the challenges or operational hurdles you will face.
Write the solutions or actions on overcoming those challenges or any hurdles that you will encounter.
The Selling Plan for your products.
Product branding and marketing
Think this way; your brand is a promise.
Now, when you create a business plan, write what your brand promise is.
Read the questions below and answer before you brand your business.
- Why will your customers care?
- Why is that promise vital to them?
- How will you advertise and promote your product in a way that builds a brand?
- Will you communicate with the customers online, with public relations, advertising, or personal selling?
- How will you feature your points of differentiation?
Show these things in the branding section when you create a business plan pointing to your business solutions.
Now, pricing your product is the most crucial decision that you have to make.
And, the pricing model needs to be layout in the business plan.
Even a slight difference of 1% will affect a substantial disproportionate on your profits.
Also, do not under-invest in thinking about the pricing model.
So, how will you come up with the pricing structure? Here are some tips that will help you.
- Refer to some of your competitors, and benchmark their prices.
- Use those pricing points as an anchor to price your product.
- Define your pricing model and the motive behind it.
- Check if you will sell your product on a cost-plus basis, value basis, one-time fee, ongoing fees, or both.
Laying out the pricing model is significant because you will have to message it to the market.
And build into your financial model as part of your business plan.
Remember to have clarity on your pricing model, as this will help your business’s financial performance.
Selling your products or services.
Here are some of the essential questions that will help you create a selling plan –
- How will you sell your products or services?
- What selling strategy will you use? Is it direct to the consumer or Salesforce?
- Will you sell on a website?
- How will your sales cycle look like?
- How long will one sales cycle last?
- What is the conversion rate from prospect to customers?
- How are you going to pay the sales force?
- Will it be a base salary, commission, or a combination of both?
- How will you conduct contracting?
- Will it be a long or a short-term contract?
- What payment terms will you have?
When you answer all the above questions, please support them with shreds of evidence.
And having that clarity in your business plan will make it more transparent how it will show up in the financial achievement of your business.
It is essential to write about how you will support your products or services when creating a business plan.
Selling a product is not the end yet; there will be times when a customer will complain about some faults in your product.
Things like handling a product return, customer service, support are crucial.
Here are few things you can answer to have an idea on product support –
- How will you handle customer complaints, feedback, or support?
- What online/offline platforms will you use to reach the product issues?
- Will you need any staff to address the customer’s problems?
- Will you manage all the solutions to the issues with self-help?
- How many calls can you accept or expect?
- How will you manage the return rate on your product?
The product support also determines the value of your business, and if you don’t think about them, you will face many operational challenges down the road.
Your Business Operations
Measure how many people you need
Determine the demand factors that are going to drive how many people you need to operate your business.
It would help if you lay out the people planning in your business plan.
Some points to answer are:
- How many people and where will you hire them from?
- Do you need operational staff like HR, IT, Finance?
- Will you employ them as a full-time employee or as a contractor?
- Will you use vendors to expand your internal personnel strategy?
- How will be your staff grow?
- How many customers do you need before hiring new staff?
- How much can you pay for them?
Think through the ramp-up times and the training necessities for people you hire.
Say you get someone, now that does not mean they are effective in their role; train them to align with your business goals.
You will also need to show the amount of money that is going to cost for each hire.
Also, examine if those numbers are going to feed into your financial plan.
A significant component of your business plan must also show how you are going to manage production.
Here are some questions that you can answer to mention on creating a business plan:
- Where will you make or develop your product?
- Will you in-source or outsource?
- Who are your suppliers?
- Will you rent or own the equipment?
- How will you deal with demand over time?
- Do your operations match your product strategy?
- Will your operations advance and give you scale to keep your costs low?
- Are your suppliers up to meeting high-quality products?
- What will you do in terms of production flexibility?
- How are you going to meet a cosmic order or demand?
- How will you manage your facilities if you have no product demand?
- How will you manage the people in the production facility?
- How will you make your business operations less capital intensive?
Try to lessen the capital intensity of your business as it improves your overall profitability.
Managing an organization.
As you build and develop your business, sometimes, you will seek outside investment.
In this stage, the leadership team is the ones that people will evaluate closely.
Instead, many investors put their money in a skilled management team with an okay idea rather than the okay management team with a great idea.
Therefore, the leadership team matters the most, and this is your opportunity to show people how skilled your team is.
When you create a business plan, especially in the business management section, be sure to define the executive team by drawing an organization chart.
Also, put some blank boxes with job descriptions of people who you will hire in the future as your business develops.
You should show each leader’s brief information, their experiences, accomplishments, and how they will contribute to the team.
Describe the ownership arrangement of the company, including the decision-making officials.
Getting smart advisors
Show the lists of advisors you will need when you create a business plan.
You may be competent; however, what is smarter is to surround yourself with other smart people.
Some advisors that you can pursue are the Advisory Board, board of Directors, and specialists.
|Advisory Board||Board of Directors||Specialists|
|An advisory board typically gets drawn commonly during the pioneer stages of your business.|
They can help you gain customers, investors, build your team, play a continuous role as your business grows.
|The Board of directors has legal responsibilities and is elected formally.|
They’re typically not required until you get outside investment, and you have shareholders.
|They are not usually involved actively, and you can pay them as consultants or reward them with equity.|
So, in selecting your advisors, think through who are those people, and the structure of those advisory boards.
Compensation of the management team.
You need to include a perspective plan on how you will reimburse the management team.
You can compensate the management team by cash, bonuses, or equity-like stocks or options.
The best approach is to get some legal advice on who has done this form of arrangement.
If you are awarding equity, it needs to vest over time; even for the company founders suppose they quit, they don’t walk away with an enormous chunk of equity just for producing a good idea.
Equity is the preferred way to reimburse the management, as cash is short in the initial period of starting a business.
However, equity is an expensive form of financing, so plan wisely on how much you can reward.
If your executives do not need cash right now, you can also opt for deferred payments or bonuses to compensate the management.
So, no matter what, embed the employment agreements in a place that especially shows the compensation plans.
Because the way you compensate management has an impact if you are seeking investors.
You will handle many administrative matters when you run a business, and these are nonnegotiable.
Below, answer some questions you need to answer when creating a business plan in the administration section.
- Which firms will you use for your HR, legal, finance, and intellectual property?
- Who will represent you?
- Who will manage administrative matters for your company?
- Are you compliant with all the tax, employment, safety laws?
- Are your licenses and other business filings complete and accurate?
- Is your business protected legally?
- Do you have the proper legal structure like intellectual property and copyright protections?
- Are your contracts and finances solid?
Make sure that you have all the answers in your business plan before you launch a business.
You can spend some time finding some external service providers who can help you with this administrative structure for your business.
One of the most significant components of your business plan is the financial plan.
And the initial step to building a financial plan is to document your assumptions, like market research, comparables, and basic estimates.
Also, layout the best and worst-case scenarios in your assumptions to drive different financial performance.
This way of financial assumptions will help you track how accurate your economic forecasts are.
Your Financial forecasts
The heart of your business plan is the financial forecast.
Unless you have a good forecast, you do not know if your business is viable or what financial results you can expect.
Mention things like how many products you will sell or how many items you need to have to reach an initial financial goal?
Also, build a profit-loss statement with all the accountable items using the financial assumptions you created before.
Some points that will help you build a financial forecast:
- Build several scenarios like best, worst, and expected.
- Build a worst-case showing where you have increased costs and delayed or lower revenue than expected.
- Build an expected case that is conservative.
- Build a best case where you have cost is as expected, and you have increased revenue.
This way of forecasting will help you understand what did not work and what would happen if it had gone great.
So, invest time in building accurate financial forecasts to help you predict your business future and guide accordingly.
Capital requirements and Financial Risks.
You need money to run a business, and when you create a business plan, understand the three critical numbers in financial projection.
- Capital on hand: (how much cash do you have in the bank).
- Burn Rate (Your burn rate is how much money you spend every month to pay your staff to run your business.
- Runway (how much cash you have on hand and assume no more money comes in.)
In the runway’s case, identify how long money you have before you go broke?
The longer the runaway, the safer your business is.
Also, create a viewpoint on when you will hit cash flow breakeven by understanding when the business generates good income or enough profit to pay the expenses of running the business.
Your business plan should also show out your plans on how you will get additional capital?
Do you plan to avail a loan or borrow from friends, family? Mention this in your business plan.
So be very definite about how much money you will need to reach the point where your business is self-sustaining.
Remember that every business suffers financial risks, and you have to write the risks you will face when you create a business plan.
Some risks that you need to answer are:
- What are the risks, and your action steps if it arises?
- What will happen if you lose funding?
- What will happen if the bank doesn’t approve a loan?
- What happens if you lose a significant customer or the economy goes down?
- What happens if your marketing campaign does not work?
- What will happen if a notable competitor emerges?
Those are some risks that could happen to your business.
However, the best approach is to plan all the risks by putting contingency plans in place.
You could drop prices, market more, cut some expenses, offer retention discounts to some of your customers.
Therefore, think through your organization’s risks, put them in your business plan, and the contingency plans to go along with it.
Ensure you are clear if you are looking to exit your business because your investors will look at your exit strategy if your business does not go as your plan.
Some points to layout on your business plan is to note:
- Who might buy your company?
- Will it be acquisitions?
- Will the other owners can only buy?
It would help if you were very practical about how your exit strategy will be.
Create A Business Plan
Once you’ve finished creating your business plan, recheck it for quality to avoid pitfalls later.
Some pitfalls are like coming out with we don’t have any competitors.
Everybody has competitors, and if you don’t have any, the customers will look to spend their money somewhere.
You make little income in the initial years; run your business to grow exponentially.
You can never have adequate money to run your business, so always plan for the worst-case possibilities.
Once you’ve worked through all the steps of business planning, your next steps are fairly clear.
Define your product and how you’re going to compete for.
Understand what the market is, What’s the service, and why are your customers interested in it?
Explain your go-to-market strategy on how you are going to sell, build your brand.
Understand the people’s and the operating requirements to get your product into the market and then support it after it’s out there.
Build that solid financial plan. Your financial plan is going to drive your financial results.
And last, document the business plan, package it, make it simple to share it with advisors to get their feedback.
Pursue building the business and getting the required investments.
And if you’ve invested the time in putting together a solid plan, your likelihood of launching a solid business goes up dramatically.