Planning is a critical element of business success, but one that is often misunderstood by entrepreneurs starting companies. They often believe the purpose of writing a business plan is to convince investors to put money into the venture. Actually, planning is an ongoing process that must be done with great diligence whether the company is looking for capital or not. The company’s plan shows the steps that must be completed in order to reach its revenue and profit goals. The end product of this planning process is the business plan document.
Define Customer Need
Before starting a venture, you must be certain that your target customer groups have a strong, even urgent need for the product or service you will be offering. Show that you are providing well-defined, quantifiable benefits, such as saving them 25% versus the product that they have been using. Unless the need is compelling and the solution you are providing is significantly better than what customers can get from your competitors, they will not be willing to spend money on it.
Research the Market
Investors seek out companies in markets that are just now emerging or are about to enter a rapid growth phase. This is often called having a first-to-market advantage, being the first company to take advantage of a new opportunity. Present a clear case about why your market is vibrant, with excellent growth prospects for the next three to five years.
Study the Competition
Entrepreneurs often underestimate the strength of their competitors and how entrenched they are within the market. Pinpoint the weaknesses you think competitors have--which you intend to exploit to build your competitive advantage--but be realistic about the competition your venture is going up against.
Develop a Business Model
Where will your revenues come from? That’s the central idea of a business model. Present how many different ways you will generate revenues. If you can earn more than one revenue stream from a customer, that is a positive factor in your model. The business model also explains the factors and conditions that will cause your company to be profitable. You might have scalability, meaning you can rapidly grow revenues without a corresponding increase in costs.
Devise Marketing Strategies
Show how you are going to convince customers to purchase your products and services, and the marketing cost involved. Another weakness of many business plans is describing vague goals such as “attain a 5 percent market share by the second year,” but failing to present detailed marketing tactics to acquire customers.
Describe How the Team Fits Together
Companies succeed because the right management team has been assembled, not simply because they have a superior technology to offer the marketplace. The team members must be able to work in harmony during the often stressful early days of the company’s existence. Combined, they must have specific skills, experience and the drive to succeed that will enable them to execute the strategy outlined in the business plan.
Prepare Financial Projections
Financial projections must be realistic and based on concrete assumptions. How the company derived the numbers is just as important to investors as how attractive the forecast profit appears. It usually takes longer than anticipated for sales momentum to build in an early-stage company. Try to make the first year’s projections conservative.