My Dad used to say that “Businesses don’t plan to fail, they just fail to plan.” And, that is especially true with startups where 9 out of 10 businesses do fail within the first five years. The most common reason startups fail is because they run out of cash, which is a failure in planning the amount of time and resources a business will need to get off the ground. So, fundamentally most startups do fail because of a lack of planning.
If you have caught the entrepreneurial bug and are thinking of starting your own business or if you have already started your own business, I’d like to encourage you to write or update your business plan for the next 12 months. Some people recommend you do longer business planning, but I’ve found that things tend to be too dynamic to do accurate long range planning for a brand new startup. So, I generally recommend business owners create one-year plans they can measure and implement and then create new plans each year based on what worked and what didn’t. However, if you need funding for your business, then you will most likely need to create a three- to five-year business plan. Regardless of the timeframe, I believe that business plans are indispensable for new businesses. By writing a business plan, owners can gain clarity, secure third party funding and attract both management and advisory teams to help them launch the business successfully.
If now is the time to create or update your company’s business plan, here are the key points to include:
- Executive Summary and Overall Business Description: Kick off your plan with a one-page executive summary of your business. The first paragraph generally includes the business name, its location, what products or services you sell and the purpose of your plan. If you are looking for an investment or loan, state it clearly in the executive summary. If you are seeking investors, make sure your executive summary is compelling by describing why your business is unique, why it is needed, and why customers will love your products or services. Ensure your investors understand and like the business idea so they will want to read the rest of the business plan.
- Mission and Values: Write a concise one or two-sentence statement about what the purpose of the business is. Keep in mind that purpose-driven businesses have a much greater chance of success than businesses that are created to make money only. Also, describe the three to five core principles or values upon which you will build the business and stick to no matter what.
- Team: Most investors invest in people who they think can bring the business idea to market. In this section, it is critical that you describe who you, your management team and your partners (e.g., other investors, advisory team, etc.) are including education and work experience and why you are qualified to make this business a success. For all management team members who will be running the company also indicate what their track record is, have they failed before and if so how they recovered, and how their experience relates to the industry/business. Let investors know this is the strongest management team that can be assembled to make this business successful. If you are seeking funding and plan to use funds to hire people, also include a “People Plan” by answering questions like:
- What personnel are needed now to accomplish current goals?
- How will the number of people needed change with the growth of the business?
- Financing and Financial Plan: In the finance section, outline the total business startup cost including how much debt and equity there is, what investment is needed, how much existing investment has already been made and at what terms, whether partners are investing their own money, the projected return on investment and reward for risk, who is the CFO and/or accounting firm, who is responsible for investor communications, are investors required to provide advice or assist the business in any way, and how and when will investors get their money back. In this section, also include the financial plan for the business including:
- Start-up costs, if applicable
- Revenue projections with detailed assumptions
- One- to three-year cash-flow projections (three- to five year, if seeking investors)
- One- to three-year balance sheet projections (three- to five year, if seeking investors)
- Sources and uses of funds if you are raising capital
- Goals and Milestones: Make a list of goals that translate your company’s vision into specific, measurable, attainable, relevant and time-specific objectives.If this is a brand new start-up, map out the goals and key milestones for one year. In the beginning, you will want to set and review your business targets at least monthly. Later on when the business is more mature, you can review quarterly with Quarterly Business Reviews with your management team. If you are seeking funding for your business, include goals and milestones for three to five years.
- Target Market, Competition and Customers: In this section, provide information on the target market including market description, total market size and total available market that your business can target initially. Next, compile all of the information you can about your current competitors, possible future competitors and describe how you plan on providing a better solution now and in the near future. In addition, describe your businesses’ ideal target customer profile.
- Marketing and Sales: In this section, describe what makes your product or service unique, why will customers buy your offerings versus alternatives. When considering alternatives, always consider the option that your clients could do nothing and stay with their status quo. What will motivate your customers to buy. Summarize these insights into your unique value proposition and brand promise. That is the core of your marketing message. Then, explain how you plan to communicate that message to your target market and ideal customers. What methods will you use to deliver the message and how you will measure the effectiveness of those delivery methods and, based on the results, adjust your marketing plan accordingly. Finally, summarize your sales plan by answering these questions:
- What is your overall sales process?
- What are the specific steps in your process? How are lead generated, qualified and closed?
- How will you achieve the optimal sales cycle?
- Operations: To create an operations plan, answer questions like:
- How will you produce the product and/or deliver the service?
- What are the logistics? What facility, equipment, and other resource needs are involved?
- Will you offer a refund policy? If so, what’s involved?
- How will you assure and measure quality and customer satisfaction?
- How will you profitably scale your operations?
Once you have your business plan drafted, get feedback from your partners and investors. The feedback you receive could save you and your business from making costly mistakes. So, be sure to incorporate feedback and refine your business plan and investor pitch until you achieve the results you are seeking.
And, remember that business is a team sport and that your business plan is an ideal way to rally your management team and get investors on board so your business is more successful sooner.