We have some advice for those who would still prefer to undertake the interesting, and sometimes painful journey down the business-planning road. Note that, though these are ranked in some semblance of order, they should not to be taken as gospel. No two businesses are alike, and neither are their plans. This is not an exhaustive list, but rather an overview of the planning process.
10 Business Plan Basics
With the recent market nose-dive, most business managers have come to the sore realization that building a successful company is not as easy as it seemed in the past few years. The business plan has once again become a central player for the entrepreneur. But now it needs to be supercharged and smart, solid enough to overcome fears among investors who have been burned, and delineating a strong, strategic vision.
- Determine who your audience is
Are you writing for a friends-and-family round of seed investment? Or will this business document become your internal bible for securing a management team? Will you be sending it to seasoned VCs? Are the VCs east coast or west coast? Each one of these audiences has a different perspective and requires different information and data in the plan. Make sure you have researched your target audience, and know what it is that they need to see in order to make an investment or employment decision. For instance, many angels (who answer to themselves and perhaps a spouse) are typically moved by personally relevant and big-picture ideas, whereas VCs (who, by definition, invest other people's money) are usually more interested in the size of your addressable market and elimination of risk.
- Start with the descriptive of your idea
Regardless of the nature of your idea- perhaps the invention of a product, your identification of an unfilled market niche, or some strategy whereby entrenched market players could be toppled-you will need to explain it clearly. Your reader should be able to "get it" quickly, well enough to explain it to somebody else after just one reading (as they will probably need to do if you are to get funded). You must also explain your idea succinctly. Telling your story in five pages is easy. But you must be able to explain the basic idea in two or three paragraphs, making this otherwise simple task one of the more challenging aspects of writing a good plan.
- Describe the industry, the target market, how to reach them and the competition
Think of your idea as a game plan: What game are you playing? What are the rules? Do they change every few months? Years? How big is that field on which you're playing? In other words, who needs this service/product, and who is willing to pay you for it? Is the field growing? Shrinking? Where possible, back up statements regarding your market's size with estimates from respected market research firms. Finally, who are you playing against in this new game? What are their strengths, and what is your strategy to beat them?
- Tell the reader about the top management
Since most ideas are considered commodities in today's information age, the most important key to success is a management team that can execute. Even the most brilliant idea in the world is just an idea if there's nobody to make it happen. Lack of management has sent a number of wonderful ideas to the black hole of new companies, while strong management has been known to build mediocre ideas into well-known and hugely profitable companies.
- Crunch those numbers!
Now that you understand the rules of the game you're playing (even if you made up the game yourself), who you're playing against, and how to win, you need to make sure that you can make money at it. A strange-but-true phenomenon is that business planning sometimes leads to the realization that there actually isn't a profitable business in the idea. Many people have an idea, but what they actually need is a company. Gut-level instincts, even among the experienced, won't cut it here. The only way you can truly know whether your plan is financially viable is to actually go through the planning process, identifying how much money you'll make, when you'll make it, and how much you'll need to spend before and after you get there. Remember, time spent planning might seem expensive in your rush to get to market, but it's a rather small investment compared to wasting a year of your life and perhaps millions of dollars (some of which is probably your own) on a project that maybe never had a chance.
- Go back and make strategy revisions based on your numbers
If you have done a good job looking at the numbers, you will learn things that can help you further refine your strategy. Now is a good time to do it.
Even when the project is good-to-go, planning will provide clarity with respect to how much money you should raise, at what time, and based on what valuation, thereby possibly allowing you to avoid unnecessary equity dilution and loss of control.
- Try out your idea on smart people
Find people whom you respect and who have little or no vested interest in your business. Have them read your plan and make sure they understand what you are trying to accomplish. See if they can explain the concept back to you with reasonable accuracy, including a description of what you're doing and how you'll make money from it.
- Then, and only then, write your Executive Summary
Although it is tempting to start your writing with the "beginning" of the document as it will be read, you are much better off to write the summary last, that is, when you actually have something to summarize. You may find that your strategy, your focus, or even your product will change during the planning process, which would at least put a new twist on your summary if not force a complete rewrite altogether.
- Have a professional review the plan for holes
If you will be presenting to accredited and/or sophisticated investors, it is worth the expense to have a professional review your plan. Planning consulting firms have sprung up everywhere. Ask around; after doing some research and speaking with past clients, you should be able to find someone with whom you feel comfortable sharing your vision. They should be able to conduct what we call a "forest through the trees" kind of check-ensuring that you haven't left out any important portions of the plan such as mention of critical risks, competitive advantages, and an exit strategy. We are happy to help you here, as well.
- Update the plan continually
Once the plan is done, relax-for a moment. If you are serious about your business, you will be updating your plan at least monthly, if not more frequently. Changes in the market, the industry, technology, and your own insight will require that you adjust your strategy and plan to take advantage of them. Remember, the plan is not strictly a fund-raising tool. It is also a way to apply discipline to your company, to quantify your intuitions, and to communicate the expanded explanation of your vision and roadmap to your entire team.