A Business Plan

Previous: A Business Idea

A business plan is designed to clarify every part of a business.

  • Most startups fail, and startups which succeed are rarely the first attempt.
  • By crafting a formalized business plan, you’re forced to find certainty on how you’ll perform business activities, even if you never need investors to review it.

At some point, you’ll need to convince others to give you money, and a business plan helps prove that to others.

  • If you want a large-scale impact, you’ll need a large-scale approach.
  • To make millions, a business must affect at least thousands, and will eventually need millions to do it.

Business plans always have the same generic sections each time, but they don’t need to be extensive.

  • A simple business plan can be one page long.
  • You’re basically writing out what you plan to do, and covering all the important aspects before they become urgent.
  • Do not go farther on the business plan in any of the following sections if you have no need for it.

If you are seeking funding, you’re answering questions potential investors and lenders are indirectly wondering:

  1. Is the business idea sound and reasonable?
  2. Is this business idea timed correctly?
    • If it’s too early, nobody will understand it or connect with it.
    • If it’s too late, the market will have too many competitors.
  3. Do you have sufficient talent, devotion, and skill to act on the business idea?
  4. Is the business model structured correctly to keep running indefinitely?
  5. Will the business operations be sufficiently funded until it can support itself?

After all your persistent research and ideation, capture every one of your relevant and valid thoughts into your business plan.

  • Even if you’re thoroughly meticulous, you will forget something, so don’t aim for perfection.

1. Opening Content

Include a title, table of contents, and executive summary.

To market it well, the title should be memorable.

  • Do not obsess about the title too much, since it will often need a rebrand later when you need to scale the business.

The executive summary comes last, after the rest of the business plan.

  • It should be enthusiastic, professional, complete, and concise.
  • It’s one paragraph that can wrap up a 5-minute presentation:
    • Who are the owners?
    • What will the product be?
    • Who are the customers?
    • How much money does it need?
    • How will it use its money?
    • What’s likely to happen to the business and industry in the future?
    • If there’s a loan, how will the money make the business more profitable to ensure repayment?

2. Organization Description

An organization’s description indicates what the business will be and what it does.

Use a mission statement.

  • Mission statements show the guiding philosophy and purpose for the business’ existence.
  • Typically, it shouldn’t be longer than 30 words.

Indicate both the organization’s goals and objectives.

  • Goals are what you want the business to be.
  • Objectives are the progress markers toward attaining those goals.

Expand the mission statement’s philosophy in more detail.

  • Briefly describe who the business’ marketed demographic.

Describe the industry in general.

  • Is the industry growing?
  • What changes are coming to the industry, both short-term and long-term?
  • How will the organization be prepared to benefit from those changes?

Describe the organization’s most significant strengths and workers’ best talents.

  • What factors will make the organization succeed?
  • What strengths give the most competitive advantage?
  • Describe the background experiences, skills, and strengths each worker brings to the organization.

Indicate its legal form of ownership, and why.

3. Products/Services

If you’re selling a variety of products, you should be intimately familiar with every single one of them.

  • Look at the products as if you’re a new customer who is first learning about it.
  • Consider how you look as you perform your services.

When you think you’ve tested your product, test it some more.

  • You should test a product so heavily that you’ve discovered all the problems before the customers find out about them.

Describe in detail the demographics of each product’s customers.

  • Identify the target customers, their characteristics, and geographic locations.
  • Indicate whether distributors, wholesalers, or retailers will give the product to the end-user.
  • For each type of customer, create a demographic profile:
  • If the customers are businesses, they’ll have a different demographic profile:
    • Industries involved, or the portions of involved industries
    • Geographic location
    • The organization’s size
    • Preferences for quality, technology, and price
  • Add any frequently tracked industry-specific demographics as well.
  • If it’s a not-for-profit organization, indicate the projected demographics of both the donors and recipients.

Provide a detailed explanation of each product or service.

  • Give as much detail as possible.
  • Cite technical specifications, drawings, photos, sales brochures, and any other bulky items to Appendices at the back.
  • Show pricing, fees or leasing structures for each product and service.

Bluntly indicate the competitive advantages and disadvantages of each product or service:

  • Quality compared to competitors.
  • Unique or proprietary features.
  • Cost compared to competitors.
  • Absolutely anything else which differentiates the product from the competition, both good and bad.

Share the product from the customers’ point of view.

  • List every feature and benefit of each product and service.
    • Features are built into the product to sell the benefits.
    • Describe why the most significant features matter.
    • Indicate how the features can help the customer see its benefits.
  • You may think the product is perfect, but your clients won’t.
    • Your opinion is too biased to have much value.
    • Pay close attention to user feedback.
  • Stay focused on the product’s core purpose, and constrain its design to it.

Indicate any additional post-sale products and services.

  • Covering the logistical costs to deliver or install the product.
  • The organization’s refund and return policy.
  • Warranties and service contracts connected to the product.
  • Technical support, both during and after the warranty period.
  • Followup procedures to gauge the customer’s experience.

Aim for affordable-enough pricing.

  • The cheaper something is, the more it can sell.
    • You can sell something at a prestigious price, but you’ll be wasting your time with a very hard sell for each customer.
    • If you must set the price higher, quickly clarify why and elaborate on it in the marketing plan.
  • You want to set the price low enough that there’s always demand for it, but not so low that people will feel it’s cheap.
  • Even if you can set the price at substantially lower than the competition, people will often presume you’re delivering an inferior product.
    • Instead, focus on closing the margins in that situation toward higher product quality.

4. Marketing Plan

Marketing the product is absolutely critical, or nobody will know you’re selling it.

You don’t need a vast marketing plan, and can start simple with a simple list of places you plan to contact:

  • Classified ads
  • School and church bulletin boards
  • Relevant social media
  • Ask people via word-of-mouth where someone may need what you’re providing.

You’re trying to tailor your product to your customer, so consider how the product has been marketed:

  • Traditional marketing approaches can very frequently work for traditional products.
  • If it’s a new type of product, however, every bit of design can dramatically improve your impact.
  • Unless you’re trying to make a living in marketing, pay close attention to how much marketing you’re doing relative to the product you’re actually producing and selling.
    • If you like marketing itself, consider dropping the product altogether and working in a marketing role instead.

Make a standardized script for contacting leads.

  • Use the Golden Circle to communicate the concept:
    1. WHY you do and believe
    2. HOW you do it
    3. WHAT product you make
  • Keep refining the speech until you have a few versions:
    1. A 10-second summary of what you’re selling.
    2. A one-minute summary for anyone who is interested.
    3. A written source of more information on the product (e.g., a website or printout).

For anything more significant, your marketing plan should show the results of your marketing research.

  • That research should answer any uncertainties and prove as consistent data.
  • Specify as much as possible with numbers, statistics and citations.
  • Your marketing plan will be the source for your sales projections later.

Give the industry’s economic facts:

  • The current market demand along with total market size.
  • Show market trends like growth, consumer preference shifts, and product developments.
    • If you’re making a non-profit organization, make a separate category altogether for trend analysis.
  • Show the growth potential and maximum opportunity for an organization your size.
    • If a business will be a significant competitor in the market, indicate the percentage they’ll dominate it.
  • Give the scope of the marketing content and how customers will see it.

Specify each barrier to entering the market and how to overcome each of them:

  • Starting a business full-time typically needs a significant amount of starting capital:
    • Production costs
    • Equipment and supplies
  • Consumers have some resistance to a new brand, and won’t immediately recognize it.
    • Also, if the brand doesn’t succeed in being distinctive, the product or service will be seen as a commodity.
  • Many new organizations require specializations from before the business plan was drafted:
    • Necessary training or skills for an industry or role.
    • Unique technology or patents.
    • Affiliations with unions or trade organizations.
  • The political environment also affects a business.
    • Barriers from international tariffs and embargoes.
    • Necessary quotas to fulfill certain requirements.
    • Taxes and laws that may help or hinder the organization.

List every major competitor in the industry:

  • Indicate their names and addresses.
  • Will they compete everywhere with you, or just for certain products/customers/locations?
  • Will you have any significant indirect competitors, such as from a different industry?
  • If you need to, break out a chart that indicates the market share and customer satisfaction:
    • Niche: low market share and low satisfaction
    • High Performers: low market share and high satisfaction
    • Contenders: high market share and low satisfaction
    • Leaders: high market share and high satisfaction
    • Place your company’s projected placement on that chart.

Compare the two most significant competitors side-by-side with yours on a table:

  • Use as many variables as you can qualify:
    • Price
    • Service offered
    • Product quality
    • Range of features
    • Style and design
    • Ease of use
    • Customer support
    • Warranties offered
  • Rank each value from 1 to 5 as an ideal relative to the customer.
  • If you’re being legitimately honest, you should see multiple 1’s on yours compared to competitors (since you’re starting into the industry).

Indicate how changes in social trends and society will affect the organization:

  • Will it take advantage of new technology, or will that technology be a risk to the business model?
  • Are there any government regulations which may affect business operations?
  • Will the economy or industry shift enough to change how the business model can survive?

Marketing Strategy

Describe in a paragraph the specific corner of the market the company will pursue.

Explain how you’ll promote the product:

  • How will you get the message out to customers?
  • What advertising media, why, and how often? Why not other alternatives?
  • Beyond paid advertising, will you use any other marketing methods?
    • Social media gives a lot of information to explore alternative approaches.
    • Sometimes, you can use second-degree connections to influence others (e.g., that person’s spouse, their professional networks).
  • Are there any low-cost advertising methods you can take advantage of?
  • What image do you want to project and how do you want customers to see you?
  • What are your plans for maintaining brand management with graphic images?
  • What promotional budget do you have?
    • You’ll have an initial cost, and then ongoing costs afterward.

It typically makes sense to go back and redesign the product to reflect the marketing strategy.

  • Good marketing will reflect back into the product itself.
  • Display the product’s most interesting qualities openly.
  • Hide complexities about the product that may make customers uncomfortable.

Indicate the product’s pricing or pricing models:

  • Explain the reasoning behind the prices.
    • Include frequently overlooked costs connected to sales staff:
      • Necessary consulting costs, meals, and entertainment
      • Travel expenses
      • Profit loss from a customer’s potential price negotiations
    • Indicate any overhead costs (e.g., administrative, accounting, attorney).
  • Under-charging is not sustainable.
    • Your startup will need a high profit margin to manage unknown risks.
    • Any idiot competitor can under-bid your price.
      • Focus on quality, expertise, and the niche’s preferences much more than the price.
  • Share how the price compares with the competition, and describe its relevance to the target market.
  • Clarify any customer service or credit policies.

Specify a proposed location:

  • The location is a reference for the marketing plan, but will be more detailed in the operational plan.
  • Many startups can successfully start in your own home.
  • Show how the location is marketable as a venue:
    • How is the site important, if at all, to consumers?
    • How convenient will people feel the building is?
    • How is its parking?
    • What do its interior spaces look like?
    • Is the location consistent with the business’ desired image and what customers want or expect?

Clarify its distribution channel:

  • The customer’s lifestyle will closely connect with the product, so explicitly indicate how the business will advertise and distribute it.

Give data-minded sales forecasts to predict how well the company will perform.

  • Make a well-estimated projection that aligns with the rest of the information.
  • As a backup, give a worst-case scenario sales projection you’re absolutely confident you’ll reach.

5. Operational Plan

Describe the daily activities involved with producing or acquiring products or services:

  • Quality control (i.e., maintaining a good-quality product)
  • Customer service and the scope of company policy regarding defective products
  • Inventory control (i.e., preventing theft and protecting against destroyed merchandise/equipment)
  • Product development (i.e., improvements to the product)

Clarify the location’s needs:

  • If it’s relevant, provide a drawing or layout (which is critical for manufacturers).
  • Physical requirements:
    • The necessary amount of space
    • The type of building needed and its required zoning
    • Essential utilities with any minimum specifications (e.g., electricity, water)
  • Accessibility:
    • Required conveniences for carriers or suppliers
    • Whether it needs easy walk-in access
    • Parking requirements
    • Necessary proximity to other locations (e.g., highway, airport, rail station, shopping centers)
    • Hours it will be open to the public
  • The building’s construction (if applicable):
    • Most startups shouldn’t construct a building.
    • If you do plan to build, a large portion of the operational plan will consist of building costs and specifications.
  • Approximate fixed expenses:
    • Initial remodeling costs and routine maintenance requirements
    • Rent/lease
    • Utilities
    • Insurance

Indicate the legal environment and requirements for operation:

  • Licensing and bonding requirements
  • Necessary government permits
  • Relevant health, workplace, or environmental laws
  • Any industry-specific or profession-specific laws
  • Zoning or building code requirements
  • Essential and elected insurance coverage
  • Pending, existing, or purchased trademarks, copyrights, and patents

If it’s more than yourself, describe the employees who’ll work there and what they’ll do:

  • The number of employees, detailed job descriptions, and their pay structures
  • The types of labor (skilled, unskilled, professional)
  • The qualities of the current staff who will be assigned to it
  • Where and how the organization finds employees, how they will train them, and their requirements
  • Whether the organization will use contract workers or professionals alongside employees
  • Tasks assigned to each worker and how their responsibilities will change over time
  • Schedules and written procedures for managing employees

Describe the work site’s inventory:

  • The types of inventory kept (raw materials, supplies, finished goods)
  • Average value of the initial inventory stock investment
  • The amount of time from ordering to delivery
  • The inventory turnover rate and how it compares to the industry average
  • How seasonal inventory builds up, and how overflow is stored

Identify key suppliers:

  • Their names, addresses, history, and reliability
    • Many suppliers take advantage of small business owners, so have backup plans in place
  • Indicate suppliers’ credit and delivery policies
  • The type and amount of inventory the supplier will provide
  • Risks to the supply chain
    • Whether the business may experience supply shortages or short-term delivery issues, and how they’d withstand it
    • The stability of supply costs and how the business will manage natural cost fluctuations
  • Whether supplies can come from an unpredictable and unconventional source
    • Auctions
    • Craigslist/eBay
    • Flea markets or swap meets
    • Thrift stores
    • Friends and family

Describe the organization’s credit policy:

  • Accounts receivable (money others owe to the organization)
    • Plans to sell on credit and whether the consumers need it
    • Policies for issuing credit and how much
    • How to check new applicants’ credit
    • When credit is due
    • If the consumers find it customary, discounts for prompt payment
    • Costs of extending credit and how it builds into product prices
    • Show a sample accounts receivable chart with aging
    • Describe when slow-paying customers will receive a letter, phone call or attorney threat
  • Accounts payable (money the organization owes to others)
    • Describe whether vendors offer prompt payment discounts
    • Show a sample accounts payable chart with aging

6. Management Structure

Specify who will manage the business:

  • Show how their experience brings value to the business.
  • Clarify unique or distinctive talents and abilities.
  • Identify whether the business can keep functioning if someone were to stop working.

Create an organizational chart:

  • Indicate the management hierarchy, position descriptions, and who is responsible for critical tasks
  • Include owners’ and key employees’ resumes if investors or lenders will review the plan

If multiple people will run the organization, clarify the board of directors.

Professional/Consulting Support

Clarify the company’s primary attorney, accountant, insurance agent, and banker.

Beyond the board, clarify your management advisory board:

  • A management advisory board is 3-5 outside consultants with no financial interest in the organization.
  • Advisory boards give measurable, distinctive value to the organization, but only if it has the right people:
    • Objective, honest, effective communicators and problem solvers
    • Skilled in different vocations than the owners
    • Respected and knowledgeable in their fields
    • Genuinely interested in the organization’s success
    • Diverse skills, work, and life backgrounds
    • Well-connected with networks the owners may need
  • When forming a management advisory board:
    1. Require non-compete and non-disclosure agreements.
    2. Make sure everyone commits to a meeting, and adhere to an agenda.
    3. Specify how each member will assist.
    4. Always express gratitude for their time.
    5. If the group is ongoing, rotate board members.

Indicate any other outside consultants, including mentors or key advisors to the company.

7. Draft Financial Statements

Give draft statements to estimate the organization’s future status.

  • Show all the assets, liabilities, and applicable net worth of everyone involved.
  • Include personal financial statements for each stakeholder.

Even when you have a few months’ worth, businesses typically take 5 years before turning a profit.

  • Before diving in, your individual line of credit should be solid enough to get a business loan for over a year’s worth of personal income.

Give reports of the startup’s initial expenses:

  • Be as honest as possible.
  • Explain the amount and reason for every expense.

To discover your minimum viable product (MVP), find the break-even point:

  1. Every organization has fixed costs necessary to keep existing (e.g., rent, legal filing fees).
  2. Each additional unit incurs a proportional cost increase.
  3. The break-even point is where you make just enough money to keep the organization open.
    • (Income Per Unit – Variable Cost Per Unit) = Contribution Margin
    • Fixed Expenses / Contribution Margin = Break-Even Point
    • e.g., ($5/unit income – $2/unit cost) = $3 contribution margin, and a fixed expense of $3,000 means having to sell 1,000 units.
  4. Anything after that becomes a surplus to take care of other needs or expand operations.

Make room for error:

  • You could give extra padding to each item in the budget, but it will make the entire plan inaccurate.
  • Instead, add a separate budget item called “Contingencies” to plan for unexpected costs.
    • Use the basis from other entrepreneurs’ experiences in the same industry.
    • In general, make contingencies about 20% of the rest of the startup expenses.

Give them most common accounting reports for the first business year:

  • 12-month Profit & Loss Projection
  • 4-year Profit Projection (optional, if you can even estimate it)
  • Projected Cash Flow
  • Opening Day Balance Sheet
  • Break-Even Analysis in different scenarios (determines when the organization becomes sustainable)
  • This is simply speculative, but the numbers are marketing to potential investors.

8. Industry-Specific Sections

Add anything else you can think of that may be applicable to the industry.

  • Indicate significant milestones that show business success.
  • While the milestones usually involve money, it can be anything measurable:
    • Sales
    • Market exposure
    • Number of users
    • Items produced

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