At some point in the business building process, every entrepreneur has heard the words “You need to write a business plan”. The problem entrepreneurs encounter when they attempt to follow this advice, is that if you ask 1,000 experts how to write a business plan, you’ll get 1,000 different answers. When confronted with the question of how to write a business plan, a competent expert will turn the tables on the entrepreneur by asking them, “What do you want to accomplish by writing a business plan?” The reason this question needs to be asked, is that business plans get written for any of the following reasons:
- Validating that there’s an actual market for your business idea,
- Having the equivalent of an operational manual to guide you through each stage of the business’ growth
- Pitching to investors for capital to start up, operate, grow, and/or exit the business, and
- To provide a template to determine whether a business is on track to meet its’ goals, and to proactively alert business founders when a business is veering off course.
How would a business plan accomplish addressing any of these reasons for writing a plan? Following is a listing of the most critical sections in a business plan, and what each attempts to accomplish for its’ author:
1. Company Description – In this section, entrepreneurs have to explain why they decided to start this specific venture, what they intend to accomplish with this venture, and which target market they feel they can dominate with this venture.
2. Product & Service Description – In this section, entrepreneurs have to explain what problem they plan to solve for their target market (better than anyone else), and thoroughly describe what solution they’ve created to solve this problem for their target market.
3. Marketing Plan – In what is typically the largest section of the business plan, entrepreneurs have to dissect the business environment they plan to compete in, to discover the strengths and weaknesses of both their venture and the companies their venture will compete against. These competitive strengths and weaknesses help the entrepreneur uncover both opportunities for and threats to business growth. This analysis will also help the entrepreneur discover and articulate the optimal method of delivering their solution to the target market.
4. Operational Plan – In this section, entrepreneurs will identify from what location (and with whom) they will deliver their solution to their target market, what delivery mechanism will be utilized to deliver the target market problem solution, and what partners will be leveraged to seamlessly deliver their solution.
5. Management & Organization – In this section, entrepreneurs identify their “A-team” (specifically detailing who will do what, who will report to whom, and what about each person’s background makes them the ideal candidate for whatever role they’ve been selected to lead), as well as who they’ve enlisted to advise their “A-team” (with an explanation of which managerial gap in the leadership team that each advisor’s background makes them ideally suited to provide counsel to the entrepreneur).
6. Startup Expenses & Capitalization – In this section, entrepreneurs detail everything that needs to be accomplished (and the associated cost) in order to “turn on the lights” on Day 1 of the venture.
7. Financial Plan – In this section, entrepreneurs detail everything needed to be accomplished (and the associated cost) for 3 years after the launch of the business venture (thus describing how capital invested in the business will be used). This section will detail when revenues will finally exceed expenses, and the cumulative amount of losses to get to this point. This section will also detail the timing in which cash comes into and out of the business venture.
Regardless of whether an entrepreneur intends to validate their business model, create a manual for operating their business, raise capital, or measure progress towards achieving growth goals, taking the time to thoroughly craft a plan that articulates all of the above sections of a business plan will address any or all of these objectives. I also advise entrepreneurs to take the lead in the process of writing their business plan (even if outside expertise is enlisted to assist in this process). I do this for the following three reasons:
1. Entrepreneurship looks sexy when you’re looking from the outside in. By going through the business planning process, entrepreneurs are forced to see exactly what has to be done on a day-to-day basis to create a successful business (and 95% of what needs to be done is anything but sexy). And after going through this process, anyone not meant for entrepreneurship will quickly come to the conclusion that their current job doesn’t look so bad after all!
2. Assuming an entrepreneur is writing a business plan to raise capital, investors of any type will expect the founders of a business to be able to explain why they need money, how much money they need, how this money will be spent, and when this money will be needed. Entrepreneurs who successfully raise capital are capable of walking financially oriented people through the assumptions they’ve made for how they’ll operate their business (even if the founder is not financially oriented). This is not a task to be designated to an internal finance manager, or your external accountant (since this broadcasts to investors that the founder doesn’t thoroughly understand her/his business).
3. When entrepreneurship is elevated from a science to an art form, it looks easy when you’re observing from the outside in. What’s actually happened (through the business planning process), is that the entrepreneur has been forced to think through 99% of all problems they’re going to encounter growing their venture to scale (and articulate strategies for overcoming these problems should they actually occur). This is the equivalent to practicing scenarios before a game. Once the scenario actually happens in a game, muscle memory allows you to respond without thinking. To the uneducated onlooker, what you’ve done looks easy (until they attempt to replicate what they just saw you do).
If you found this article helpful, please share it with other entrepreneurs in your network. If you have questions about anything in this article, or would like my insight on a question about any aspect of the entrepreneurial process, please connect with me on Facebook (https://www.facebook.com/thinkbigwithgeoffreykent), LinkedIn (https://www.linkedin.com/in/thinkbigwithgeoffreykent/), or Instagram (https://www.instagram.com/thinkbigwithgeoffreykent/). I also believe that 50% of entrepreneurs fail within 5 years, because they lack the resources to properly execute their vision. Leveraging what I’ve learned over a 40+ year successful entrepreneurial career, I’ve developed a methodology to help entrepreneurs build their unique customized strategy for responsibly scaling exponential business growth. To gain access to my 7-week online course, collaborate with like-minded entrepreneurs through the exclusive “Think Big” Facebook group, regularly communicate with me, and gain access to my extensive professional network, connect with me on my course page (www.thinkbigwithgeoffreykent.com/).