So you’ve got an idea for your business. In your mind, you’ve walked through what your product looks like and how it works. You’ve given it a name and a brand, told everyone you know, and printed out business cards.
But really, your work hasn’t even begun, because in order to move forward, you need a plan. A business plan is a constantly evolving document that helps you and others fully understand your product or service, what your projected growth will be for the next three-to-five years, and how you’ll get there.
There are multiple audiences and many purposes for your plan — generally, it’s to provide clarity for investors, partners, lenders, employees, vendors and potential clients so they’ll have confidence in your idea. But ultimately, there’s a much bigger reason to have plan.
According to Bruce Gitlin, district director for the U.S. Small Business Association (SBA) SCORE mentoring program in Washington, D.C., “First and foremost, it’s for you—particularly if you’re just starting out—to figure out what’s your plan and whether or not the risks and rewards and investments you have to make sense to you and your family because it’s a starting point for changing your life, usually.”
THE ELEMENTS OF A SUCCESSFUL BUSINESS PLAN
Gitlin had his own success founding a digital rights management software operation that sold primarily to large entertainment companies such as Sony, Disney and Time Warner, and now mentors people who are going into business. He’s seen lots of plans fail, and quite a few that worked. He says the best ones have common hallmarks, including:
- An overview: You’ll need a good description of the problem you’re solving, how your product solves it, your value proposition, what will differentiate your product from others, and what reason someone will have to buy from you.
- Market analysis: Who are your customers? What are their demographics and where are they located? What do you need to know about them? What is it about your product and the way it solves their problem is going to get them excited? What terms do they expect? Do they expect to lease your product? Do they expect to buy on volume discounts, and who buys? Who makes these decision?
- Competition analysis: “In the case of consultants, sometimes you’re competing with the customer themselves,” Gitlin says. “You want them to outsource to you what they currently do in house.” Gitlin also says to figure out who your competitors are in your market.
- A solid marketing plan: Outline your strategy — the overarching plan on reaching your target markets — then provide an understanding of your basic tactics, channels and offerings.
- Infrastructure: How are you going to produce it? What does your infrastructure look like? Do you have to make the product? Will you outsource, and how will you sell it? “In summary, how are you going to operate this thing and get your doors open?” says Gitlin.
- Financial analysis: Good plans have projections for profit and loss, cash flow projection, startup expenses and in some cases, a balance sheet. A bad plan has consequences. “Invariably, the problem people get into when they’re starting a business is they’re underfunded, they don’t have enough money or they think they have enough and they get halfway through and they run out of money,” Gitlin warns.
“One footnote here is you don’t do all this in a vacuum,” Gitlin says. He encourages would-be entrepreneurs to get out and talk to friends, customers, vendors and others in the industry to make sure their assumptions are on track.
Then test your assumptions again. Gitlin presents the example of a physician who wants to start a weight-loss clinic — he will have to take a hard look at how many clients he’ll need to make it work, and how much they’ll pay for his services.
“For the consultants, what we often get into is a discussion of how many clients do you need to generate the income you’re looking for and how can we get those clients and then spend enough time to deliver quality to them and then to generate new clients? Sometimes what we end up doing is adjusting the hourly charge. You got to charge more because you can’t get enough clients at the hourly rate you’re planning to generate a reasonable income in a 40 or 50-hour work week.”
In the case of a capital-intensive business like a craft brewery pub, the owners will have to do a hard assessment of what’s realistic, and perhaps put off plans to expand once they’ve become established—and busy.
The SBA also has tools to help you get started:
- Starting a Business? Learn How to Easily Create Your Business Plan
- Need Help Building a Business Plan? SBA’s Online Tool Can Help You Get Started
- Easy Video Tutorials on Business Planning
- Create Your Business Plan
Finally, Gitlin says, keep the end game in mind, even if you get discouraged.
“Throughout all this, you’ve still got to keep it focused on your customer, saying, ‘Am I delivering a dynamite product? Am I delivering a compelling case for them to want to spend their money with me?’ You still have to have a start and the end a good solution to a compelling problem.”