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Preparing a business plan - let's do business!
Creating a business plan is a necessary step in the life of any business or venture. The business plan serves as a central and most important tool: to attract new investors and partners for your business, to allow you to get a full picture of your business performance moving forward and to assess what type and quantity of resources will be required. Yet, a business plan is not just a document to show potential investors, it is the strategy, work plan and on-going seismic monitor of your business. Thus, it is important to invest the effort and have the expertise to create a professional and sound plan that will represent your venture in a compelling manner, while providing a reliable and accountable presentation of your business and its performance for the coming years.
There main objectives for building a business plan:
- First and most, the business plan is created to enable the founders or management of a venture to check and validate the viability of the venture, research and analyze the opportunity and the alternative courses of action and outline the roadmap and action plan for executing on the opportunity.
- A business should relay that the proposed project / venture carries the potential and economic gain that investors and stake holders are looking for.
- The business plan should also demonstrate to investors and stake holders that the founders are thoroughly familiar with the market and domain of the venture and that they have invested much thought and care to devise a sound strategy and plan.
Preparing a business plan - What factors should be considered?
During the process of building a business plan, it is important to address internal and external factors that impact the business, and to establish a comprehensive understanding of the business environment. The following subjects should be dealt with as part of the business plan:
The Need – When writing a business plan, typically this is the place to begin. One should present a clear and convincing description of the problem or the unanswered need that the company or venture is addressing. It should be clear that the need is a “must have” rather than a “nice to have” one. One should explain who are the target customers and provide a description of “how things are done today” and what are the drawbacks or unsolved issues that exist; these can be in terms of inefficiencies, cost, low value-add, gap or unsatisfied need or some other aspect. Research and interviews can help to zone in on the exact and most compelling need. It also helps to provide references and quotes to support your claims.
The solution – This part is typically the easiest one to write as most founders and managers tend to focus on the solution rather than the problem or the need. In addition to describing the product or service and how does it work, it’s building blocks, features and benefits, do not forget to explain how the solution solves the problem/need that was described earlier. How will customers using the product (use cases) and how will it affect their existing business.
Target Market & Customers - building a business plan will require analysing the target market, the technology and drivers of the market. In addition, one needs to segment the market and identify the target customers, their need, how does the product help them address the need and reason to buy (i.e. benefits and value). The business plan will also include an analysis of the size of the Total Addressable Market (TAM), or potential market for the product.
Competitors - most common mistake of inexperienced entrepreneurs, that write their oen business plan, is to claim that they have no competitors. The immediate conclusion of a potential investor is one of two things: either there is no real need for the product or that the founders do not really understand and anlyzed their market. When you work on a business plan, you should assume that there are always competitors, either direct competiive products or alternative solutions to yours, that address the same need more or less. Surely, there will be competitors, if there is a market for your product; If not now, than in the very near future.
Business model - the business model is one of the mopst criutical decisions when creating a business plan. It basically addresses the question: How am I going to make money from my idea or product? Every business plan must show how the venture is going to generate revenues, including sources of income, direct costs, gross profit and pricing of the product or service. The business model also includes the pricing model which can have a great impact on the success of the venture. Some of the possible pricing models are: one time fee, on-going subscription, license based, performance/capacity based and more. The price level can also be based on the market price, value of the product (value based pricing), cost based pricing and other methods.
Sales and marketing plan - this section of the business plan has to detail how the product will be marketed, and how sales are expected to be achieved, what are the distribution/ sales channels, marketing activitiesother means and resources that are required to generate the sales. Marketing and selling of a product will be very different depending on the sales channel: online sales, direct sales (sales people), sales through partners and distributors, white label via a strategic partner etc.
Financial plan - This section takes into account all the previous information, assumptions and business model and translates it all into a financial model and plan that details and forecasts the operational costs and revenue projections for the coming horizen, typically 3-5 years. A good financial plan should be based on assumptions and benchmark references that can be validated. The financial plan also provides founders and investors with several financial criteria that can be used to analyze the size and attractiveness of the investment. These include: the amount of money required, the time to reach profitability (break even point), the time it takes to provide a positive return on the investment, and the Net Present Value (valuation) of the venture. .
The Company and Team - When investors are looking at investment in a company or a venture, thet will want to evaluate the asessts that are owned by the company, including intelectual property, the history and track record of the company, and the management team (leadership) of the company. In the case of very early stage start-ups, the founding team is the most crucial asset. The business plan should present the company background and the team, such that the investor / reader will be convinced of the team's qualifications and its ability to carry out the venture successfully.
Building a business plan - about which sources should be based?
At least half the time invested in writing a business plan should be invested in research and analysis, with special emphasis on the market, customers and competitors. Here are some sources and tools that come in handy in the process:
- Research articles, industry journals, press releases, financial reports published quarterly by public companies, analysts reports and all publically available information (most, if not all is available online)
- Market research companies (such as Gartner, Frost & Sullivan, etc.) offer detailed reports on specific markets. These tend to be expensive but often one can get hold of an abstract of a report or parts that are published / quoted in articles and other publications for free. Otherwise, it is usually possible to purchase a small and specific bit of information from the report for a fraction of the price.
- Conducting Interviews with:
o Potential customers
o Industry experts (key opinion leaders)
o Distributors, Resellers and Integrators in the value chain
- Collecting and analyzing business intelligence about the main competitors in the market
In any case, preparing a business plan is not to be attempted by someone without any experience and expertise in business plans. It is also a very time consuming task which typically takes around 2 months to complete. Therefore it is highly recommended to hire an external professional who has proven previous experience in preparing business plans and can also provide an unbiased assessment of the business.
This article was written by Boaz Gruener, Managing partner at HitechStrategies Ltd., which specializes in preparing business plans for companies and entrepreneurs.
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