The Business Plan Imperative
Column by Jack Scott
SCORE believes that every entrepreneur needs to develop a business plan. A business plan is a strategic plan for the business' success. It is difficult to write and forces you to be specific, helps address weaknesses before you launch the business, allows you to assess its feasibility before you invest time and money, gives you a roadmap on how your business will grow and helps you control the business by establishing benchmarks to evaluate your results. Good plans must be written by the entrepreneur and not by a proxy or not come out of a template because he or she must know everything in the plan. It is easier to write a plan when an entrepreneur is not engaged in the stream of tactical minutia involved in operating a business although we see more than a few owners of on-going businesses write a plan to "take them to the next level."
A good business plan describes who you are, what you're going to do, where you're going, how and when you are going to get there and why you'll be successful. It may not take you directly there because starting a business is like beginning an adventure. "An entrepreneur's main job is not to flawlessly execute the business plan so lovingly articulated in his or her business plan. It's to embark on a learning journey that may, on occasion, reach the destination that the initial plan had in mind." (MIT Sloan Management Review, March 2010). Few of you know of Odeo Podcasting Services that we know today as Twitter after multiple tweaks to the plan or Max Levchin Criptographics that became PayPal on its sixth try. But both had a framework to work from. A good business plan should contain:
• A hard-hitting executive summary of not more than two pages that should summarize Objectives, mission, financing needs, ownership, a start-up overview, product and/or service description and one or two sentences from each major section.
• A market analysis that includes a description of the entire market for your products and services, a segmentation of that market, a precise description of the segment(s) you wish to pursue, description of intermediate influence on buyers such as dealers, distributors, sales reps, trade associations, etc., description of intermediate influence on buyers such as dealers, distributors, sales reps, trade associations, etc., competitive conditions -- present and anticipated, pricing conditions -- present and anticipated government influences, history of similar products, services or businesses.
• A market plan that instructs the reader on how you expect to let the market (above) know that you have products or services they want. It includes method(s) of selling and advertising (channel strategy), features to be emphasized, a program for the initial time period, a schedule (who does what, when), a budget a statement of expected results and a contingency plan.
• An operations plan for manufacturing and retail including day-to-day flow, pertinent government rules and regulations, physical layout and comment on the impact of seasonality (if any).
• A personnel plan.
• A financial plan including important financial assumptions, a pro-forma P & L statement, pro-forma balance sheet, a forward looking cash flow statement, breakeven analysis, sensitivity analysis (I preach revenues up 10 percent and down 30 percent from an expected case).
Over the years we survey hundreds of business people that enroll in our business planning seminar about what troubles them most about writing a business plan. The results are consistent; 40 percent are confused by the financials, about 30 percent are worried about converting their amorphous ideas into pragmatic business language; and the other 30 percent about just "getting started."
There are a few skeptics in the Denver area that claim that a budding entrepreneur "need not bother" with a business plan. SCORE disagrees. How do you know where you're going if you don't have a plan? How do you know what success is if you don't define it in advance? How do you get things done on a schedule if you don't have a check-list with dates? And most importantly, how do you raise and manage cash without one? A good business plan is imperative. Fifty percent of new businesses fail in the first five years and 70 percent fail in seven years according to Dunn and Bradstreet. Of those that fail 80 percent do not have a plan. If a client has a SCORE counselor the failure rate is reduced to 10 percent based on a University of Michigan Panel Survey of Entrepreneurial Dynamics for 2005.
In my three years in Denver SCORE leadership I've encountered two "experts" who didn't think a plan was necessary; one was a fledging author who was ready to publish a business book at the time I talked with him and the other, a "business consultant" was trying to hawk business for his one-man firm.
SCORE conducts a comprehensive seminar on developing a business plan monthly at various venues in the Denver metropolitan area. It is a modest fee, high value all day workshop that you can learn about at www.scoredenver.org, Business Seminars. We provide free mentoring for clients who need some coaching after the seminar.