Elements of a Business Plan
A thoughtful and detailed business plan is the key to successfully starting of a new business venture. Not only is a business plan required to get financing for your venture, but writing one will force you to consider all aspects of your new business, and adjust the parameters of the operation so as to maximize your chances of success.
This bulls-eye graphic is a based on an idea that marketing great Ted Levitt detailed in an article about differentiation (Based on Ted Levitt’s “Marketing Success Through the Differentiation—of Anything” (Harvard Business Review, January 1980). He argued that you could look at almost any product or service offering at four different levels.
The generic, or bare-bones minimum that the market requires.
The expected, or the minimum plus what the customer is familiar with and has come to expect.
The augmented, which is the expected, plus a little more that the customer is familiar with and for which they would be willing to pay extra.
The potential, usually a combination of product and services that the customer would truly value but has never experienced and would never think to ask for.
In most cases, the most successful offering in the marketplace will be the augmented or potential version. This information can be useful when deciding what products and services to offer, and how to bundle and price them.
When considering the potential market for your product, there are three that you should consider.
First, what is the profile of your ideal customer – what characteristics do they have in common? What size and type of company are they, or do they work for? Is there a specific job title or organizational role that they will have? What is important to them?
Second, describe the competition for your product or service. You will want to consider both direct competitors (those who offer similar products and services…) and indirect competitors (other products and services that address the same need, the customer’s option to just do without, the customer’s internal resources who can do the same job…..).
Finally, you need to determine how your company will win in the marketplace – will you have the lowest cost product, the high quality, fastest delivery, provide customized service….? You will need to develop a clear vision of your company, for your customers and for potential investors.
Your business plan should describe how the company is going to be structured and organized, and how it is going to work.
Biographies - Include brief biographies of the principal, including both their business and scientific experience, and their planned role in the new venture. Make sure to focus on the knowledge and skills each person has that will be most relevant to the developing company.
Legal structure of the organization – You will need to decide if your company is going to be a sole proprietorship, partnership, or corporation. The choice of legal structure will depend on things like potential liability, number of staff/employees, intellectual property issues, and more. Careful research and consideration of the options is important, and consultation with a lawyer or accountant may be required, to determine the best legal structure for your particular business.
Intellectual property – If you have intellectual property to protect, will you use copyrights, trademarks, patents, or trade secrets, or some combination? Each has its own advantages and disadvantages. You will need to discuss what proprietary information you will use and generate, and how you will make sure that information is protected.
Daily Operations – Discuss briefly your plans for managing day-to-day activities of the business. This section would include information on things like whether you will do your own bookkeeping (taxes, payroll, billing, accounts payable and receivable), or contract that out? Who will hire and manage employees? If you are out making sales call son potential customers all day, who will be answering phone calls and overseeing employees at the office/plant? There are a plethora of tasks that are required to start a business, and for the vast majority you have the choice of doing it yourself or paying someone else to do it. Doing it yourself saves money, but uses up some of your limited time, so you will have to balance the trade-offs and determine which tasks will go in which categories. – but of course be willing to adjust later on if circumstances change.
Marketing and sales are two different aspects of getting the message about your company to your potential customers, and convincing them to purchase your product or service.
Marketing involves identifying and anticipating your customer’s requirements. It involves looking at the long-term, big picture, and determining things like pricing, product diversification, promotion and placement.
- Your pricing strategy for a product can be cost plus a certain amount, competitive with other offerings in the marketplace, value (low cost), tiered or volume based, or something more exotic (for example, give away the razor and sell the blades). For a service, you could charge by the hour, by the project, or by activity (per page, for example). Prices and pricing strategies need to be sensitive to the perceived value of the offering, but also enough to cover expenses and make a profit.
- Product diversification requires you to decide if you are going to sell one product or several different versions, how much customization will be available, and so on.
- Promotion is your communication with potential customers, and may include a web site, marketing brochures, social media, trade show booths at conferences, professional networking, and so on.
- Placement is the method(s) you use to make your offering available – direct channels involve you and your employees doing the selling directly to your potential customers. Direct channels have the advantage of fixed costs and close interaction with customers. Indirect channels or third party agents involve variable costs and lower risk, but less interaction with the customer so less feedback on why they are or are not buying your product.
Sales tasks involve finding specific customer opportunities, closing the sale and generating revenue for your new company. You will need to decide who is going to do the selling, how will you identify and qualify leads, what job titles are likely to purchase your offering, how much flexibility your sales people will have to change terms, and so on.
Expenses - The size of your initial investment can vary tremendously, depending on both your resources and the nature of your business. You will need to estimate both one-time and on-going expenses, and both fixed and variable costs. Some costs include computers, office furniture, web site hosting, graphic design, rent, salaries, telephone/internet, licenses, advertising, insurance, and so on. You will want to build a detailed list expected expenses, both initial and on-going.
Revenue – For a new venture, there is no historical data, so projecting revenue can be as much of an art as a science. You will want to create several models, at least one conservative and one aggressive, so you can explore of the range of possibilities. Projections should run about three years out, assuming the business becomes established.
If you are seeking outside financing for your company, you will also need to create a personal financial statement, detailing your own assets, liabilities, income and expenses. If you have already started your business, you’ll want to prepare a similar document on the company and its assets and liabilities (unless the company is a sole proprietorship, in which case you and the company are the same entity legally). Potential backers will use information this to evaluate your ability to handle money.