Building a Better Business Plan
I wrote this article in 1999 for Tornado Insider Magazine. I recently had occasion to read it again, and was pleased to see that the advice stood the test of time. Tell me what you think via @lucymarcus
Any business plan is geared to achieve a variety of things, the most important of which is to demonstrate a blueprint for how your company will develop in all of its phases. It is also a document for demonstrating credibility and vision when seeking funding, key employees and strategic partners. However, building a solid business plan that not only snags the attention of key partners, but also acts as the point of reference for a company as it grows, is no easy task.
When looking at business plans, potential investors, employees and partners – and even your early-stage clients – are examining your company to see if it offers an innovative solution. They also want to be convinced the company will succeed in its target market and that the management team offers the breadth and depth of experience to execute on the plan. A good business plan should reflect a company’s flexibility to evolve as new models and information come to light, such as changes in the market, in the competitive landscape and in the opportunities that technological developments can afford to your venture.
The proliferation of new businesses, and the growth of entrepreneurship, has given rise to accelerated competition for capital, employees and customers. Every startup competes with a great many other companies for resources and market share. In addition, companies of all sizes must strive to be entrepreneurial in order to succeed in a marketplace becoming more and more competitive every day. This competition begins with the ability to put forth a compelling business strategy. Enter the business plan.
Sum of the parts
In the end, simply plugging in data is not what makes a good plan. Even if a business plan is well executed, it is often missing a less tangible element – the spirit of the venture and a clear understanding of its goals and objectives. Plans that stand out above the rest are based on a logical progression of concept, supported by the best numbers you can find, solid research, imagination and creativity in approaching your marketplace. Thus, the whole plan should be greater than the sum of its parts.
It is not sufficient to state that your company can capture market and mindshare. It is equally important to prove that your team is the most qualified one to execute on your ideas. More often than not, you might see several plans with a similar business idea – all with potential. In this case, the decisive factor is whether a particular plan approaches the proposed market in a constructive and feasible way, and whether the members of the team are the ones to implement an ambitious and aggressive strategy. This should be the case irrespective of the size of your venture; even if you are a person still operating on your own, you need to have the energy to spark the imagination of others who will contribute to the effort and support your new venture.
Who should prepare your business plan?
Your business plan should be the culmination of careful thought and as much expertise as you can gather. If you’ve never put together a business plan and you are trying to put numbers to ideas, run them by someone who has a clue – don’t just put any old numbers in there. If you haven’t explored the interesting new possibilities, and even some of the old reliable methods for sales models, find someone who will walk through them with you.
If you are at a developmental phase in your company where you don’t have all of this expertise in house, it is important to find people who can help you think this process through, be that an outside consulting firm, a business angel or an experienced entrepreneurial mentor. It is best to find people who have started and run companies before, who understand the reality of what you are trying to create and who have felt the burn of success or failure in being able to achieve these things themselves. On the other hand, this is the plan for your business, and you need to take the ultimate responsibility for it. You shouldn’t feel somewhere down the line that the plan put forward is a stranger to you and that you don’t really buy into what you are trying to sell – that is a sure way not to succeed.
Build a plan for your company, not for the financier
One of the most common mistakes young businesses make is building a plan they believe will ensure that a particular VC will fund them. Going about building a plan in this way is also one of the fastest ways to become frustrated and disenchanted with bringing your business to fruition. In the end, you won’t be able to deliver, and you will find over time that there will be an ever-widening gap between goals and results. There are enough funders out there to get a good and sound plan funded – build a plan that will make a good business and it will get funded.
Build a strong foundation
Clearly, the minute things start moving – and in aggressive companies these days things are moving fast – the work you put into your plan will pay off. All the thinking, the planning, the exploration and challenges you and your team pursued in the planning stages will pay off as you instinctively move towards bringing it to life. The more carefully you have prepared your plan, the stronger a foundation you will be able to build upon to ensure success when executing your plan.
Dare to be different
With the development of technology come new possibilities for sales and distribution. These new methods bring challenges to a budding management team, which must ensure the company is creating a stunning new product or service offering, while at the same time steering a stable and reliable revenue course that will satisfy investors. New distribution methods are perhaps a double-edged sword; they create new opportunities for selling your products, but also put pressure on you to come up with a more complex business plan. Companies today aren’t just competing for the best business idea, but also the most unusual sales method.
Building a dream team
People are key to your business. A strong and competent team can take a mediocre idea and turn it into a winning business, but a weak and ill-suited team can destroy the best of all businesses. Some important things to think through and address in your plan are: Who are the right people to help you develop and execute your plan? Do you have a plan that will attract – and enable you to keep – the right people? How will you go about attracting them?
Essential Elements: Construction of a business plan
Now that you’ve covered the basic overall themes, it’s time to get into the nitty-gritty of writing your business plan. Every person who reads your plan has a checklist in mind. They look for essential information expected in every business plan, so don’t hide basic facts. Your business plan will be the closest thing you have to a road map, and it is the thing that will help those around you – funders, advisors and employees alike – understand where you think your business can and will go and how it is going to get there. One thing people often wonder is how long should my plan be? There’s no “right” length for a business plan; it should be long enough to give the type of detail that is needed to lay out your plans in a clear and concise way, without wandering down unnecessary paths. That said, a plan over 45 pages long is rarely justified.
I. Executive Summary
The executive summary is your three-minute window of opportunity. It is the place where people decide if they read on to the rest of your plan. It is your opportunity to make a compelling argument for what your company does, to position it within its competitive landscape and to demonstrate why your company will rise above others to challenge what exists and become the leader in its field. Be brief. Two to five pages is ample space to get your point across.
II. Business Description
- An overview of your industry – A discussion of your company – Descriptions of your products/services – Your positioning in the marketplace – Plans for expansion and globalization
III. The Market
- Market Size and trends – A clear and forthright outline of your competitive landscape and your position within it – Current state of the market: competitors, marketshare – Growth in market and customers and projected movement of your competitors – Customer base and timeline for growing your customer base – Estimated Sales
IV. Research and Development
- Development status
- Production process
- Cost of development
- Labor requirements
- Expenses and capital requirements
V. Sales, Marketing & Business Development and Partners
- Marketing strategy and execution
- Marketing communications
- Strategic partnerships
- Sales strategy
- Method of sales
- Pricing strategy
- Sales forecast
- Board of directors/board of advisors
- Support services
- Plans for organizational expansion
- Revenue projections
- Cash flow statement
- Balance sheet
- Income statement
- Funding request and return
Any supporting materials that further demonstrate the above
Lucy P. Marcus is the non-executive chair of the Mobius Life Sciences Fund, non-executive director and chair of the board audit committee of BioCity Nottingham, CEO of Marcus Venture Consulting, a columnist for The Huffington Post and CSRwire, and a Fellow at University of Cambridge’s Judge Business School. She can be found on Twitter via @lucymarcus