How To Write A Useful Business Plan

by | Oct 31, 2018

Conventional wisdom says you need a business plan.

We’ve heard it all before:

“Prior planning prevents poor performance.”

“By failing to prepare, you are preparing to fail.”

Now add the fact that financial institutions typically require you to have a solid business plan before they’ll fund your business.

The problem is that you can spend way too much time and effort writing a business plan that will never reflect reality. Worse still, if you blindly stick to the plan when circumstances change it could have a catastrophic effect on your business.

“Unless you’re a fortune-teller, long-term business planning is a fantasy. There are just too many factors that are out of your hands… writing a plan makes you feel in control of things you can’t actually control.”

 

But it’s not all doom and gloom.

A business plan forces you to consider how the moving parts of your business will fit together and the external factors that may impact it. And the act of planning forces you to lift yourself up out of your core area of expertise.

So what are the hallmarks of a useful business plan?

 

Start with a valid business model

 

The business model is the heart of your business plan.

If you’re in the startup stage, then you’re still looking for a scalable and repeatable business model. Writing a business plan before that is a generally a waste of time. And the more innovative your business, the more likely that your ‘guesses’ will be wrong. A better starting point in these cases is to rapidly develop your business model and test the assumptions that underpin it, until you’ve landed something that works.

Following that a business plan makes more sense as you’ll be able to answer the big questions, supported with evidence:

  • What is your unique value proposition?
  • Who are your customers?
  • How are you going to make money?

 

A startup business model

A startup business model contains many hypotheses which need to be validated. Finding out if they’re true is a much better use of your time than writing about them in detail.

 

“Your objective is to find a model with a big enough market you can reach with customers who need your product that you can build a business around.”

 

Know how you’ll acquire customers

 

Even if you’ve found your market and can reach prospective customers, that doesn’t mean you can acquire them. There’s no way that your cash flow estimates will be remotely accurate until you know how you’re going to acquire customers and what it costs.

Expecting to win customers through social media? What if your product’s price point demands a much higher touch sales process?

Think you’ll get customers through organic search traffic? What if it takes twelve months solid effort to get your website ranking on page one for the search terms you want to target?

Is your physical store going to rely on walk-ups due to its great location? What if a direct competitor with a much bigger marketing and fit-out budget is opening right next door?

It’s fine to have a perspective on how you think customers can be acquired, but until that’s been validated, an integral part of your business plan is going to be based on guesswork.

 

Know your numbers

 

If you’ve ever watched Shark Tank you’ll know how easy it is for a business owner to lose credibility – and any hope of funding – when they don’t know their numbers.

Failed Shark Tank Pitch

These words are often spoken by the sharks after questions about revenue, costs and growth get a poor answer!

 

Even if you’re not pitching for finance, you’ll want to have the basics sorted, else you’ll get a nasty surprise when you face a cash flow problem down the track. Examples include:

  • How much do you sell your product for?
  • What’s your profit margin?
  • How much cash do you need to run the business?
  • How much does it cost you to acquire a customer?
  • What market share can you really capture?

 

Whichever key metrics are right for your business, they should remain front of mind, as they provide insight into its health.

 

Understand the competitive environment

 

“We preach competition, internalise its necessity, and enact its commandments; and as a result, we trap ourselves within it – even though the more we compete, the less we gain.”

 

While many of us would love our business to be a monopoly, free from worrying about competitors, it’s simply not the reality for most.

Customers usually face a choice: Buy your product, buy a competitor’s product or do nothing.

While you ultimately want the customer to choose you, without any consideration of the alternatives, achieving this at scale is no easy feat. For example:

  1. Consider how many of us go straight to the Uber app when we need a ride.
  2. Or head directly to Amazon when buying a book.
  3. Now consider your last visit to a grocery store. Was the choice based on price? The product selection? Or plain and simple convenience?

Most businesses aren’t like Uber and Amazon. They aren’t 10x better than the competition, don’t have huge capital investment or access to a growth team.

So if you find yourselves having to compete, it pays to know who you’re up against. Else how can you clearly describe to prospective customers why they should choose you?

 

Keep it simple

 

Some of the most often cited advice from world-class entrepreneurs is to learn to say ‘no’. Focus on what’s important. Avoid distractions.

While your business plan could reflect a multitude of activities, which of them do you really need to do to achieve your goal?

The more you’re trying to do, the harder it is to do well, the more resources you need and the more complexity your business requires to deal with the extra people, processes and systems.

“When things aren’t working, the natural inclination is to throw more at the problem. More people, time and money. All that ends up doing is making the problem bigger. The right way to go is the opposite direction: Cut back.”

 

Keep it current

 

The market changes. Customer needs change. Competitors emerge. And your product should certainly evolve too.

Your plan needs to keep pace with these changes so your business remains relevant.

If you change one piece of the puzzle – such as introducing new products – it will impact other pieces, such as new distribution channels and changing cost structures.

Responding to emerging opportunities and threats is overlooked for much longer than appropriate because unlike your planned actions, these require you to have an eye on what’s happening outside your business.

 

Key takeaways:

  • Writing a business plan won’t make sense for every The less certainty you have about the content, the more it becomes an exercise in guesswork. In those cases, start by proving your business model first.
  • It’s easy to be caught up thinking about the operational aspects of the business, rather than whether the numbers stack up, how you’ll acquire customers and how you’re going to compete. Do the research. Get help, or at least feedback.
  • Business plans shouldn’t sit on the shelf gathering dust nor should they be blindly followed. Failing to respond to emerging events can be damaging, but so too is following a bad plan.

 

Photo by rawpixel on Unsplash.
Quotes from Rework by David Heinemeier Hansson and Jason Fried, Running Lean by Ash Maurya, Zero to One by Peter Thiel.

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