Hi folks, Dave Waring here from Fitsmallbusiness.com and today's lesson of the day. In our last
lesson we continued our series on how to start a successful business with a look at how to
know if you need a patent or trademark for your business. In today's video we are going
to continue that series with a look at how to write a business plan outline.
Do you need a business plan?
Over the last several years there has been a growing debate about whether or not a business
plan is a waste of time. Those on the no business plan side of the argument, which is being
lead by UC Berkley's Steve Blank argue that the time spent writing a business plan is
better spent out talking to customers about the product or service you plan on developing.
As we talk about in our video on how to test your business idea, we agree that you need
to go out and talk to people about your business to make sure there is demand before you build
it. However, we still think a business plan is also a valuable part of the success equation
when starting a new business.
Let's look at the components of a successful business plan.
If you are writing your business plan for yourself and staff, then we do not recommend
doing anything super extensive. A better approach is to put together a short and to the point
presentation using powerpoint or keynote. This is also the format that many venture
capitalists like to be pitched with, so this format will often work for that as well. If
you are going to need a more extensive plan this is still a good place to start, and we
discuss how you can expand out on it later in this video.
The format we are using is taken from the writing a business plan page of Sequoia Capital,
a well known venture capital firm.
Company purpose
Coming up with a simple explanation of what your company does is essential to selling
your business to your future customers and others. This should be one sentence.
Here is an example from Airbnb a website where people can rent rooms out in their apartment
or homes to travelers on a short term basis.
"We connect people who have space to spare with people who are looking for a place to
stay".
Problem
If you have watched our video on how to come up with a business idea, you know that the
biggest mistake that new entrepreneurs make is starting a business that solves a problem
no one has. In this section list the problem that your company solves along with examples
of how people are currently dealing with the issue.
AirBNB Example: People have space they want to rent to others for short periods of time
but no good way to rent it.
How did people deal with this issue before airbnb? They would either not rent out the
space at all (missing out on that potential revenue) or they would use fragmented sources
like word of mouth or Craigslist.
Keep in mind that it doesn't have to be a major world issue, if your city doesn't have
a good mexican restaurant then that may be a problem as well.
Solution:
As we also outline in our article on how to come up with a business idea, the best businesses
provide good solutions to problems that people have.
airbnb example: They provide an online platform which facilitates the connection between people
with space to rent and people who want to rent it. They make the process smooth by handling
the payments, providing insurance to the rentee, and providing reviews of users to both the
rentee and the renter.
Here you can also provide use cases if you are a service or screenshots if it is a product.
Why Now?
Describe how the company got to where it is today. This is where you could include how
you came up with the business idea, and what you found when you tested your idea.
What recent trends make your idea possible? For Airbnb one such trend was likely people's
increasing comfort with relying on online reviews and making purchases online.
Who is your target customer?
Describe your target customer based on personality type, income level, age, gender etc.
How big is that market? For more on how to calculate the size of a market read the article
8 Steps to determining market size from insight central which I have included in the resources
link under this video.
Competition
Who are your primary competitors and what are your competitive advantages?
List out the primary features of your competitors product or service and how your product or
service is better or different. A table format such as this one generally works well for
this.
Product
What is your product or service and how do you plan on developing it? In the problems
and solutions slides we talk about above, you are listing the benefits of your product
or service to the end user. In this section you are talking about specific features.
Give the timing for each phase of the development process through launch.
Business Model
This section should answer the following questions.
Revenue Model
How do you plan to price your product and what will your profit margins be? For more
on how to price your product or service read the pricing guide from Elizabeth Wasserman
at Inc.com which I have included in the resources link below this video.
Distribution Model
How do you plan to sell your product? Are you going to sell directly to customers, wholesale
or go through distributors?
For an in depth overview of sales and distribution strategies see the guide the guide from Shorey
Consulting which I have included in the resources link. For more on online sales and distribution
models see the guide from Yeoman Technologies which I have also included.
Marketing Model
How do you plan on getting the word out about your product or service?
Jessica from Shoestringmarketing.com offers a great 60 page guide about how to market
your product or service on a budget, which you can download in exchange for your email.
I have included a link where you can get that in the resources link below this video.
Team
Who is on your team, why are they rockstars, and who is responsible for what. If you have
outside advisors include them here.
Financials
This is where you try and predict your monthly revenues and expenses and how those will grow
over time. Focus on the next 12 months.
Founders almost always underestimate how long it is going to take to reach profitability
and how much money they are going to need to fund their business. While its the job
of a company founder to be optimistic, it's important for this part of the plan that you
are realistic.
For a great layment's overview of how to put together your business plan financials see
the 3 video series by the founder of Palo Alto Software and Bplans.com Tim Berry which
I have included in the resources link below this video.
How to Expand Your Business Plan When Needed
After going through the above process you should have somewhere between 15 and 20 slides
giving you a solid overview of your business and how it will be run. If you are planning
to raise money then for some sources (such as friends, family, and certain venture capitalists)
this may be enough.
If you plan on trying to get a loan from a bank then what we outline above is a good
start but you are likely going to need to have a written plan to go along with it. For
this we recommend the business planning software by LivePlan which you can find on in the resources
link below this video.
If you prefer to go the free route then I have included some templates from the folks
over at SCORE.com in the resources link, as well as some other great resources for setting
up your business plan.
That's our Video for today. If you have any comments or questions please leave them in
the comments section below. Also be sure to see the next video in our series on how to
start a business which covers how to raise money for your business.