If you’ve never written a business plan before, and you’re not seeking financing, you may be wondering why it’s necessary. Some say writing a business plan is of the utmost importance, others say you don’t even need one; naturally, the answer lies somewhere in between. Today we will talk about the essence of a business plan and the key components that need to be included.
The truth about a business plan is that if you write it today, that plan will become somewhat obsolete tomorrow when you start your business. Some people might look at that statement and think that writing a business plan is pointless. Not true. The reason it’s important to have this realization is because you don’t want to go into the proverbial ivory tower, the place where you fall in love with your idea, and plan out every detail until you think your business plan is absolutely perfect. So why write one?
Writing a business plan is important for multiple reasons:
- It sets out a strategic direction for the company; rather than drifting aimlessly, it outlines a few good places to start
- It helps establish an immediate discipline in the organization. Without a plan in place, it is easy to chase random ideas and lose focus
- It puts everyone on the same page. Communication and alignment are very important within a startup, so the key is to make sure everyone is committed to the same objectives
- It allows you to establish measurable goals and objectives, since as financial milestones, break-even points, etc.
- It forces you to look at some numbers and hard facts
- It’s hard work. Writing a business plan can be tedious and time consuming. If you can write a full business plan and the idea still has merit, that’s how you know it is a good one. This will prevent you from chasing the hype that ideas bring
If all this goodness comes out of a business plan, how does it become somewhat obsolete?
Whenever you write a business plan, everything is hypothetical. Most good ideas are the product of a lot of imagination and vision, so naturally it is difficult to measure and predict certain aspects that don’t even exist. Even things that feel concrete, like an understanding of the market, will change as soon as the idea gets set into motion. Understanding the blind men and the elephant is crucial when trying to gauge how relevant any sort of market research really is. The reality is that now more than ever, things change fast, so you have to stay nimble and agile in order to adapt to changing conditions in the marketplace.
So what should a good business plan look like in the end?
In a word, a business plan should be airtight. No fluff, gaping holes or obvious oversights. The essence of the plan should be captured in a concise, to-the-point executive summary that gets readers excited about the prospects of the business.
What components should be included in the business plan?
- Company – why does the company exist and what products/services does it offer?
- Opportunity Analysis – what is the problem being solved and who is it being solved for?
- Business Model – how does the company plan to create, deliver and capture value to the target market?
- External Environment – what unique characteristics define the market and who are the competition?
- The Team – what magic group of individuals are coming together to make things happen?
- Strategy and Implementation – what is the company’s strategy and how will it be implemented?
- The Financials – how much will it cost to get the idea off the ground and what milestones need to be hit to generate returns for investors?
- Risks Analysis – what are the unique risks and what are the key success factors to counter those risks?
What is the best way to go about writing a business plan?
Before you even begin writing a business plan, make sure that there is a business model for the idea. The best resource to test different business models is the business model canvas.
Once that’s done, the best way to get through a business plan is to be both patient and proactive. The best things take time, and a business plan is no exception; however, ideas need movement to build momentum. It is important not to obsess over details to reach a perceived point of perfection. Ideas themselves are important, but to make a business successful requires execution. Therefore, it’s good to get the idea out there sooner rather than later.
In terms of writing, the business plan should focus on telling the story of the business from a human perspective. The plan shouldn’t be verbose and loaded with adjectives. Instead it should focus on the core aspects of the business and address them as simplistically as possible. A good benchmark for business plan length is 20 pages.
Overall, a business plan acts as a catalyst for good ideas. It proves that there is some merit and substance behind them, and sets out a course for the company. While certain aspects of the plan may become obsolete on day one of operations, it will always be a relevant tool for creating discipline and direction within the company.
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