Uncategorized

Entrepreneurs, Write Killer Business Plans Without Sweating Bullets

Many brilliant business ideas never survive their first encounter with a business plan.

Writing one can feel excruciating.

Your business can evolve quickly. Banks, investors, incubators all have competing templates and requirements for what they want to see in your plan.  To top it off, trying to find information online can make your head swim. You end up with business-plan-itis.  Better known as analysis paralysis.

Get rid of this problem for good. 

  • Test if your idea is plan-ready
  • Decide if it’s worth writing a plan
  • Nail the 3 critical pieces to a killer plan.

Headaches optional.

 

When Not To Write a Business Plan

But first, is it worth your time and effort to write a plan where your idea is at now?

As management guru Peter Drucker said:

“There is nothing worse than doing the wrong thing well.”

Based on years in business and consulting, combined with the best wisdom of business school professors, entrepreneurs and startup advisors, here’s what I learned:

  • Early on, writing a plan can be counterproductive.  If you don’t have a clear grasp of exactly how your business makes money and what makes you unique, spend time on refining those instead (More on that in a minute).
  • If and when you need outside money, the business plan should sell your audience on why you and your business are smart bets to make
  • Once you’ve got the money, a plan isn’t much use in navigating the real world. The market may no longer be what it was when you wrote the plan, or your idea may have evolved based on real-world data, forcing you to work in a different environment altogether.

Is It Too Soon for a Business Plan?

Here are seven questions to tell if your idea has the potential to be a real business. How well can you answer them?

  1. What category is your product in? Is it a widget, a service, a technology platform, or a media product?
  2. What “event” brings in cash? It may be easy to tell, as in a restaurant. Or tricky, as when you’re an influencer making money from ads, sponsorships and events.
  3. How will customers beat a path to your door? Click on social media ads? Or respond to your client email? Be referred by other professionals or businesses? 
  4. How will you deliver your product? Is it online? Dropped at someone’s door? In person, as with a consultant? 24/7 as with an Amazon fulfilled product?
  5. How is your product “made”? By a contract manufacturer? By yourself with your hands?  Is it “produced” real-time as in 1:1 coaching?  Does it need a specialized facility, like a commercial kitchen?
  6. What resources you need to run this “shop” for a year? What minimum resources would  you have to buy or rent? Are contracts required?
  7. What’s the dollar figure attached to each key element of your business? How much will come in or go out with each activity above? Have you tested it in the real world with a few transactions? Or have you looked at actual costs, like rent or marketing, for example?

When you have real-world answers to all these questions, writing a business plan might be a smart idea if:

  • You need money from outsiders to launch or grow or
  • Your business faces a lot of uncertainties.  If your product is completely new to the world, if there are big “ifs” that will make or break your success, research suggests that it pays to put in the work to build a plan.

Three Secrets of Killer Business Plans 

There’s no such thing as THE business plan. 

There’s only A business plan that’s right for some specific time, purpose and audience. A business plan is really a sales tool dressed up in spreadsheets and bullet points. Its biggest job is to help you persuade someone to do something for your business, which is usually to give you money.

Even if you’re clear about your idea, writing a plan is hard.

Your thinking, the market and the direction itself change quickly. You talk to one big customer, or run one batch on the line, and something changes, maybe significantly. You’ll go through this constantly, so it’s no surprise that a ripe banana may retain its freshness longer than your business plan. 

Mike Tyson famously said, “Everybody has a plan until they get punched in the mouth”.

Even if you get punched in the face, you’ve got to get back on your feet quickly. You can do that more easily when you understand the three components of a great business plan:

  • Purpose
  • Elements
  • Process

When you nail these, writing the plan will no longer feel like medieval water torture.

Without Purpose There’s No Plan

There’s no sale without a buyer.

When you’re selling shoes, you pitch comfort to the office goer, and the latest trends to the fashionista buyer. The same goes for your business plan. 

Who are you selling your idea to? And what do they most need to be convinced of?

Every piece of your plan must answer a burning question in this specific “buyer’s” mind.  And every burning question must be answered in the business plan.

Investors Want a Loaded Bet to Make Money

Investors know they’re betting on an unproven concept. They also know that there’s lucrative upside. So hard-selling the pot of gold is usually a mistake.

They’ve seen thousands of pitches. Like a chess grandmaster, they can recognize complex patterns at a glance. They can instantly tell if your idea is for  e-commerce or manufacturing, scalable or a non-scalable, and capital-light or capital-intensive.

But while they know the category , they don’t know the specifics that will make or break the bet for them. To win them over, your plan should provide compelling answers to the silent, make-or-break questions in their minds:

  • What’s the market and opportunity? Why this, why now? 
  • What can go wrong? How will you fix that? 
  • What are the weak links in the chain? What happens if they break?
  • Why you? 
  • What makes this idea likely to make money? Where is the source of advantage?
  • What’s the secret sauce that will make your business stand out against every other business of its ilk?

Investors are betting on things going well, but they want to maximize the chances that things will go well, that there are no big red flags.

Lenders Want To Limit The Worst Case

Lenders are a completely different breed to investors. They care about one thing and only one thing – getting their money back with the least risk possible.

Your banker is not in the business of running businesses. They don’t know the ins and outs of your business. So they fall back on tried and tested measures of making sure their loan doesn’t go bad –  evaluating your financial forecasts.

Paleontologists identify long-dead animals based on their droppings. Lenders use financial metrics to gauge future health prospects of your business. Absent an actual business, forecasts help them assesses if your business will make money to pay back their loan or not. Metrics also help them compare loans to very different types of businesses on an equal footing. These matter when their performance evaluation rolls around.

A business plan for a loan needs to answer two broad questions:

  • How likely is your business to generate cash reliably from its regular business?
  • If things go bad, what fallback does your banker have to recover their money?

The way to satisfy fastidious bankers is to provide a detailed view of how you’ll make money, how much money you’ll make, and how much you’ll need to spend to generate those revenues. Hence the painful Excel spreadsheets. 

Lenders want things to go well with your idea (for their future business), but they want most to minimize the risk of losing money now.

A Well-Made Plan Starts With Great Ingredients

Now that you know who’s the audience, what do you put into a business plan? 

Business plans are like chili – everybody has a family recipe and a different list of “must-have” ingredients. But regardless of what recipe you use, it ain’t chili if it doesn’t have beans and tomatoes.

First, Answer Four Basic Questions

Your business plan also doesn’t count as one unless it details the answers to four basic questions:

  1. What brings in money? The “revenue model” shows what basic event brings cash into the business on an ongoing basis – what’s the “sale”?
  2. How will the customer be serviced? The “operating model” shows what activities, machines, software needs to be in place to make a sale transaction happen.
  3. What skills are needed? What talents, resources and capabilities? How will they be brought in?
  4. What makes your business different? Why should a customer buy from you relative to all other options they have to meet the same need?

Money Drives the “Taste” of Your Business

To “cook” the ingredients of a plan into a tasty whole, translate your answers to the four big questions and your idea into concrete numbers:

  • How will all of these activities show up in the bank?
  • What will come in?
  • How much needs to go out?
  • What is the timing of all of this?
  • Will there be a gap between when you have to spend and when money comes in? How big and deep is that hole?

Make Murphy Your Best Friend

There’s no great-tasting chili without salt. There’s no business plan worth its salt without risks and dependencies.

Being silent about risks in your business plan is about as effective as hiding an elephant with a tablecloth – they all know it’s there, they just don’t know what it looks like.

Smart entrepreneurs are explicit in their business plans about what could derail their business. More detail and greater realism demonstrate greater mastery and better chances that you’ll know how to handle it when the stuff hits the fan.

The average entrepreneur pays lip service by laying out generic risks in vague terms.

Be smart. Pre-empt probing questions by thinking through your Murphy’s Law scenarios.

  • What happens to your business when anything that can go wrong actually does?
  • What’s your Plan B, and Plan C?

Make the Plan to Fit The Pot

How do you put this all together?

Most great chili recipes almost cook themselves. All you need is a big enough, heavy enough pot. 

With business plans, the “pot” is the template you’ll use.

Don’t reinvent the wheel. Use what your audience is already giving you – venture capital firms, banks and other lenders have standard templates for the information they need.

If there isn’t one, here are two fallback options:

Build a Simple Spreadsheet

Yep, Excel is a workhorse. 

  • Create a simple spreadsheet listing every element you need to nail down.
  • List must-have items for each element you’ve identified 
  • Add separate columns for your evolving answer, proof or support for this answer
  • Translate each element into dollars.

Work through each element. Rinse and repeat until you have a solid plan.

Get it Off-the-Shelf

The startup world is awash with multiple frameworks that Valley founders use, and that are taught at premier entrepreneurship programs. Two of the best are The Business Model Canvas, and the more streamlined version, The Lean Canvas.

These options are the Lego route to building your business plan block by block. They’re flexible, easy to manage, and very visual.

An Even Shorter Shortcut 

Make your process faster and better.

Use this sure-fire template to ensure you’ve got all your bases covered.  

Add in enough detail to make you feel confident you’ve nailed it.

  • My audience for this plan is ________.
  • They’re in it because they want ________.
  • They’ll be convinced if they see that ___________.
  • The one thing they’re worried about most is ______.
  • To get them over the hump they need to see ____.

Real World Entrepreneurs Exercise Judgment

What does all of this look like in the real world?

Here’s Brian Abrams, professor of entrepreneurship at Loyola University, Chicago, and a successful technology entrepreneur himself:

“Truth – I never wrote a business plan for any business I have started.  But I do believe writing one is important to attract investors, create an instructional guide as to how you believe a business can succeed, and help you define different costs.  It also can open your eyes to positions you will need to hire and their cadence.”

What does the right path look like for you?