If you're starting a business, you need a business plan. It's a strategic roadmap that not only helps you but also gives your key stakeholders, investors, lenders, and other business partners an idea of what your business is capable of and where it's headed.
One of the many reasons why businesses fail is due to a lack of proper planning. This could be insufficient market research, weak financial planning, not building a strong foundation for the brand to stand on--all these drawbacks can be attributed to poor planning.
What Is A Business Plan?
A business plan is a roadmap with every crucial detail outlined clearly. It highlights information such as what you are going to sell, your business's structure, how you plan to sell the product/service, how much funding you will need, your financial projections, and more.
Before you put pen to paper, brainstorm essential questions such as:
- Why are you starting the business?
- What makes you/your product different from what's already available in the market?
- What unique solution are you providing?
- Who are you--what does your management team look like? What experience and expertise do they bring to the table?
- Who will be your ideal customer?
- How will you make a profit, and how long will it take you?
These are some basic questions. There'll be other questions that'll be more industry and product-specific. Answering them in a clear, concise, and strategic manner will prove that you know what you're doing and your business idea is strong.
Who Should Write A Business Plan?
In most scenarios, it's the founder(s) who writes the business plan. This could be one person or a group of people. It's important to note that this is not an internal document. A business plan is a promotional document that undergoes constant changes as the business evolves.
Another crucial detail to remember when you create a business plan is to know your target audience. This could be your investors, customers, or other stakeholders. The way you explain certain concepts and ideas and the language you use will depend on who you're engaging with and in what realm.
How To Write A Business Plan: 7 Requirements
A business plan can get lengthy. So, organize your data beforehand to ensure that your outline doesn't become a 50-page long document. Share what's important to your audience. If you're taking a loan, then the bank or loan agency will often give you a structure that you can follow.
Listed below are some key headlines that you should include in your business plan. There is always room for creativity, as long as you address all the key points.
1. Executive summary
This is where you spell out your vision (succinctly). A good executive summary answers the following questions:
- What industry are you in?
- What product(s)/service are you selling?
- Who are you selling to (target audience)?
- Where is the industry headed?
- How will you scale your company in the future?
- What are the immediate next steps?
- Who are the founders of the company? What experience and skills do they bring?
- What's your motivation to start this company? And why now?
Once you answer these questions, look for executive summaries of other businesses in your sector for inspiration. You could pick up a template or a format and add your creativity to it.
2. Your Mission And Vision Statements
Your mission and vision statements are more important to your internal team than your customers. Writing these down determines how your business will react in a specific situation and how it will communicate with its audience.
Your mission and vision statements shouldn't (ideally) be longer than one sentence. It should be an exact sentiment that highlights your goals and how you see them evolving over the years. Defining these statements will help you get a clear idea of who you are and what motivates you to do better.
3. List Your Products And Services
This is the section where you list down all the products/services that you plan to sell. Explain what these products are, what's unique about them, how you will market them, their features, benefits, how they are different from your competitors, and more.
Since this is a business plan, you also should list down the cost of building these products/services. Answer questions such as:
- How much does it cost you to produce the product/service?
- At what cost will you sell it to your customer?
- Where can the customer purchase the product from?
- How will you bill them?
- Are there any additional costs (logistics, transportation, etc.) involved in getting the customer's product/service?
Avoid getting too technical in this section. Give a general idea of what your product/service is and how it can benefit your customer.
4. Outline Your Marketing Plan
Once you've explained what you want to do and what your product is, the next step is to explain how you're going to sell it. This is important as it highlights that you have a real plan regarding how you're going to execute your business idea.
i. Your target audience: Are you B2B or B2C? Who is your ideal customer, and how will you sell your product/service to them? Do they know about you? Why will they care about you?
ii. Your competitors: Who is your competition, and what advantage do they have on you? Do you have a plan on how you'll overcome that?
iii. Your niche: What is that specific area you're going after, and how will you differentiate yourself there?
iv. Your distribution strategy: How will you promote your product/service in the said niche? Will you be selling through your website? Will you have other vendors doing the selling for you?
v. Your advertising strategy: What advertising mediums are you going to use? Will your plan be purely digital, or will you explore TV, radio, print? Do you have the budget? Do you have a strong advertising message? What will be your success metric?
vi. Your sales strategy: How are you bringing in the revenue? Will you have telesales or door-to-door sales? Will you be putting together a sales team or handling it yourself?
vii. Your brand identity: You've described what you'll sell, whom you'll sell it to, and how you'll do it. The next step is to highlight what face you will give your business. This involves your logo design, your website, social media presence, and more.
5. Highlight Your Daily Operations
This section will explain what an ideal day looks like in your company. Feel free to paint a picture of how your typical day will look like from start to finish. Include a photo or video that may help depict your idea more visually.
This is also where you'll list down all the vendors and freelancers you'll be working with. Add all these details to give the reader all the necessary information they might need. Your objective is to show that you're a reliable team and have a well-thought-out plan to execute your business idea.
6. Outline Your Fiscal Plan
This is the part that most loan managers and investors are keen on. Without proper financial planning, even the best business ideas don't make it through. Include the following in this section:
i. Cash-flow analysis: This highlights what you're going to sell and your business expenses. It helps you project your profit margins.
ii. Profit and loss analysis: As a follow-up to the cash-flow analysis, this looks ahead at least a year and highlights revenue projections.
iii. Break-even analysis: This is where you tell them how much you need to break even.
All the information that you can't put in the sections above comes here. This includes the research you did and all your sources. If there are any technical diagrams that you cannot have in the earlier sections, you can include those here.
The addendum is also a fantastic place to add resumes, references, or ads showing you mean what you say. Everything important but can be excluded from the earlier sections can be added here.
That said, you can have the perfect business plan in the world. But if your business idea isn't sound, your business plan crumbles to pieces. Don't let your hard work go to waste by conducting idea validation first to ensure that your idea will take you to the places you aim to go.
11 Ways To Validate Your Business Idea
So, you have a business idea. Firstly, congratulations.
It’s a big decision you have to make at this juncture. Do you want to take this idea to fruition or leave it as a scribble in your diary? If you choose to go with the former, then there’s an exciting journey that awaits you.
Here’s some data to give you a tiny jolt of reality: nearly eight out of ten business ideas fail within the first year. What causes this catastrophe? There isn’t one reason, but the biggest one is that some ideas are not as well-received by customers as expected.
The Uncomfortable Question
It may seem odd to come across this question at this stage of your business journey, but it’s better asked now than later. Do you have an idea?
This brings us to the absolute definition of ‘idea’.
The Oxford Dictionary defines it as a thought or suggestion as to a possible course of action, which is a scant interpretation because, in business, you’re not just suggesting something. You’re willing to put your time, resources, and energy into making it happen.
The key to every idea is that it should be able to solve some problem in its own unique way. This is what can turn into a differentiator for you and blossom your idea into a business opportunity.
What Is Idea Validation?
Idea validation is the process of testing and estimating the viability of your idea. This critical exercise will help you validate your idea, give you a perspective on what you seek to achieve through the idea, chalk it down, and work systematically towards achieving it.
Some simple tests and techniques will give you an estimate of how far your idea can sail towards achieving the success you have envisioned for it.
Why Do You Need To Validate Your Business Idea?
Validating the viability, risks, and success parameters of your business idea will let you know if it is worth pursuing. This exercise exposes your idea in its basic form to a very small test group to give you an idea of what to expect before you dive into developing it with all guns blazing.
Validating business ideas can save you from catastrophe:
As a result, you save and optimize the time, resources, and effort you put into the project. You fix your sights on what is necessary and use this perspective as your pivot in the development stage of your idea.
So, How Do You Validate Your Business Idea?
Every textbook for start-ups has a sizable segment dedicated to validating your business idea, complete with models, flowcharts, and mind maps. We do not. What we do have are simple techniques that will form the essential ingredients in your idea validation exercise.
1. Understand The Problem
Two kinds of business ideas can be a success. One that quenches a demand that isn’t being met sufficiently. And the other that creates a need to have it because of its irresistible characteristics.
If your business idea isn’t doing either of these, then you may well be creating something only for yourself. Everything about your idea depends on what objective it is meeting in the long run.
2. Determine What Makes You Different
Product differentiation is something that has plagued new businesses forever. You may come up with something that does the same thing that your competitor does. What makes this more challenging is the fact that your competitor has been around longer, has advertised more, and is more recognizable.
Define your unique selling proposition to stay different:
If your business idea isn’t the first of its kind, then it at least needs to have a striking differentiator that the competition completely lacks. To illustrate this, we can take the example of Apple’s MacBook. Why does it stand out from the crowd of innumerable laptops?
3. Find Your Demographic
Just knowing the gender, age, and geography of your customer is not enough. You need to know what they do on weekends, why they tend to take up the vocation they do, what shows they watch, what’s their favorite snack, and more.
Customer psychographics are as essential as demographics. This can give you inroads towards making your business idea more palatable for them.
4. Observe The Demand
Now that you have identified your customer and their world, you need to know if there is a sizeable number of these customers available. Once you have established this, it is important to measure how badly they need the solution you are offering.
As mentioned earlier, even if they do not have a need, you can create one. All it takes is a great marketing strategy. It’s why Coca-Cola sells you happiness in a bottle because no one needs a dark, fizzy drink until it symbolizes something.
5. Assumptions Versus Absolutes
As you begin small, you may not have innumerable research resources to tell you exactly what the market needs are. So, you may set out to create assumptions. Some examples of business assumptions you can make are:
- My raw materials could be deemed unsustainable
- I could face a challenge in recruiting
- I may have difficulty delivering to a location that is over 100 miles away
These assumptions and the contingencies you create will help you prepare for the real world well in advance.
On the other hand, you have absolutes. Stated facts that are irrefutable. For instance, Tesla faces the fact that its electric cars will only reach developing nations after developed nations. All their plans and strategies are modeled around this absolute fact.
6. Test The Idea And Product
Gather a bunch of volunteers and test your product and idea out. You could even have them sample your product and give you their point of view. Expose them to your competitor’s offering and then your offering and make them choose by covering the labels so that they cannot tell which is which.
Focus groups give you a good early estimate of the response a customer would have to your product. Ask the group for suggestions on what could make your product better.
7. Conduct Surveys
If a focus group is too much hassle, then you could create an online survey. Here you can objectively position your unique selling points before prospective buyers. Reward them for participating in your survey and accumulating this data.
8. Secure A Proof Of Concept And Prototyping
You needn’t take the finished product to your focus group. You could simply create a working prototype. This can be physical or even conceptual. If your product is elaborate, then create photographs or screenshots of how it works. Create a little skit or an animated demonstration video and show it to your customers.
If you have a tangible product like soap, candles, edibles, or fabric, you can create a smaller sample for testing. The importance of proof of concept is that it will demonstrate that your idea is very real. This trumps any kind of hypothesis because now consumers are less likely to imagine the wrong thing.
9. Test With An MVP
A better form of a prototype is an MVP (Minimum Viable Product). It is not your finished product but has all the features necessary to give the customer a complete picture of what you will offer.
When you set off to design your MVP, ensure that it consists of all the key features of your product, especially the unique selling point.
10. Create A Validation Chart
Report and mark your success along the way. Watch your idea grow from being just a thought to becoming a mission of one, and then a larger team.
Keep updating the chart so that when you’re a few miles ahead and are questioned about the basics, you can always take a few paces back and see why you made these decisions.
It all comes down to the dedication you put into your business idea validation process. Many brands that set off without validating their ideas find themselves marooned on an imaginary island when their basics are questioned by customers.
11. Get An Outsider’s Perspective
At every stage along the way, get an outside perspective on your business idea. This could be family, friends, associates, or even hired consultants. This is important because, since your business is your baby, you have an unconscious bias towards it.
And while everyone loves giving you validation for your effort, trust the data and insights you have gathered along the way. We wish you good luck!
Over To You
When building a business, your first focus should be to get the foundation right. Next comes documenting everything and putting it into a presentation. Creating a business plan helps you be productive, gives you direction, and helps you stay focused. So, if you have a business idea, create a business plan for it today.