At Anvil, we’re fortunate to have the opportunity to work with companies of all sizes, including startups. Every so often, we come across a potential client that needs a bit of help with their business plan. I wrote my first business plan for a client in 1996 and have read dozens since. I’d like to share what I’ve learned regarding what constitutes a truly effective business plan. Note that I’m basing my feedback and observations based on an article from Growthink, The 10 Key Components of a Business Plan, which inspired this post. I found it to provide a comprehensive guide for an effective business plan, which I’m using it as a framework. Below are the 10 components that must be addressed in a credible business plan:
- Executive Summary: The synopsis of the business plan must be as short as possible, yet sufficiently outline the opportunity to potential investors, partners and employees. While a patient investor will read an entire business plan, large scale investment firms may only skim the executive summary to determine if further exploration is worthwhile. As such, make sure it captures interest and demands attention.
- Company Analysis: The foundational component of any business plan is a background of the company itself. As such, it could also be named company overview, as it will describe the business’ products, services and structure. A successful analysis section also paints a vivid picture of what the business will look like down the road to inspire investors.
- Industry or Market Analysis: While savvy investors consider a market analysis (size, shape, growth potential) to be essential to a valid business plan, I’ve found that companies with compelling industry analysis are just as likely to miss the mark as those with fast-and-loose data but a strong gut feel for the opportunity. Some of the biggest companies and inventions had no market, at least initially, so they created it. Starbucks invented the $3 cup of coffee (which made little sense to many early investors at the time – although Kenny G saw the vision and did well as a result). Apple took good early stage ideas with virtually non-existent markets and executed so well, they became THE market (iPods for digital music, iPhone smart phones and iPad tablets). As a result, balance your confidence in the market opportunity with sufficient industry research to address the data wonks.
- Analysis of Customers: One of the most important sections of a business plan, based on my experience, is customer analysis. I’ve found far too many startups (besides Apple) have a solution for a problem that doesn’t exist. In other words, they think they know their audience, but invented a product for themselves and then try to find an audience for it. Successful businesses create products that make lives better, and when they do, the product largely markets itself. Understanding your customers (including buyers vs. influencers) can be informed by in-depth research, or trial and error (failing fast). When Honda launched the Element in 2003, it was designed with young active men in mind, but ended up appealing to women and pet owners, so Honda adjusted its marketing (and product) accordingly.
- Analysis of Competition: Depending on who you read or believe, competitors don’t matter, or they can absolutely crush you and thus require a good deal of attention. Zig Ziglar touted the first mover advantage in a presentation I saw many years ago, but my experience told a different story. I watched Rio invent the MP3 player, yet it ultimately failed, in part because Steve Jobs made it cool with the iPod, which become the industry standard (until the iPhone made it obsolete). As a result, analyzing and understanding your competitors and your relative place in the market landscape is essential to creating messaging that is both memorable and actionable. This is one component I would be most likely to outsource to expert researchers like Growthink, as they have resources and experience most founders, executives and even investors lack.
- Marketing, Sales & Product Plan: Experience tells us that just building “it” (a baseball field or widget) isn’t enough to create business success. A more apt metaphor is the tree falling in the forest. Without a succinct and thoughtful sales and marketing plan, your business may never see its first customer (as nobody will hear the tree fall). Since I’ve built my career in the world of marketing (and sales) I could go on about this section ad nauseum. Instead, I advise you to read my other articles on LinkedIn and in Anvil’s Insights section for insights into what successful marketing, especially digital and omnichannel marketing, looks like.
- Operations Strategy, Design and Development Plans: This section must address functional requirements and milestones for the business. I’ve found that building a roadmap and breaking it down into smaller steps with associated objectives, is very effective in terms of driving towards the end goal (whether it be year 1 sales target or a 5 years exit strategy). This is a section that would also benefit from outside expertise, especially if you’re more of the product or marketing personality like myself.
- Management Team: This section is essential and should balance the strengths and weaknesses of the founder(s) with the necessary skillsets to operate and grow a business. That translates most often into a robust executive team with clearly outlined roles and responsibilities and advisory board that have skills and experience that complement the founders and other key executives. As a potential investor, I recommend talking to advisors, board members and other constituents to ensure they are all aligned in terms of goals and agree the core team can get the business off the ground successfully. As a business plan writer, I recommend addressing potential concerns around fit, alignment and experience up front.
- Financial Plan: According to SCORE, 82 percent businesses fail due to cash flow problems (rather than the quality of the product itself). Ensuring adequate financing and cash flow is one of the greatest single determiner of success, both in terms of my experience and historic data. The most common mistake I’ve seen with financial projections is that they are far too aggressive on the sales side and do not adequately predict costs or other contingencies. Conversely, overly conservative projections may not attract investors, so it’s a balancing act to be sure.
- Appendix: I’m a big fan of additional source material, as it sheds light into the depth and breadth of research and planning that went into the business plan. This section is ideal for in-depth primary and secondary research into the product, target market and competitive landscape.
Whether you’re an entrepreneur, marketer, executive or inventor, ensure your business plan addresses the above components and the associated pitfalls. If you feel the business plan in front of you isn’t up to snuff, don’t hesitate to bring in experts.