Posted on Feb 19, 2018 by Administrator
Image credit: Ian Schneider (Unsplash)
Business plan. This is one thing that many startups and small and medium-sized businesses tends to struggle with. Established businesses are not excluded. But this ought not to be. Like many things in life, there is always a principle that underguards success.
So in this article, I’ll walk you through the steps for writing an effective business plan that achieves its objective. Another way of saying you need to be clear on what you want the business plan to do for you. Attract investors, a guide for business operation, as part of application for a loan, a tool for directing business growth or expansion etc.
But first things first.
What is a business plan?
It is a written document that outlines what your business is, where it is going, and how it is going to get there. Better yet, it is a roadmap of your business that describes where it is now, where it wants to be in future and how it would get there.
Types of Business Plans
There are three main types of business plans:
1. Miniplan or Lean plan:
This can be as short and brief as one page or as long as 10 pages. No details per se. It’s like writing out your thoughts about the business, what you want the business to do and how you want to do it. It’s a guide sort of to help you take necessary steps towards achieving your objective. Mainly useful at the startup stage.
2. Comprehensive plan:
You develop the comprehensive plan from the miniplan. Like I noted the miniplan just gives you a leg in the door. So you can start the business.
Now having started, you have more knowledgeable about the business. Then it’s time to flesh out the miniplan. Its aim is to guide processes and operations.
3. Presentation plan:
This plan is what you show to investors, bankers, venture capitalists, development partners etc. Unlike the mini or comprehensive plan, it is well written, designed, formatted such that it gives the sense you are really serious growing or expanding the business.
It tends to be more structured; has sections such as Executive summary, Opportunity, Product and Services, Market, Competition, Financials etc.
For the sake of this article, I will focus on how to write a presentation plan. That is, I’ll assume you want to pitch to a bank, an investor or venture capitalist.
Why? What is worth doing at all is worth doing well. Once you get a handle on writing this, you would be able to write any business plan in future.
In any case, a business plan comprises six critical components.
Six Crucial Components of a Business Plan
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1. Executive summary:
This is an overview of your plan and gives a helicopter view of the content of the business plan. Oftentimes, this is all your financial backers need to see to make up their minds whether or not your business idea is worth their cash or not.
Usually, the summary contains key paragraphs from other sections such as product and services, market, competition. So reading through the summary gives a clear idea of the meat of the plan.
The idea is to write this part last after you have penned down other sections. But be guided don’t overload the summary, it shouldn’t be more than one or two pages long.
Key Elements of an Executive Summary:
Reduce your business concept to one sentence that captures the essence of the business. This is the value proposition of your business. Or better yet it is the compelling reason why customers should choose your product or service and not the competition.
This is very important as it helps to clarify the proposed value in the business plan. Strategically position the sentence on top of the page under the business name.
Define the problem you are solving for the target audience. This is very important as it is an indicator of whether the audience would be motivated enough to want to open their wallet and buy your product.
This is how you intend to solve the problem and delight the target audience.
Who would buy the product? What do they do? Who influences their buying decisions? How and where do they buy? What is the level of their income? Where do they live?
You are obviously not the only business in your market space. Note that there are direct and indirect competition. Direct competition are offering similar product as yours. Indirect competitors can offer close substitutes.
This may include a synopsis of key officers of the company - members of the board and the management team.
This is a summary of your financial projections and perhaps should include your business model. You can use charts - pie chart, bar charts etc to drive home your point.
You must include how much you will require to either grow or expand the business. You need to include this in the executive summary. As stated earlier, most financial backers won’t read beyond the summary. So you had better put your best foot forward very early in the plan.
Traction, milestone, and metric:
Traction is the documentation of some success indicators you have had in the past. Especially if you are an existing business. This can convince investors that you have what it takes to succeed in this new business.
While traction looks behind milestone looks ahead. And helps you track progress as well as determine whether the plan is running on the right engine. For instance, let’s say you set a milestone of 1000 visit to your website in the first month of launch. If you hit the figure. That might indicate you are right on track. Otherwise, you may have to look at the plan yet again.
This is the lifeblood of the business plan. This is where you define the problem and how you want to solve them for the target audience. In this section, you should clearly demonstrate your understanding of the target audience- their needs, wants, buying behaviour, preferences, purchasing power etc.
This depth of awareness tends to position you to solve the problem better than competitors. This knowledge is gleaned from the audience research.
Problem and solution:
Your plan must identify the key pain points of the target audience. That is, what keeps them awake at night, and hinders their happiness. Anything that stops them from living the kind of life they want is a pain point.
For instance, before Glo Mobile Communications launched, the impression the incumbent telecommunication networks gave the public was that per second billing was practically impossible. While consumers groaned under the weight of per minute billing.
Glo came, changed the narrative. Needless, today, all the network offer per second billing service.
Perhaps, You are a ‘’Glo’’ in your market. For instance, you may have created a solution your target audience have longed craved for which competitors said can’t be done.
Here is where you give a graphic description of how you will solve their problem. State exactly how you want to help the target audience. What you want to do and how you want to do it.
You may use the lean startup strategy (especially if you are offering a technology solution) which suggests that you create a MVP - minimum viable product and test with actual customers. And then use the feedback to improve the product.
Whichever method you use, make sure you clearly define the problem. And describe the solution.
Because you have limited resources, your best bet is to target limited customers you can best serve. The corollary is that you can’t be all things to every customer. It doesn’t work that way. I have seen entrepreneurs make this mistake. They assume their product is made for everyone. And then you can’t differentiate your product from those of your competitors.
Your best best is to break the market into segments. That is, identify customers with similar needs and group them together. Next up, determine the market size to know whether it is a viable segment or not.
You may estimate for example:
Total Addressable or Available Segment (TAM) = everyone you wish to reach with your product
Segmented Addressable Market or Served Available Market (SAM) = the portion or percentage of TAM you will target
Share of Market - the portion of your SAM that you can realistically serve
Having estimated the above, especially SAM, you should go ahead to define the customer profile or buyer persona. This is the fictional description of the ideal customer with a name, gender, income, motivation, like and dislikes etc.
Defining a customer profile or buyer persona is extremely useful and will help create appropriate marketing, sales activities for your ideal customer.
If you are a B2C that is business-to-customer business, you need not include this section. But if you are a b2b, that is business-to-business company, you need to identify critical customers that your business depends on.
Let’s say you are in the travel agency space. And have three major clients that rack up to 70% of your revenue. Or if you are an IT startup, and your research reveals that less than 10 clients represent up to 75% of the value this segment. You need to state why and how these customers are critical for you to succeed in this segment.
Of course, no matter your market or line of business, you would always have competitors. To analyse the competition, you can create a competition matrix, where you list the competitors on the left side of the grid while you create a column for each feature or attribute. You then check marks to indicate whether the competitor has the feature or not.
Image 1. A competition matrix
The crux of this section is to show to your reader (or investor) how your offering - product and service differs from those of the competition. The truth is investors would like to know what advantages your product or service has over the competition.
But you need to be guided. There are direct and indirect competitors. Direct competitors are those who offer similar products to yours. Indirect competitors are those who on the surface don’t look like competitors. Yet if you dig deeper, they are. And if you are not diligent enough, will eat your lunch.
For instance, bottled water is an indirect competitor to Coke or Pepsi. That’s why Coca Cola has its own brand of bottled water, Eva. Aquafina is owned by Pepsi.
Bottomline, you need to be very finicky about the way you define the competition. Defining the competition too narrowly might leave money on the market.
Future products and services:
Your plan should be futuristic. And that comes from the way you define your market. Which is also a function of your mission statement. Arkoff defines the mission of an organization as the business it wants to be not necessarily which it is in.
That is, you define the market in terms of the needs and wants of the customer groups not the product or service you offer. For instance, Nokia left so much money on the table when it decided to linger in the phone market when consumers had moved onto the next big thing - smartphone. It learned the hard way.
So ensure that your business foresees or foretells the future in a way. Another example is the automotive industry. Many of the big players are now investing in electric cars, the obvious future of the industry.
However, you don’t need to be to detailed here.
Having clearly described the market opportunity, you now need to demonstrate you have all it takes to get things done. That is how you will make the plan work. Of course, you know the devil resides in the detail. it is time to dot your ‘is and cross your ‘ts’. From marketing and sales, operations, success metrics etc.
Marketing and sales:
This is a detailed plan of how you want to reach and sell to your target customers, which involves your pricing strategy, marketing partnerships such as co-branding that can enhance your success.
But before you do a detailed marketing/sales strategy, you need to define your target market and create a customer profile or buyer persona. (How to create a customer profile)
That’s your ideal customer. To be sure, without having a working knowledge of your target audience, the business plan can only bark but not bite.
This is how you want to present your products and services in the market. This is very important as it will influence product image, pricing, sales strategy and promotion.
To define a market position, you need to ask the following questions:
1. What makes your product different from competitors?
2. What benefits or features do you offer that is not on the market?
3. How do you want to differentiate your offerings from the competition?
4. How is the competition positioned?
5. Pitched against other solutions, where does your product stand?
Use this formula to define your positioning statement:
For [target market description] who [target market need], this product [how it meets the need]. Unlike [key competition], its [most important distinguishing feature].
For example, the positioning statement of African Hub could be something like:
For Startups and SMEs who want up-to-date information that will make them more successful, African Hub’s website provides educational content that puts entrepreneurs ahead in their markets. Unlike other hubs, we grow entrepreneurs in virtually all sectors of Nigeria’s economy.
How you are positioned will impact on your pricing strategy. For example, if your product or service is positioned as top-of-the-range then it should command a premium price. And if it is positioned as pocket-friendly, it may target the low-end of the market.
Three ground rules to follow when pricing:
1. Ensure you cover your cost: This is just common sense. It makes no sense to sell your product below the cost price.
2. Primary and secondary pricing: This is a scenario where you sell the product below the cost price. Knowing that the initial price may not represent your primary profit centre. But plan to make your profit from after sales services.
For instance, printer manufacturers like HP, Canon, Lexmark sell the products at relatively cheap prices. But then the cost of maintenance and servicing -refill, ink, toner is where the companies make their profits.
3. Match market rate: This is a no-brainer. If you are over-priced above market rate, you shoot yourself in the leg. And if you underprice, you'll lose.
1. Cost-plus pricing: Add up all your costs and then mark up.
2. Market-based pricing: Look at the competitive landscape and price accordingly. You can position your product at the high-end or low-cost.
3. Value-pricing: This is based on the estimated value consumers would get from the product. Here, you may do what is called value analysis where you determine whether the product is right for the price at which it is sold.
This is how you want to communicate your offering to your target audience. You may decide to use packaging, advertising, public relations, direct marketing, and social media.
This involves making an impression on the target audience. And hence enhances the image of the product or service. So you need to ask yourself”:
Does your packaging reflect your positioning strategy?
Does your packaging differentiate you from the competition?
Does your packaging communicate your value proposition?
This can be expensive. But if you have the budget, why not? It is a non-personal presentation of product, services, idea via the mass media - TV, radio and print (newspapers, magazine, trade publications etc). But it is a very strong medium for creating awareness and building the image of your brand.
However, online advertising is far cheaper than traditional advertising. And in some cases, more effective.
This is the presentation of a product, service.or idea to a captive audience. It is a smart way of getting media coverage for your products and services. For instance, your product launch or corporate social responsibility behaviours will likely get the attention of the media.
And in many cases, it may be more impactful than advertising since it is ideally, not paid for and based on a third party endorsement.
This is the creation of educative materials - articles, white papers, videos, case studies, etc for an identified target audience be it online or offline. For instance, phone companies insert manuals in the product pack to walk consumers through the usage and application of the phones.
Pharmaceutical companies provide instruction about dosage, side effects and the composition of the drugs. Online, companies create educative materials that help solve the problems of their target audience. It’s called inbound marketing which is a counterintuitive type of marketing.
It works on the principle of a pull marketing strategy where customers ‘’find’’your products and services on the internet. As against you investing in push marketing strategy such as advertising or direct marketing.
Content marketers think of creating value first and then sell.
Facebook has over 2 billion people on its network, it is the largest social media platform in the world. And it’s not showing any signs of slowing. Social media tends to feed on the desire of people to connect.
And has now become one of the most powerful mediums for promoting products and services.
Other social media platforms include Twitter, Instagram, Google+, LinkedIn. The bottomline is, find one that suits your product. That helps reach your customers where they are.
You may need to strike partnership with kindred companies. May be the company has a better marketing infrastructure. Better yet,the company has a better production facility. Whichever, indicate in the plan.
This is how you turn your strategy into day-to-day activities of the business. This includes technology, logistics, distribution, etc.
Sourcing and procurement:
You need to indicate where you intend to get raw materials or get supplies from. For instance, if you are in agribusiness, you can’t possibly have all the raw materials in one place. Or if you are in the fashion industry, you probably get your fabrics from states such as Oyo (Iseyin), Ogun (Abeokuta).
Even if your company is not a technology company per se. Like it or not, you are a technology company. The world has gone digital. For instance, how do you want customers to make payment. Cash, POS machine or online transfer?
This describes how you get your products into the hands of your consumers. Depending on your strategy and organizational capacity, you can do direct distribution or go through large distribution companies..
This is by far the cheapest means of distribution. Firms up cost. But depends on whether you have the right infrastructure. That means you sell directly to your customers while increasing your profit margin.
Some companies abhor the rigour of direct distribution. So they employ the service of a large distribution company like MDS Logistics, Lagos who will in turn supply retailers before reaching the end users.
The major disadvantage is the cost this process accrues. While it reduces the profit margin of the company - you have to pay commission to the distribution company. And more importantly, this cost is passed on to the consumer.
Metrics, milestones and traction:
Milestones are planned major goals. You need to convince your backers that you are serious about turning your plans into success. So let’s say you are an ecommerce company. You may set your milestone as having 100,000 visitors to your site in three months.
While milestone is forward-looking, traction looks at previous accomplishments. For instance, voters are likely be confident in the candidacy of a former accomplished senator now running for presidency than a rookie with no pedigree.