issues involved and have adequately answered the major questions in your head. Then summarize and explain your findings as succinctly as you can for yourself in the document. That formal action of writing it all down cements the concepts and knowledge in your brain. It is not a step that can be skipped. In general, worthwhile business plans tend to be lengthy documents because you uncover so much useful information. Some so-called experts suggest succinct documents. It doesn’t matter. What will sell the plan is the executive summary, and the quality of that cannot be forged with clever writing or MBA-speak.
As for how to begin, one of the best pieces of writing advice I have ever received was that — rather than start at the beginning, write through a middle, and go to the end — it’s easier to start writing about whatever you find fun or interesting, and then expand outward from there. Start with a story or an anecdote to get the creative juices flowing and then expand around that core story, filling in the blanks in whatever order that comes to you.
That is how I write business plans (and how I began writing this book): I jump into the middle and start with whatever interests me the most. Since marketing interests me, I usually start there. That leads to thoughts about packaging and manufacturing, and off I go on another voyage of discovery. You can do the same. Start wherever you feel most comfortable, or with whatever inspires you the most, and keep going until you’ve covered every topic.
Researching Industries, Companies, and Markets
Below, I describe the nine sections or topics that typically appear in most business plans. In addition, plenty of example business plans can be found online to help you get started. However, rather than follow some generic template (even the one in this book), I recommend first researching your industry and market and then organizing the business plan so that it reflects what industry stakeholders care about the most.
How do you do that? Read the annual reports of public companies. Most public companies must disclose corporate information to their shareholders, and they usually do so in a state-of-the-company report. These usually include an opening letter from the CEO, financial data, results of operations, market segment information, new product plans, subsidiary activities, and research-and-development activities on future programs. Reporting companies must send annual reports to their shareholders when they hold annual meetings to elect directors. Under the proxy rules, reporting companies are required to post their proxy materials, including their annual reports, on their company websites.
On company websites, these reports are usually under the shareholder, investor, or financial tabs. Annual reports are really very detailed business plans, and they can be an excellent guide as to the type of content that people care about. It doesn’t matter that the company is a multimillion-dollar enterprise. The only difference between you and them is the size of the numbers. Additionally, the data on markets can be relevant to your business, and you get it all for free.
Plus, you may come across additional threats and opportunities. For instance, three years into my first company, I was seeking new acquisitions in the form of abandoned product lines. The only way to find them was by combing through public company annual reports to find ones that stated unequivocally that they had abandoned products for strategic reasons. Although it was a somewhat mind-numbing activity, I read through dozens of reports, and eventually I came across one that warned its shareholders of serious cash-flow issues. Deep into the annual report, it mentioned cost-cutting exercises, such as dismantling its sales team and no longer marketing three of its lower-revenue products. So I seized the opportunity and approached them with an offer to purchase the product rights. I had to raise an additional $28 million, which happened quickly. Ultimately, the deal provided the struggling company with enough cash to survive, and I went on to triple the value of the purchased products.
Another good source of information for overall market statistics, competition, product sales, demographics, and coming innovations are the market research reports that are produced for just about every industry. They can cost hundreds and even thousands of dollars, mainly because lazy middle managers buy them in bulk and plagiarize the contents to impress their sales and marketing bosses with their market-analysis presentations. I know because that is what I used to do.
Fortunately, most senior management don’t know that they exist. It is possible, however, with a little online search creativity, to find whole market sections available for free as well as some of those impressive management presentations that summarize the markets, demographics, and current and anticipated competition.
Section by Section: The Nine Parts of a Business Plan
Most business plans contain nine or so sections that reflect all the major topics or issues that inform the entrepreneur’s business strategy. Use this list as a way to organize your investigative research, and then merge topics, retitle sections, and reorder them in whatever way is appropriate for your business. Keep in mind that this is not about completing a section for the sake of it. The goal of the process is to understand the real-world circumstances that impact your winning idea and your company. How you write the plan is up to you, but use the lists of questions below as a guide for what to address. Successful entrepreneurs should be able to answer all of these questions fully if asked by a potential investor in a fund-raising meeting, while supporting those answers with actual stakeholder feedback.
When you feel you’re finished, the litmus test for determining the effectiveness of your business plan is to share it with others, such as stakeholders you’ve interviewed or other knowledgeable people in the industry. Ask for opinions on your proposed marketing plans. Ask potential customers if you have accurately identified their needs and matched them to the real benefits of your product. Then revise the plan as necessary to clarify, improve, and finalize it.
Here are the nine sections:
1.Executive summary: This is a short synopsis of the entire plan that answers the question “Why should I care?”
2.Business description: This presents the winning idea, the need it fills, and the market potential for the business.
3.Marketing: This describes potential customers, competition, pricing strategies, packaging, sales, and marketing.
4.Manufacturing and distribution: This describes the infrastructure for actually producing and distributing what you will sell, including backup vendors and budgets against growth forecasts for three years.
5.Organization: This briefly describes the company organization, including employees, management, vendors, consultants, and advisors, along with your own background.
6.Critical risks: This describes any significant challenges or obstacles and how they will be met, typically using a SWOT analysis (see pages 64–65).
7.Financial: This estimates expenses, revenues, and profits, with particular attention to cash-flow challenges.
8.Milestone schedule: This describes the planned schedule and any significant deadlines for a three-year growth period.
9.Appendix: This provides any supporting documents as necessary.
1. Executive Summary
When your goal is to attract business partners — such as investors — you need to create two succinct descriptions of your business. One is a single-page executive summary of your business plan, which gets sent to potential investors; the other is the “elevator pitch,” a shorter, verbal version of the written summary that you use when someone says, “I heard you have a great idea for a business. What is it?”
First, let’s discuss the executive summary. Budding entrepreneurs sometimes
