The short answer? Essential. But there’s a twist!
“Going into business without a business plan is like going on a mountain trek without a map or GPS support – you’ll eventually get lost and starve!”
Depending on whom you speak with, some people will tell you that business plans are over. With the age of rapid growth startups, you might even feel that the piece of paper you’ve written your plan on will be obsolete before you’ve even finished writing it.
Today, too many businesses are “…busy trying to build castles on top of quicksand to stop and think about the bigger picture and make strategic goals.” (SOURCE) Here’s the problem with building on quicksand. Actually, here are five problems with that:
- A business that fails to plan should plan to fail – Benjamin Franklin wasn’t wrong about that!
- There’s no measurable follow through on the plan – no concrete tasks, no timelines.
- There’s no accountability to ensure that tasks are being actioned – if you know what results you want to achieve, you have a yardstick against which to measure action.
- The lack of a plan means a lack of key tasks. Result? There’s usually too much effort, time and money being spent on unnecessary tasks, or those that don’t contribute directly to the bottom line. For example, yes, you might need social media to reach your end customer, but NO you don’t need to be on it six hours a day!
- Momentum is lost within the first quarter because there is no discernable path to help keep you going.
So yes, the business plan of yesteryear, all nicely printed and coil bound, to be offered to lenders and investors alike, is gone. However, building a business on a whim and without a plan is, as Kevin notes in the quote above, not a good idea either, unless you want to risk starving to death. There is a third option: a business plan that is a living, fluid document. With it, you can project growth, figure out actionable key tasks to reach that growth goal and have a place to return to and adjust the goal when reality shifts.
What’s a living document?
It’s a document that isn’t written in stone. This is a different mindset, when it comes to business planning, than in the past. With a living document, you can change it over time, as often as you need, as your plans, financing, staffing, marketing or other aspect of your business change.
Having a plan in your head and sharing that plan are two different things
Chances are that you already know roughly how much capital you have and how much you’re going to need to start and grow your business. You probably already have an understanding of who your target audience is and a strategy to reach them. You might even have a good handle on your growth plans, staffing and crisis management/PR plans. Having all of this knowledge in your head, however, won’t help you to build your business efficiently.
Writing down your strategy doesn’t limit you to what you’ve put down on paper but it can help you to clarify all of your plans and it definitely makes it easier to share your ideas with others, including investors. Since looking directly into your head isn’t really an option, most lenders or investors will want to see some form of a written business plan.
Perhaps you will add partners at some point and need to plan an exit strategy for yourself and them. Maybe you’ll get financing from an unexpected source and you’ll be able to launch a part of your business that was otherwise going to have to wait at least another year. The point of a living document style business plan is not to mire yourself in details and static deadlines, but to give you, and others who work with you in launching your business, a guideline.
A few things to keep in mind before you start writing your plan
We’ve looked at the ‘why’ you should have a plan but before we get to the ‘what’ your document needs to contain, let’s take a look at the ‘how’ of creating this living document.
A few things to keep in mind:
First, don’t get too hung up on formatting. Instead, look at the plan as a reflection of your strategy and how you will get from your original ideas to the final outcome. This isn’t about being floaty with ideas however. The document needs to be an actionable list of measurable tasks that you’re going to accomplish in the short, mid and longer terms, as you see things right now. Remember, that vision can change over time, but rather than creating a document that simply outlines the business model you want to follow, a modern plan will be a work in progress: a guideline that requires you to deliver on items in order to move the goal forward.
Second, in the aim of working in a fast growth environment, which startups tend to be—after all, first to market is always a good spot to be in—focus your efforts on the quality of your information, not quantity. It’s fine if you don’t project your earnings into the next quarter century. A five year plan will be just as effective for now. Remember, you’ll be adding to it as you go along, as your business evolves, so don’t get hung up on putting down so much information and data that you don’t actually get the early action items done!
What will go into your business plan?
Step 1 – A start and a finish
Just like using a GPS in the mountains to avoid getting lost and starving to death, you need to know a start and an end for your plan.
Before you even get into the sections of your plan and action items, you need to be clear on your vision and your end goal. What’s the business going to look like when it’s up and running? Then you need to be clear on what you have right now, in terms of assets to contribute, to make that vision a reality. When you know what your starting point is and you have a clear end goal, it’s easier to plot how you’re going to get there.
Step 2 – Outline your plan
This will look somewhat different for every business, but there are some essential points that you need to hit no matter what you’re planning.
- A business model canvas – this is a great tool to give you a snapshot of the business so that, down the road, when you need to make some changes to the plan, you know roughly where you stand. What’s included in that canvas?
- Revenue streams – are there more than one?
- Expenses – capital expenses (startup) and ongoing
- End customers – who they will be? What problems are you solving for your end customer? This will be a strategic point that fuels are your marketing, so it’s vital to understand your customer (more on this in the next point!)
- USP – Unique selling proposition – why will they buy from you instead of your competitor?
- Key tasks – what do you need to get done first, and what tasks are dependent on those key tasks being completed? Example? It’s hard to have a shop if you don’t have a location so opening day is dependent on finding a perfect store to lease.
- Market research – You’re not doing the research at this point but you are including it in your plan outline! Your market research could include things like:
- USP (if not identified on the canvas)
- End customers – you might have several categories of these, but you need to identify them all as material changes to the model could affect one or more of them. Are you after seniors? Millennials? Families? Men, women or both?
- How and where you will reach each category of end customer. For example, if you are focused on millennials, you’re going to be spending time and money on social media and other digital marketing platforms.
- Industry news / changes that could affect you (changes to laws, for example).
- Business structure – will you be a sole proprietorship / partnership, corporation, non-profit? Again, you’re not doing this research yet. You’re just marking a spot in the document for your business structure.
- Resources required –
- Physical space for the business.
- Service providers – lawyer, accountant, etc… These are typically things that you cannot do yourself, or wouldn’t want to! For example, if you’re taking over a building, but need to have work done on it, you’ll need a good contractor. Or perhaps you just need to find a house big enough to fit a home office? You’ll still need a realtor for that!
- Vital processes and disaster planning – do you have a partner who can take over tomorrow if you’re hit by a bus? No? Then you need vital processes mapped. The business plan is a great place to keep these because, just as the plan itself needs to be a living document, so are all processes and procedures. They need to be revisited regularly to ensure that they still meet your needs.
- Growth model –
- What is your growth plan and projections in terms of revenue and sales figures? 1 year out, 3 years out and 5 years out?
- What time frame will this growth happen in?
- What are your main constraints to growth? For example, is finding adequate staffing an issue? Is turnover an issue? Knowing whether your business is even scaleable is something that will affect financing, marketing, staffing and so on, so it’s an important point.
Step 3 – Research, research, research
This is a good time for the reality check that comes with thorough and complete research. While quality reigns over quantity, you don’t want to be caught out without vital data and information that could be the difference between huge success and falling flat on your face.
Questions you might want to ask yourself, as you develop your outline and begin your research:
- Can your business idea be adequately monetized? There are lots of businesses that are ‘fun’ but that doesn’t mean that they will ever be profitable.
- Is your business idea scaleable or will it always be something of a ‘cottage industry’? There’s nothing wrong with the latter, but it’s best if you know and understand that from the get go.
- Is there a major competitor with deep pockets down the block from the location you chose’?
- Do you have enough money to get you through the start up year, both for the business and your personal life? Unless you plan to sleep in your office, you need to make sure you have enough capital to sustain the contents of your refrigerator and the roof over your head.
- Does your geographical area have the population you need to draw on for staffing?
Areas of research
The points made in Step 2 are your research areas. Now is the time to actually do the work. This is the hardest part of a business plan as it’s the most time consuming but it will also be where you find any pitfalls in your plan.
Example? Let’s say you start doing your research only to find that there are four other businesses with similar revenue models to yours, within a 3 km radius. That’s a problem. It doesn’t mean you have to give up but it does mean that you have to alter your plan to ensure that you have USP that will draw the customers you want.
The areas of revenue / expenses, market research, and marketing planning are critical to your plan. Without knowing what you’re going to offer, to whom and for how much, resulting in what profits, you’re not in business… you just have an expensive hobby.
While the research may seem daunting, particularly if you’re working in a new geographical area, there are resources to help you along the way.
Don’t reinvent the wheel: look to existing resources!
Depending on where you’re planning to open your business, there are likely to be local resources that you can leverage, rather than starting from scratch. For example, the Township of Innisfil Economic Development Team, can provide you with one-stop access to all of the services your business will need to accelerate your growth, including among other things:
- Up to date demographic data on the area;
- Business mentorship and business planning support;
- Connections to federal and provincial government, as well as private, funding options.
You don’t need to run all over town looking for permits or information on building or expanding an existing structure: it’s all there, in one place, with one contact.
If you’re still struggling with the ins and outs of your living business plan, there are resources that can help:
- Henry Bernick Entrepreneurship Centre—This centre helps entrepreneurs start, build and grow businesses. Register online and attend an intake session (in person or through Skype) to learn more about the HBEC programs and services. The HBEC team will help you to write your business plan through their lean business plan canvas workshops or further faster program. After you complete your lean business plan canvas, the HBEC team will assess your needs and connect you with their team of mentors who will support you through launching and growing your business. Sign up for your intake today and get started: https://www.georgiancollege.ca/community-alumni/entrepreneurship-centre/
- Futurepreneur—This Canadian has developed a free online, interactive business plan writer that has been designed to simplify the business planning process. The tool is dynamic and allows you to customize your plan and it provides you with tips, tricks and examples to guide you as you write your business plan. Visit www.futurepreneur.com to learn more and get started.
However you move forward with your business and your business plan, just remember that it’s a guideline for growth, not a static list that is meant to constrain development and innovation. There’s no limit to where you can go with a successful business; the plan is just there in case you falter.