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A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals. Business plans may also target changes in perception and branding by the customer, client, tax-payer, or larger community. When the existing business is to assume a major change or when planning a new venture - a 3 to 5 year business plan is essential.
Business plans are decision-making tools. There is no fixed content for a business plan. Rather the content and format of the business plan is determined by the goals and audience. A business plan represents all aspects of business planning process; declaring vision and strategy alongside sub-plans to cover marketing, finance, operations, human resources as well as a legal plan, when required. A business plan is a bind summary of those disciplinary plans.
For example, a business plan for a non-profit might discuss the fit between the business plan and the organization’s mission. Banks are quite concerned about defaults, so a business plan for a bank loan will build a convincing case for the organization’s ability to repay the loan. Venture capitalists are primarily concerned about initial investment, feasibility, and exit valuation. A business plan for a project requiring equity financing will need to explain why current resources, upcoming growth opportunities, and sustainable competitive advantage will lead to a high exit valuation.
"... a good business plan can help to make a good business credible, understandable, and attractive to someone who is unfamiliar with the business. Writing a good business plan can’t guarantee success, but it can go a long way toward reducing the odds of failure."
The main goal or strategy of any firm should be to create value for its shareholders. A business plan is a useful tool for both start-ups as well as established corporations as they lay out their plan for generating sustainable competitive advantages and net present value in its expected future cash flows.
1 page summary:
The write up should be compelling, shows a clear business need, and a proposed solution. It should address investor needs and exit plan.
DNA of a company: vision + mission + management + competence + strategy + culture
Financial Section of a business plan:
Any financial model at this point can be made to show whatever numbers you want to show. Dont think that the money guys dont already know this. Everyone knows that the actual numbers are pure fantacy.
What is really important is not the final financial model, but instead is the "ASSUMPTIONS" on which you base that financial model. My experience is that you should design your excel model so that the assumptions are clearly defined, and that they can be easily changed. Think of the assumptions as the "control panel" that investors will want to play with .... its like a built in "sensitivity" analysis tool that VCs can use to see how sensitive your model is to the various assumptions. The investors will be more interested in this assumption / sensitivity analysis ...rather than looking at (a made-up) financial model.
Reid Hoffman, founder of LinkedIn, shares five strategies for identifying startup ideas with the greatest chance of success.
Fail fast. Engage your network of friends and associates to vet ideas, expose flaws and make refinements. “Talk to people who can help you fail fast,” Hoffman says. “And then make adjustments.”
Scale up. Look for ideas that are scalable. “All entrepreneurial efforts take about the same amount of blood, sweat and tears,” Hoffman says. “So hunt for big game.”
See the near future. Be visionary, but don't look too far into the future. “Sometimes projects die because you’re seeing a future that is maybe five or 10 years in advance,” Hoffman says. “It’s usually better to look one or two years ahead.”
Get past the product. “History is replete with startups that produce good products that fail,” Hoffman says. Distribution and finance strategy are equally important.
Manage risk. When analyzing risk, Hoffman lists what must prove true for a plan to work. “If the list includes 15 hypotheses that need to break in my favor, that’s too many,” he says. “Two or three is a better number.”
Web2.0 business plan software this is a link to an external site from PlanHQ that is quite interesting. They have made an easy to use software that helps entrepreneurs to organize their plans online.
EZ numbers software - this is another external link, and is also worth taking a look at. They have made an excel based spreadsheet software that makes it really easy to project financial numbers(awesome!). For more info: www.eznumbers.com
A simple start-up plan:
1. summary,
2. mission statement,
3. keys to success,
4. market analysis, and
5. break-even analysis.
This kind of plan is good for deciding whether or not to proceed with a plan, to tell if there is a business worth pursuing, but it is not enough to run a business with.
In my day job, I not only hear a lot of PowerPoint pitches, but I also read a lot of business plans. The PowerPoint pitches explain my Ménière's disease, but the business plans explain my recent need for reading glasses. One of my goals for blogging is to reduce the external factors that are causing the degradation of my body, so this entry's topic is the zen of business plans.
1. Write for all the right reasons. Most people write business plans to attract investors, and while this is necessary to raise money, most venture capitalists have made a “gut level” go/no go decision during the PowerPoint pitch. Receiving (and possibly reading) the business plan is a mechanical step in due diligence. The more relevant and important reason to write is a business plan, whether you are raising money or not, is to force the management team to solidify the objectives (what), strategies (how), and tactics (when, where, who). Even if you have all the capital in the world, you should still write a business plan. Indeed, especially if you have all the capital in the world because too much capital is worse than too little.
2. Make it a solo effort. While creation of the business plan should be a group effort involving all the principal players in the company, the actual writing of the business plan--literally sitting down at a computer and pounding out the document--should be a solo effort. And ideally the CEO should do it because she will need to know the plan by heart. Take it from an author, for writing to be cogent and consistent, there needs to be only one author. It's very difficult to cut-copy-and-paste several people's sections and come out with a good plan.
3. Pitch, then plan. Most people create a business plan, and it's a piece of crap: sixty pages long, fifty-page appendix, full of buzzwords, acronyms, and superficialities like, “All we need is one percent of the market.” Then they create a PowerPoint pitch from it. Is it any wonder why that the plans are lousy when they are based on crappy pitches? The correct sequence is to perfect a pitch (10/20/30), and then write the plan from it. Write this down: A good business plan is an elaboration of a good pitch; a good pitch is not the distillation of good business plan. Why? Because it's much easier to revise a pitch than to revise a plan. Give the pitch a few times, see what works and what doesn't, change the pitch, and then write the plan. Think of your pitch as your outline, and your plan as the full text. How many people write the full text and then write the outline?
4. Put in the right stuff. Here's what a business plan should address: Executive Summary (1), Problem (1), Solution (1), Business Model (1), Underlying Magic (1), Marketing and Sales (1), Competition (1), Team (1), Projections (1), Status and Timeline (1), and Conclusion (1). Essentially, this is the same list of topics as a PowerPoint pitch. Those numbers in parenthesis are the ideal lengths for each section; note that they add up to eleven. As you'll see in a few paragraphs, the ideal length of a business plan is twenty pages, so I've given you nine pages extra as a fudge factor.
5. Focus on the executive summary. True or false: The most important part of a business plan is the section about the management team. The answer is False.* The executive summary, all one page of it, is the most important part of a business plan. If it isn't fantastic, eyeball-sucking, and pulse-altering, people won't read beyond it to find out who's on your great team, what's your business model, and why your product is curve jumping, paradigm shifting, and revolutionary. You should spend eighty percent of your effort on writing a great executive summary. Most people spend eighty percent of their effort on crafty a one million cell Excel spreadsheet that no one believes.
6. Keep it clean. The ideal length of a business plan is twenty pages or less, and this includes the appendix. For every ten pages over twenty pages, you decrease the likelihood that the plan will be read, much less funded, by twenty-five percent. When it comes to business plans, less is more. Many people believe that the purpose of a business plan is to create such shock and awe that investors are begging for wiring instructions; the reality is that the purpose of a a business plan is to get to the next step: continued due diligence with activities such as checking personal and customer references. The tighter the thinking, the shorter the plan; the shorter the plan, the faster it will get read.
7. Provide a one-page financial projection plus key metrics. Many business plans contain five year projections with a $100 million top line and such minute levels of detail that the budget for pencils is a line item. Everyone knows that you're pulling numbers out of the air that you think are large enough to be interesting, but not so large as to render urine drug-testing unnecessary. Do everyone a favor: Reduce your Excel hallucinations to one page and provide a forecast of the key metrics of your business--for example, the number of paying customers. These key metrics provide insight into your assumptions. For example, if you're assuming that you'll get twenty percent of the Fortune 500 to buy your product in the first year, I would suggest checking into a rehab program.
8. Catalyze fantasy. Don't include citations of some consulting firm's supposed validation of your market. For example, “Jupiter Research says that the market for avocado-farming software like we make will be $10 billion by 2010.” No one ever believes this “validations” because the entrepreneur who pitched at 9:00 am said this about USB thumb drives; the one at 10:00 am said this about online dog food sales, and the one at 11:00 said this about smart antennas for cell phones. What you want to do is catalyze fantasy: that is, enable the reader to make her own mental calculation that this market is big. “Every Nokia Series 40 and Series 60 owner would buy this--Wow, this is a hot market!”
9. Write deliberate, act emergent. I borrowed this from my buddy Clayton Christensen. It means that when you write your plan, you act as if you know exactly what you're going to do. You are deliberate. You're probably wrong, but you take your best shot. However, writing deliberate doesn't mean that you adhere to the plan in the face of new information and new opportunities. As you execute the plan, you act emergent--that is, you are flexible and fast moving: changing as you learn more and more about the market. The plan, after all, should not take on a life of its own.
Note: the question is what is the most important part of the business plan, not what is the most important part of the business itself. The management team is more important than the executive summary to the business, but the discussion of the management team is not the most important part of the business plan because if the executive summary sucks, people won't get to the management team section.
Notes:
Description of the management team is very important for investors
financial history is most important for banks.
Most important: cash flow analysis and specific implementation details.
Cash flow is both vital to a company and hard to follow. Cash is usually misunderstood as profits, and they are different. Profits don't guarantee cash in the bank. Lots of profitable companies go under because of cash flow problems. It just isn't intuitive.
Implementation details are what make things happen. Your brilliant strategies and beautifully formatted planning documents are just theory unless you assign responsibilities, with dates and budgets, follow up with those responsible, and track results. Business plans are really about getting results and improving your company.
More From Wikipedia
Types of Plans
Business plans can be divided roughly into three separate types. They require very different amounts of labor and not always with proportionately different results.
The Miniplan. A miniplan, better known as the Executive Summary, may consist of one to 10 pages and should include at least cursory attention to such key matters as business concept, financing needs, marketing plan and financial statements, especially cash flow, income projection and balance sheet. It's a great way to quickly test a business concept or measure the interest of a potential partner or minor investor. It can also serve as a valuable prelude to a full-length plan later on.
The Working Plan. A working plan is a tool to be used to operate the business. It has to be long on detail but may be short on presentation. As with a miniplan, one can probably afford a somewhat higher degree of candor and informality when preparing a working plan.
The Presentation Plan. A presentation plan differs from a working plan in that more attention is paid to attractive formatting, formal language, and conciseness. This type of plan is intended to be suitable for showing to bankers, investors and others outside the company.
Other website resources:
The following websites offer tools and information to create forceful business plans for a start-up venture.
(a) http://startupjournal.com Startup Journal is a site created by the publishers of The Wall Street Journal. This site is a very comprehensive collection of resources to research the market, secure financing, open a shop, hire employees and run the enterprise.
a. Provides mini-plans to get the concept off the ground.
b. Tools to estimate startup expenses.
c. Tools to search for VC and other financing sources.
d. Links to partner sites such as careerjournal.com and WSJ.com for relevant resources and information.
(b) http://www.bplans.com/: Bplans.com, created by Palo Alto Software, offers thousands of pages of free sample plans, planning tools, and expert advice to help you start and run your business. The following are the salient observations regarding this website:
a. Products available for sale are Business Pro and Marketing Pro, providing an excellent solution to create plans. Built-in text, spreadsheets, and examples help develop, manage and track the plans. The Business Pro also includes a huge database of VCs, and other relevant information that will help in targeting the business plans to the VCs.
b. The tool is not available for free. However, the sample business plans are.
(c) http://www.sba.gov/starting/indexbusplans.html: The U.S. Small Business Administration provides financial, technical and management assistance to help Americans start, run, and grow their businesses. With a venture capital portfolio of $13 billion, SBA is the nation's largest single financial backer of small businesses. Last year, the SBA offered management and technical assistance to more than one million small business owners.
a. This website gives a good template for starters. However, it is not supported with sample business plans or forms or built-in text or spreadsheets.
(d) http://www.businessplans.org/: This website is by Business Resource Software, Inc., a leading provider of marketing and business planning software.
a. This website provides a library of links to hundreds of links offering research material for every possible line of business.
b. This website also offers sample business plans that were either winners or finalists in UT’s Moot Corp competition.
c. The products for creating Business and Marketing Plan are available for a price. These products come with built-in templates, financials spreadsheets etc.
In this wiki, you will find a collection of the students notes on a variety of global issues, with a focus on international finance, international relations, politics and business. Clearly not all of the content is our own, nor do we endorse students opinions posted on our pages. There have been many contributors to this site, and our role is just to moderate the content and make sure it fits the "GloboTrends" theme. We try to link properly and send readers to other interesting news sites. If you see any inappropriate material, please let us know.
What are "GloboTrends?"
“GloboTrends” are fundamental underlying trends, which means that they are important, but might not be obvious. Many trends are interconnected, and have global implications. Not paying attention to the development of global trends in can come back to haunt any business person, and so… we have dedicated ourselves to summarizing these events in simple language, and we are trying to show how these events might be important to different regions, and to different industries.
Developing_a_businessplan_-_McKinsey.pdf
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