A 3. Why entrepreneur needs to have a business plan?
A good business plan not only helps entrepreneurs focus on the specific steps necessary for them to make business ideas succeed, but it also helps them to achieve short-term and long-term objectives.
New questions in English
Do You Really Need a Business Plan?
The art of storytelling, from net margin to sales.
Why is a business plan important?
- Who will the reader be?
- What do you want their response to be?
Four Reasons to Write a Business Plan
1. To raise money for your business
2. To make sound decisions
3. To help you identify any potential weaknesses
4. To communicate your ideas with stakeholders
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What Are the Six Elements of a Business Plan?
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Business plans guide owners, management and investors as businesses start up and grow through stages of success. A business owner or prospective business owner writes a business plan to clarify each aspect of his business, describing the objectives that will anticipate and prepare for growth. Savvy business owners write a business plan to guide management and to promote investment capital.
Types of business plans include, but are not limited to, start-up, internal, strategic, feasibility, operations and growth plans.
Start-Up Business Plans
New businesses should detail the steps to start the new enterprise with a start-up business plan. This document typically includes sections describing the company, the product or service your business will supply, market evaluations and your projected management team. Potential investors will also require a financial analysis with spreadsheets describing financial areas including, but not limited to, income, profit and cash flow projections.
Internal Business Plans
Internal business plans target a specific audience within the business, for example, the marketing team who need to evaluate a proposed project. This document will describe the company’s current state, including operational costs and profitability, then calculate if and how the business will repay any capital needed for the project. Internal plans provide information about project marketing, hiring and tech costs. They also typically include a market analysis illustrating target demographics, market size and the market’s positive effect on the company income.
Strategic Business Plans
A strategic business plan provides a high-level view of a company’s goals and how it will achieve them, laying out a foundational plan for the entire company. While the structure of a strategic plan differs from company to company, most include five elements: business vision, mission statement, definition of critical success factors, strategies for achieving objectives and an implementation schedule. A strategic business plan brings all levels of the business into the big picture, inspiring employees to work together to create a successful culmination to the company’s goals.
Feasibility Business Plans
A feasibility business plan answers two primary questions about a proposed business venture: who , if anyone, will purchase the service or product a company wants to sell, and if the venture can turn a profit. Feasibility business plans include, but are not limited to, sections describing the need for the product or service, target demographics and required capital. A feasibility plan ends with recommendations for going forward.
Operations Business Plans
Operations plans are internal plans that consist of elements related to company operations . An operations plan, specifies implementation markers and deadlines for the coming year. The operations plan outlines employees’ responsibilities.
Growth Business Plans
Growth plans or expansion plans are in-depth descriptions of proposed growth and are written for internal or external purposes. If company growth requires investment, a growth plan may include complete descriptions of the company, its management and officers. The plan must provide all company details to satisfy potential investors. If a growth plan needs no capital, the authors may forego obvious company descriptions, but will include financial sales and expense projections.
- Entrepreneur: The 4 Types of Business Plans
- YourBusinessPal.com: Business Plan Example
- BPlans.com: Free Sample Business Plans
Alyson Paige has a master's degree in canon law and began writing professionally in 1998. Her articles specialize in culture, business and home and garden, among many other topics.
How to develop a one-year business plan, checklist for a business plan, what are the key elements of a business plan, what is a business plan template, how to create a business plan as an entrepreneur, how to compose a small business plan, a financial plan vs. a pro-forma cash flow budget, how to write a business plan for jewelry making, what creditors look for in a business plan, most popular.
- 1 How to Develop a One-Year Business Plan
- 2 Checklist for a Business Plan
- 3 What Are the Key Elements of a Business Plan?
- 4 What Is a Business Plan Template?
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Prepare a business plan for growth
Planning is key to any business throughout its existence. Every successful business regularly reviews its business plan to ensure it continues to meet its needs. It's sensible to review current performance on a regular basis and identify the most likely strategies for growth.
Once you've reviewed your progress and identified the key growth areas that you want to target, it's time to revisit your business plan and make it a road map to the next stages for your business.
This guide will show how you can turn your business plan from a static document into a dynamic template that will help your business both survive and thrive.
The importance of ongoing business planning
What your business plan should include, drawing up a more sophisticated business plan, plan and allocate resources effectively, use targets to implement your business plan, when and how to review your business plan.
Most potential investors will want to see a business plan before they consider funding your business. Although many businesses are tempted to use their business plans solely for this purpose, a good plan should set the course of a business over its lifespan.
A business plan plays a key role in allocating resources throughout a business. It is a tool that can help you attract new funds or that you can use as a strategy document. A good business plan reveals how you would use the bank loan or investment you are asking for.
Ongoing business planning means that you can monitor whether you are achieving your business objectives . A business plan can be used as a tool to identify where you are now and in which direction you wish your business to grow. A business plan will also ensure that you meet certain key targets and manage business priorities.
You can maximise your chances of success by adopting a continuous and regular business planning cycle that keeps the plan up-to-date. This should include regular business planning meetings which involve key people from the business.
To find out more, see our guides on how to review your business performance and how to assess your options for growth .
If you regularly assess your performance against the plans and targets you have set, you are more likely to meet your objectives. It can also signpost where and why you're going astray. Many businesses choose to assess progress every three or six months.
The assessment will also help you in discussions with banks, investors and even potential buyers of your business. Regular review is a good vehicle for showing direction and commitment to employees, customers and suppliers.
Defining your business' purpose in your business plan keeps you focused, inspires your employees and attracts customers.
Your business plan should include a summary of what your business does, how it has developed and where you want it to go. In particular, it should cover your strategy for improving your existing sales and processes to achieve the growth you desire.
You also need to make it clear what timeframe the business plan covers - this will typically be for the next 12 to 24 months.
The plan needs to include:
- The marketing aims and objectives , for example how many new customers you want to gain and the anticipated size of your customer base at the end of the period. To find out about marketing strategy, see our guide on how to create your marketing strategy .
- Operational information such as where your business is based, who your suppliers are and the premises and equipment needed.
- Financial information , including profit and loss forecasts, cash flow forecasts, sales forecasts and audited accounts.
- A summary of the business objectives, including targets and dates.
- If yours is an owner-managed business, you may wish to include an exit plan . This includes planning the timing of your departure and the circumstances, e.g. family succession, sale of the business, floating your business or closing it down.
If you intend to present your business plan to an external audience such as investors or banks, you will also need to include:
- your aims and objectives for each area of the business
- details of the history of the business, including financial records from the last three years - if this isn't possible, provide details about trading to date
- the skills and qualifications of the management involved in your business
- information about the product or service, its distinctiveness and where it fits into the marketplace
If your business has grown to encompass a series of departments or divisions, each with its own targets and objectives, you may need to draw up a more sophisticated business plan.
The individual business plans of the departments and separate business units will need to be integrated into a single strategy document for the entire organisation.
This can be a complex exercise but it's vital if each business unit is to tread a consistent path and not conflict with the overall strategy.
This is not just an issue for large enterprises - many small firms consist of separate business units pursuing different strategies.
To draw up a business plan that marries all the separate units of an organisation requires a degree of co-ordination. It may seem obvious, but make sure all departments are using the same planning template.
Objectives for individual departments
It's important for each department to feel that they are a stakeholder in the plan. Typically, each department head will draft the unit's business plan and then agree on its final form in conjunction with other departments.
Each unit's budgets and priorities must be set so that they fit in with those of the entire organisation. Generally, individual unit plans are required to be more specific and precisely defined than the overall business plan. It's important that the objectives set for business units are realistic and deliverable. However complex it turns out to be, the individual business unit plan needs to be easily understood by the people whose job it is to make it work. They also need to be clear on how their plan fits in with that of the wider organisation.
The business plan plays a key role in allocating resources throughout a business so that the objectives set in the plan can be met.
Once you've reviewed your progress to date and identified your strategy for growth, your existing business plan may look dated and may no longer reflect your business' position and future direction.
When you are reviewing your business plan to cover the next stages, it's important to be clear on how you will allocate your resources to make your strategy work.
For example, if a particular business unit or department has been given a target, the business plan should allocate sufficient resources to achieve it. These resources may already be available within the business or may be generated by future activity.
In practice this could mean recruiting more office staff, spending more on marketing or buying more supplies or equipment. You may want to provide funds through current cash flow, generating more profit or seeking external funding. In general, it is always better to fund future growth through revenue generation.
However, you should do some precise budgeting to decide on the right level of resourcing for a particular unit or department. It's important that resources are prioritised, so that areas of a business which are key to delivering the overall aims and objectives are adequately funded. If funding isn't available this may involve making cutbacks in other areas.
A successful business plan should incorporate a set of targets and objectives.
While the overall plan may set strategic goals, these are unlikely to be achieved unless you use SMART objectives or targets, i.e. S pecific, M easurable, A chievable, R ealistic and T imely.
Targets help everyone within a business understand what they need to achieve and when they need to achieve it.
You can monitor the performance of employees, teams or a new product or service by using appropriate performance indicators . These can be:
- sales or profit figures over a given period
- milestones in new product development
- productivity benchmarks for individual team members
- market-share statistics
Targets make it clearer for individual employees to see where they fit within an organisation and what they need to do to help the business meet its objectives. Setting clear objectives and targets and closely monitoring their delivery can make the development of your business more effective. Targets and objectives should also form a key part of employee appraisals, as a means of objectively addressing individuals' progress.
Once you've drawn up your new business plan and put it into practice, it needs to be continually monitored to make sure the objectives are being achieved. This review process should follow an assessment of your progress to date and an analysis of the most promising ways to develop your business. To find out more about these stages see our guides on how to review your business performance and how to assess your options for growth .
This process is called the business plan cycle . In some businesses, the cycle may be a continuous process with the plan being regularly updated and monitored. For most businesses, an annual plan - broken down into four quarterly operating plans - is sufficient. However, if a business is heavily sales driven, it can make more sense to have a monthly operating plan, supplemented where necessary with weekly targets and reviews.
It's important to keep in mind that major events in your business' target marketplace (e.g. competitor consolidation, acquisition of a major customer) or in the broader environment (e.g. new legislation) should trigger a review of your strategic objectives.
Regardless of whether or not there are fixed time intervals in your business plan, it must be part of a rolling process, with regular assessment of performance against the plan and agreement of a revised forecast if necessary.
Original document, Prepare a business plan for growth , © Crown copyright 2009 Source: Business Link UK (now GOV.UK/Business ) Adapted for Québec by Info entrepreneurs
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Traditional Business Plan vs. Lean Startup Plan: Which Is Best When Starting Your New Business?
Did you know that business plans come in not one, but two categories? More often than not, when we think of a business plan we think of a traditional format. This means a hefty document, about 30 to 40 pages in length, written three to five years out that outlines every detail that can contribute to the success of the business.
A lean startup plan, on the other hand, requires less time and detail to put together, but must be able to communicate the future of the business in an articulate manner.
Which type of business plan should you draft for your startup? If you’re not sure whether one format is preferable over the other, read on.
Traditional business plan
A traditional plan skewers towards being more lengthy and detailed than those in lean startup format; it's essentially a blueprint that gives you a glimpse into the future of your startup .
Inside every traditional business plan , you’ll need to cover the following areas:
Executive summary— Here you should be able to explain, in no more than two pages, who you and your business are, what your company does, what industry it’s in, where you’re located (or will be located), when you will begin conducting business if you haven’t started already, how the business will make money, and why consumers will want the goods and/or services offered by the business.
Business description, concept, and strategy— This section contains more information about your products and/or services, including what they do, what makes them unique and distinctive, where the idea for your business came from, where you’re at in the development stages, and overall goals and strategies for the business, along with its projected timeline.
Industry analysis— Who is your competition? Here, you will analyze competitors of your brand and touch on their offerings, company background, and why consumers will choose your services over theirs.
Market analysis— Now that you understand your competition, who is your target audience? This section defines your target market, their needs, and how your business will be able to attract, capture, and retain this audience.
Organization and management— If you have management or staff employed, this section allows you to share their biographies, backgrounds, and core responsibilities.
Financial projections— This gives readers a glimpse into the cash flow of your business. It’s a table-heavy area that includes projected profit and loss, a 12-month income statement, expenses budget, sales forecast, and a break-even analysis with the revenue needed for your initial investment. And speaking of investment …
Financing request— If you are seeking funding from investors , this is the section to outline the amount of money requested, how it will be spent, and the manner in which it is spent.
Appendix— Your appendix should include industry studies, letters of incorporation, trademark registrations, and partnership agreements, just to name a few documents.
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Lean startup plan
If you need to write a business plan quickly or if your business is fairly simple and straightforward to explain, your format of choice is likely a lean startup plan. This is less of an intensive blueprint and more of a quick summary—sometimes no longer than one page!
No matter how short and sweet your structure is, a lean startup plan should contain the following elements:
Value proposition— The value that your small business brings to its respective market, summed up in a clear statement.
Key partnerships, resources, and activities— More information about the partners working alongside your business, strategies for gaining a competitive advantage, and resources, such as intellectual property or capital, used to create value for your target audience.
Customer segments, channels, and relationships. Who is your audience? Where can you reach them? How will you build a lasting relationship together? Define your target market, methods for being able to talk to them, and strategies for establishing the customer experience.
Revenue streams— Explain and list out the revenue streams your business has for making money. Make sure to include a quick section that defines your cost structure strategy, too.
Which format does your business need?
The good news about writing a business plan? There’s room for editing. If you’re not satisfied with the format or need to make changes, you can always revise the document. There’s also the option to switch formats—if you start off with a lean plan, but want to shift to a more traditional plan, and vice versa.
Regardless of the format, the important thing is to be concise and critical about your business from the beginning. Your business plan works to align your team towards a common vision for the company and evaluate its feasibility as objectively and critically as possible. Having this kind of document contributes to the success of the business and positions you as a confident CEO.
RELATED: Two Critical But Often Ignored Business Plan Ingredients
Expert Profile: Deborah Sweeney
Deborah Sweeney is the CEO of MyCorporation.com , which provides incorporation and LLC formation filing services to entrepreneurs. Follow her on Twitter @mycorporation and on Facebook .
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By Brett Farmiloe
What are the best business books to read if you're starting a business? From The 4-Hour Workweek by Timothy Ferriss to Shoe Dog, a memoir by Nike founder Phil Knight, 12 entrepreneurs and business experts share their favorite reads.
1. Tiny Habits: The Small Changes That Change Everything by B.J. Fogg, PhD
"Your plans for starting a business will demand a paradigm shift in your habits. After all, they don’t call being in business a full-time job for nothing. And this book is just what you’ll need to make those small yet highly effective changes in your habits that will help you embrace your new role as an entrepreneur.
"Clearly outlining how successful habits lead to a successful business and life, the author’s insights are based as much on tangible research as they are on practical implications. This comprehensive approach creates a set of groundbreaking observations, lessons, and recommendations that are innovative and expansive." — Azmaira Maker, PhD , Aspiring Families
2. The 4-Hour Workweek by Timothy Ferriss
"The 4-Hour Workweek is an excellent book to read if you are looking to start a business . It provides readers with practical advice and guidance on how to manage time effectively, focus on the task at hand, and create efficient work environments that enable you to achieve your goals. "One of the most important aspects of this book is Ferriss' emphasis on proper rest and sleep, which can help you improve your productivity levels while avoiding burnout and other detrimental side effects that often plague entrepreneurs who are striving for success. Furthermore, The 4-Hour Work Week offers tips and strategies for creating effective marketing campaigns that promote your product or service without spending too much money or going over budget." — Johannes Larsson , JohannesLarsson.com
3. Make Time: How to Focus On What Matters Every Day by Jake Knapp and John Zeratsky
"When starting a business, we feel that we always have to be busy. That's what social media and podcasts and YouTube videos tell us, anyway. If we're not hustling 24/7, we're not doing it right. Correct? Wrong. I did this, and it didn't work. It burned me out, and my relationship struggled. I came across this book, and it really resonated with me.
"Essentially, this book teaches you to get off social media and stop booking pointless meetings. Instead, focus on what matters to you and your business. Turn everything off, and look after yourself and your family—because that's what matters." — Ravi Davda , Rockstar Marketing
4. The 7 Habits of Highly Effective People by Stephen R. Covey
"The 7 Habits of Highly Effective People by Stephen R. Covey is an entrepreneurial classic and a fantastic book to read for someone wanting to start a new business. The book guides readers through the steps for developing sound personal and professional habits to become more effective in their business ventures. Each of the seven habits Covey teaches is necessary for success, and each will help any new business owner navigate potential obstacles that may arise as they start their journey." — John White , We Run
5. The Lean Startup by Eric Ries
"The Lean Startup provides fresh ideas and a no-nonsense framework for startups to follow in order to achieve success. The book argues that the traditional model of starting a business, investing a large amount of money upfront and hoping to achieve a large return later, is no longer effective.
"Instead, startups should focus on creating a minimum viable product, or MVP, a stripped-down version of the product that can be tested on whether there is customer demand. If there is demand, then the startup can slowly expand its operations. However, if there is no buyer interest, then the startup should pivot to a new idea. Whilst they may seem logical, for an entrepreneur who has a huge belief in their business or product, it's easy to have tunnel vision and only realize later they have invested in a lemon.
"The book has been praised for its practical approach to starting a business and has become an invaluable resource for many entrepreneurs." — Jake Munday , Custom Neon
6. Shoe Dog by Phil Knight
"In his autobiography, Shoe Dog, Nike cofounder Phil Knight discusses how he arrived at his decision to live the unconventional life of an entrepreneur, and while doing so, he lets his witty, likable, and unvarnished personality come through. By the end of the book, readers will feel like they know Knight better than ever before, and they'll be equipped with his hard-won advice on entrepreneurship because of his inspiring story." — Kyle Bassett , Altitude Control
7. Think and Grow Rich by Napoleon Hill
"I think this book would be helpful for anyone considering launching their own company. Think and Grow Rich has been around since the 1930s, and like How to Win Friends and Influence People, its lessons have stood the test of time. The book is packed with practical information that you can put into practice immediately to achieve your goals in life. Using examples from his own life, Napoleon Hill shows the efficacy of a positive mental attitude and explains strategies for overcoming insecurities and lethargy.
"Followers of the book say that the best way to benefit from Hill's exercises is to do them while reading the book and to return to it several times." — Frederic Linfjärd , Planday
8. The $100 Startup by Chris Guillebeau
"The $100 Startup features entrepreneurs who began businesses with less than $100 and are now earning over $50,000. It will help you identify your particular interests and passions that you can monetize and make a living out of it. "The book stresses you don't have to be another one of those people who has always dreamed of starting their own business but never got around to it. You can actually be someone who does it—someone who takes advantage of the opportunities that are right in front of them. It gives budding entrepreneurs a whole extra layer of confidence that they need to start their own venture." — Kartik Ahuja , GrowthScribe
9. How I Built This by Guy Raz
"Guy Raz shares valuable advice from the business world on what it takes to be an exceptional leader as your business grows. He uses descriptive examples of how people found purpose and inspiration to share their passion through their businesses.
"In this incredible business book, Raz uses intriguing examples to show how entrepreneurship, guided by a positive mindset, can help you build a successful business. With a mix of candor, anecdotes, and interesting commentary, he explains how to make huge profits based on the experiences of large and lesser-known companies alike, along with stories that will inspire you throughout your entrepreneurial journey." — Dakota McDaniels , Pluto
10. How to Begin: Start Doing Something that Matters by Michael Bungay Stanier
"One of the hardest parts about starting a business is actually starting, and this book is a must-read for any entrepreneur. With humor and practical advice, the author teaches you how to find and strengthen your goal, how to become clear on the commitment needed to succeed, how to find necessary resources, and ultimately how to build momentum for your business in order for it to have an impact. If you have an idea for a business but need that push to get started, read this book." — Harry DiFrancesco , Carda Health
11. The E-Myth Revisited by Michael E. Gerber
"One shouldn’t get into business just because they have this one great skill or idea. For example, someone being a superb cook may not make them a great fit for a restaurant business. To hammer this point home, among other ideas, The E-Myth Revisited can be the perfect book. "There is a lot of foundational work that goes into a business even before the basic structure is out into place. You need to know the ins and outs of your entire industry, research your competitors, and then decide how you will stand out from the crowd. By the time all of this gets done, some people realize that maybe they are not cut out for entrepreneurship. Although this may sound demotivating, you can thank the book for not wasting your time and money any further. By the time you are finished reading the book, you will have a clear structure and direction in mind. The hand-holding nature of this book makes it a great read." — Andreas Grant , Founder, Networks Hardware
12. Never Split the Difference: Negotiating As If Your Life Depended On It by Chris Voss
"For startup entrepreneurs , negotiation skills can be critical in navigating a challenging business landscape. In this book, former FBI hostage negotiator Chris Voss outlines powerful strategies, techniques, and tactics to help budding entrepreneurs face complex negotiations with confidence. Drawing on his experiences as a high-level negotiator and successful entrepreneur, Voss teaches readers how to better understand the psychology of negotiations, how to increase their chances of success, and ultimately, how to come out on top." — Jeremy Reis , Explore Startups
About the Author
Post by: Brett Farmiloe
Brett Farmiloe is the founder and CEO of Terkel, a Q&A site that converts insights from small business owners into high-quality articles for brands.
Company: Terkel.io Website: www.terkel.io Connect with me on LinkedIn .
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- Building Your Business Plan
Main Components of a Business Plan
- Executive summary This is your five-minute elevator pitch. It may include a table of contents, company background, market opportunity, management overviews, competitive advantages, and financial highlights. It’s probably easiest to write the detailed sections first and then extract the cream to create the executive summary. Try to keep it to just a couple of pages.
- Business description and structure This is where you explain why you're in business and what you're selling. If you sell products, describe your manufacturing process, availability of materials, how you handle inventory and fulfillment, and other operational details. If you provide services, describe them and their value proposition to customers. Include other details such as strategic relationships, administrative issues, intellectual property you may own, expenses, and the legal structure of your company.
- Market research and strategies Spell out your market analysis and describe your marketing strategy, including sales forecasts, deadlines and milestones, advertising, public relations and how you stack up against your competition. If you can’t produce a lot of data analysis, you can provide testimonials from existing customers.
- Management and personnel Provide bios of your company executives and managers and explain how their expertise will help you meet business goals. Investors need to evaluate risk, and often, a management team with lots of experience may lower perceived risk.
- Financial documents This is where you provide the numbers that back up everything you described in your organizational and marketing sections. Include conservative projections of your profit and loss statements, balance sheet, and your cash flow statements for the next three years. These are forward-looking projections, not your current accounting outputs.
- Local SBA Small Business Development Centers provide free consulting and low cost training for building a business plan. Find one near you.
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5 Steps to Develop a Viable Business Plan
No matter what type of business you run, you need a business plan. A business plan is a description of your business and objectives and the strategies of how you expect to achieve your goals with a management team and financial resources. Contrary to belief, you don’t need a business plan just to obtain financing. You also need a plan to help you guide your company.
Step 1: Define Your Business
Defining your business is the most vital thing that can help your company become successful. By defining your business, you are better able to achieve your goals and sustain superior performance.
Two things that you need to consider when you define your business are your marketing position statement and your unique selling proposition. A marketing position statement is a one- to two-sentence statement that says what you do and for whom you do it to uniquely solve an urgent need or fulfill a desire. A unique selling proposition is a statement that shows the reader how your product or service stands out and is different than other substitutes on the market. Your USP must be strong enough to attract customers and compel them to buy your product or service.
Surprisingly, not all business owners and managers know the answer to how they define their business. As a result, their businesses can ultimately fail.
The U.S. Small Business Administration highlights a store owner who repairs and sells watches. After analyzing his business operations, the owner came to realize most of its earnings were from repair, even though the company spent most of its resources on selling products. As a result of his analysis, the owner concluded that his business was a repair shop. He shut down the product sales operation and focused on the repair service. This move resulted in dramatic increases in sales and profits.
Step 2: Determine Your Target Audience
Knowing your target audience is an integral part of business plan success. Although your product or service can appeal to many different types of buyers, a one-size-fits-all marketing and sales approach is not focused enough . The more you know about the audience you target, the better able you are to reach and communicate with them and sell your products and services.
You can get a better idea of your target audience by looking at the demographic and psychographic segments of prospective customers that can benefit from your products and services. Do they fit a specific gender or age range? What income bracket do they mostly share? What problems do they need solved? What common attitudes, opinions, values and behaviors do they share?
The more narrow your target market, the more focused you can be in your marketing. On the other hand, if you are tempted to serve more than one target market it can be costly, and you may not succeed.
Take a look at the dilemma Aviva Weis faced after she hired a new marketing executive . Weiss is the co-founder and lead designer of Fun and Function, a company that makes items for special needs children, such as therapy balls that help children develop fine motor skills. Her company grew more than sevenfold from 2007 to 2010 by targeting the consumer market. However, her new marketing executive–who previously worked for a competitor–wanted Fun and Function to target schools and hospitals. This was NOT a good strategy to serve two target markets because it not only required a huge investment and a change in operations, but it also increased risk to alienate the company’s base of loyal consumer customers.
Step 3: Understand the 5 Forces that impact Your Business
Every business–yours included–is subject to five external forces. These forces include existing competitors, threat of new competitors, substitute products or services, bargaining power of its suppliers, and bargaining power of its customers, according to Michael Porter of Harvard Business School .
By understanding these five forces, you are able to comprehend the environment that impacts your business. If your company is in an industry that requires government approval of its products, such as pharmaceuticals or medical devices, then you operate in an environment that makes it difficult for new competitors to enter your market. Yet, if your company is in an industry that does not require proprietary products, special know-how or high investment, then you may have new competitors as you grow.
It’s not enough to know about your industry from just its products or services. You also need to understand the demand and supply of raw materials, manufacturing and labor. Plus, you need to comprehend political and legal related issues. These factors can affect the bargaining power of suppliers or customers. For example, the nutrition supplement industry has many distributors, fewer manufacturers and even fewer raw material suppliers that dominate and influence costs. If one raw material supplier reduces production, that can cause a shortage of products and raise prices accordingly.
Step 4: Create a Competitive Strategy
To demonstrate the viability of your business, your plan needs to demonstrate how you will sustain a competitive advantage. Porter says there are three unique strategies a business could choose from to sustain competitive advantage, namely cost leadership, differentiation and focus. If you are a small company with limited resources, your best strategy is focus .
Your strategy needs to show how you will capture your target market. What are the marketing strategies and tactics that you will create and execute to generate customers and sales? What advertising message will you create that will resonate with prospective buyers and compel them to buy from you? Who will be on your marketing team? What functions will you perform in house and which will you outsource? These are some of the important questions you need to address in your business plan.
Step 5: Project Your Financial Performance
Your financial performance is a measure of your success. Your business plan must include a projection of how you expect your company to perform based on what you discover developing the first four steps of your plan.
You’ll need to address the price and profitability of your products and services. Your projections include the number of customers you expect you’ll attract. How much will they each buy?
A rule of thumb is to underestimate your expected revenues and overestimate your company expenses. You can never know what types of delays may occur in receiving revenues from the sale of your products or services. Plus, you may be hit with unexpected expenses or hidden costs you don’t yet know about.
Another rule of thumb, especially for start-up and early stage companies, is that cash flow is more important than profits. Cash is what lubricates the flow of business. You can always manipulate profits through various accounting techniques, such as deciding if you record inventory as first in-first out or last in-first out. But you can’t do this with cash flow.
Your projected financial performance is also a factor that can influence investors. Higher operating profit margins can attract more investors. However, the reality of your ability to achieve these projections comes from the quality of your plan and execution.
Now that you’ve become more knowledgeable about the five steps to developing a viable business plan, what’s your next step? If you don’t have a business plan, then get started right away...even if you have a successful company. And if you have a plan, see how you can improve it with some of what you have learned here.
While Eric now focuses on internet marketing, he also has a background in web development. He loves being among the first to find out about new tech—and better yet, being a part of making that tech succeed. Eric is known to be a good listener, seeking to understand how each individual sees the world. He is a harmonizer in group settings, cultivating unity while constructing the overall goal and strategy. When he’s not busy helping i7 clients dominate the online marketplace, Eric enjoys drone videography (he’s got a UAV pilot’s license), woodworking, community service, and all things outdoors.
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