What is a business plan
There is a great deal of debate where the business model fits into the business plan. Is the business model separate from the business plan or included within it? Does a business plan already cover all aspects of the business model?
What is a business plan? According to Wikipedia, a business plan is defined as:
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, taxpayer, 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 required, since investors will look for their annual return in that timeframe.
But what does this mean to you? If you are like most business owners, you will acknowledge the importance of business planning. However, many fail to create a powerful business plan and live it. Why is this? The reason is that the business owner cannot see the tight correlation between the business plan and the performance of the business. This is why the business model portion of a business plan is so vitally important.
Here are the most common issues with business plans.
1. Too vague
Some business plans say things like “capture significant market share.” How will you capture the share? Are the competitors going away? How is your product better or significantly differentiated? Do customers care enough to switch? How will you communicate the differences? Have you test marketed your assumptions or is it just a guess or gut feel?
2. Justifies a foregone conclusion
Sometimes the creation of a business plan leads to the conclusion that a better plan or model is needed. Done right, a business plan should force the creator to think critically about all aspects of the business. Done wrong, it’s just words on paper leading to the inevitable conclusion that this business is a great idea in all regards.
3. Too much SWAG
Particularly in the sales projections, many business plans have too much guessing. Yes, you cannot accurately predict sales for a future offering. However, you also cannot simply say, “Hey, it’s a one billion dollar market and I am sure we can capture a tiny one percent of that, so our sales projection is ten million dollars.” In many markets, a one percent share would be great and difficult to come by. The plan cannot simply assume facts and figures, some form of study or scientific bases should be used to back up all assumptions. If possible, every income and expense line in the projections should have a footnote with the logic, reasoning and facts used to create it.
4. Not enough meat on the bones
A great business plan must go into great detail as well as cover multiple scenarios, both good and bad. Too many business plans touch all the bases in the business plan template and then move onto the next section.
5. Too much reliance on business plan templates
Business plan templates are great for creating a structure for the document. However, the standard canned language will get you a standard, canned business plan. If you are looking for something to hand your banker so they can check a box on your loan application, fine. But you are missing the power of a great business plan. Use the template for the structure and example of the content. Then erase everything but the headings and create the plan from scratch.
6. having someone else write your plan
Anyone who has written a great business plan and then executed it well can tell you that it’s not the final document which has value. It’s the process of creating it. You could almost throw the business plan away if you do it right. Business planning is about the process, not the document. This is why templates are dangerous. If you are just filling in the blanks, you really are not getting 90% of the benefit of a business plan.
7. Ignoring the business model
Many business plans indirectly touch on the business model in the marketing sections. However, there are eight areas to a business model. Many of these areas are completely missed in many business plans. We recommend a large, separate section detailing the business model. You could make the argument that if you complete the business model portion of the business plan, the financial analysis is the only other significant portion.
Here are some tips how to do a business plan better:
1. Treat your financial section like an auditor
If you are serious about your business plan, you cannot have a bunch of guesses and “because I said so’s” in your financial projections. There is not a banker or VC who will loan based on SWAG. You have to find a way to backup your numbers. Treat your financial section like a PhD candidate- lots of footnotes. Everything, repeat everything, must be proven. If you cannot get 100% of the way to “proof,” then half-way is much better than zero percent.
If you do this footnoting, you will gain significant credibility with the financial-types who are instrumental to your success.
2. Add a business model section
A great business model is a pre-requisite to a great business. The best plan in the world can’t save a poor model, just ask: Blockbuster, Pier One, Linens n Things, Kodak, Sears, and General Motors. If you think about it, it’s pretty silly to spend all that energy creating a great plan to execute a weak business model. It will not be successful.
Therefore, addressing your business model before you write your plan will make you much more successful. As you know, there are eight sections to a business model. You can find these areas in detail under the Business Model Basics menu.
3. Put in the time
What is a business plan? It’s a painful and long process that forces you to dig into every possibility and crevice of your business. In the process of doing so, you will find the weaknesses and fix them. You will discover the true strengths of the business model and augment them. You will prepare yourself for running the company at the best of your talents and abilities. There is no shortcutting this process.
After all, what is a business plan without a business model?
Introducing the Business Model Plan
In the best of both worlds, business owners should create a document that incorporates the best of the business plan and also include the foundations of the business model. A business model plan should add the eight components of the business model into the business plan while lightening up on the SWAG portions of the financials. Additionally, the business model plan reduces the operational section of the business plan unless that is mission critical to the business model.
