Business Planning Tips: The Basics
When planning a new business or developing an existing one, it is useful to have a gut feel for the characteristics of a successful business. Here are some criteria against which to measure your business or its plan:
Behind every characteristic there should be an explicit strategy designed to increase the chances of success and not simply aimed at reducing the likelihood of failure. For more help on setting strategies, see Developing a Strategic Business Plan, Devising Business Strategies and the free Online Strategic Planner for creating a 3-page strategic plan.
When planning a business, be clear and assertive about the strategies to be followed. Don't fudge or say "On the one hand ...... and on the other hand .....". If sound groundwork has been done on the background issues relating to the business, market and SWOTS etc., many key strategies will suggest themselves. You can weave these together into explicit strategic statement(s) of intent. For example:
Our aim is not to encourage planning by words but to illustrate the types of issues that might be considered when formulating explicit strategies. These can be applied equally to start-ups and established businesses. Of course, the big distinction is that the start-up is building strategies from scratch without the benefits of any market position, momentum or pre-existing strategies.
Any selected suite of strategies must be integrated and internally consistent, and in-line with the business's broader vision, mission and objectives (see Developing a Strategic Business Plan). There is little point in a business claiming to be technologically advanced if its R&D spend is sub-critical, or aspiring to become a leading brand if it has neither products, nor funds nor distribution to ensure this could happen.
Strategic statements can be defined as broad indicators of the direction(s) in which a business should be driven in order to fulfil its vision/mission while taking realistic account of its resources, constraints and opportunities. They also serve as the link between the a business's objective and actions plans and should result in a series of integrated sub-strategies and action programs with goals, budgets, timetables. The latter can be most effective when linked to specific functional areas within the business e.g. sales, marketing, operations and so on. Limit the number of sub-strategic (tactical) programs to what can be realistically achieved within a realistic time frame and, if necessary, prioritize them. It is possible that just one strategy is needed for each of the business's main main functional areas.
When preparing a business plan (or a marketing & sales plan), two critical sections stand out - Profiles of Target Markets and Marketing Strategies, Sales Plans & Projections. The latter should build on the market assessment (see tip on Sound market analysis is key to a sound Business Plan). In simple terms, marketing and sales plans should cover the 4Ps - Product, Price, Place and Promotion. The following issues need to be considered:
Based on these marketing strategies and plans, you can compile detailed sales (volumes and prices) projections for your various segments and products/services. These projections should be monthly (for at least one year ahead especially if the business is seasonal) and either quarterly (much better) or annual thereafter.
Business failure is a distinct possibility for many businesses, especially for start-ups during the so-called three-year "valley of death". A key to getting through these years is to avoid the obvious mistakes. Generally speaking, businesses fail for significant and substantial reasons which are often very evident to outsiders. Insiders often fail to see them because of their closeness, determination and so on. Areas where failure is most likely to occur include finance. markets/sales, offerings, management and operations. See a detailed listing of possible reasons for business failure.
Clearly, there are very many reasons as to why businesses fail. The key point is that causes are usually very apparent (especially with hindsight) and the trick is to anticipate them by executing appropriate tactics and strategies from the outset. Three examples:
Given that reasons for failure are often both simple and clear, it should (in theory) be possible to reduce the possibility of failure through prior experience, forethought and effective planning.
For more information, see Devising Business Strategies, Developing a Strategic Business Plan and Writing a Business Plan. Also look at and/or participate in the online poll on Strengths & Weaknesses of Businesses.
The Market Analysis section of a business plan is very difficult to prepare especially for start-ups or established businesses diversifying in new (to them) markets. These difficulties will be compounded, due to an absence of any reliable data or evidence of likely demand, for businesses entering completely new markets or launching radically new offerings. Nonetheless, this section is critical as it underpins the business plan and demonstrates that the promoters have done their homework and know their marketplaces (at least as well as the incumbent players or other new entrants). If this section is unclear, vague or superficial, it begs the question as to whether there might be any real, sustainable demand for the proposed offerings.
Use this section to profile target markets based on market sizes, segments, trends, competition and user/customer profiles. Allow about three-six pages for this most important part of your plan. In most cases, it is very desirable that all detailed market research (field and/or desk) and analysis be completed before this section is written. If research reports or detailed findings are available, refer to their detailed findings in appendices or include them as annexes to the plan.
You will need to analyze the market in fair detail to dig down to your actual target market segments which you can then explore in depth. You will also need to consider competition, customer/user categories and so on. Create simple tables to show how market sizes, segments and shares are likely to move in the future after your entry/growth.
Avoid at all costs generalized statements like "we aim to achieve xx% of the xx market within three years". Instead, build up your projections from sound analysis/research and detailed assumptions (number of outlets, customers, consumption and so on) based on clear marketing and sales plans.
Before starting to write a business plan, you must have established a clear vision and direction for the business. Without these, your detailed plan will lack focus and it will roam around in whatever direction your latest idea or your keyboard (or pen) takes you. Instead, you need to start with some serious strategic thinking about a vision and mission.
First, you need to develop a realistic Vision for the business. This should be presented as a pen picture of the business in three or more years time in terms of its likely physical appearance, size, activities etc. Answer the question: "if someone from Mars visited the business, what would they see (or sense)?" Consider its future products, markets, customers, processes, location, staffing etc. Here is a fictitious vision:
Next up is a Mission statement. This indicates the purposes of the business, for example, "to design, develop, manufacture and market specific product lines for sale on the basis of certain features to meet the identified needs of specified customer groups via certain distribution channels in particular geographic areas". A statement along these lines indicates what the business is about and is infinitely clearer than saying, for instance, "we're in electronics" or worse still, "we are in business to make money" (assuming that the business is not a mint !). Here is a fictitious mission statement:
A SWOT analysis is an assessment of the Strengths, Weaknesses, Opportunities and Threats facing a new or established business. It should always be conducted prior to the compilation of a detailed business plan. A realistic and unbiased SWOT analysis could form the basis for the strategies to be followed throughout the plan. A failure to determine SWOTs could result in a plan which is unclear, misguided and lacking focus and direction.
Strengths and weaknesses are essentially internal to the organization and relate to matters concerning resources, programs and organization in key areas.The objective is to build up a picture of the outstanding good and bad points, achievements and failures and other critical features within the company. If a startup is being planned, the strengths and weaknesses are related mainly to the promoter(s) - their experience, expertise and management abilities - rather than to the project.
The threats and opportunities are external to the company and relate to the industry and marketplace in which the business operates; changes or trends in competition, technologies and so on.
Once the SWOT review is complete, the future strategy may be readily apparent or, as is more likely the case, a series of strategies or combinations of tactics will suggest themselves. Use the SWOTs to help identify possible strategies as follows:
If the business is seeking significant growth, it is important to fast-forward and assess SWOTs as they might exist a year or two hence. This will help ensure that strategies are ambitious and robust and that emerging issues are anticipated. Have a look at the discussion on SWOTs and related matters in Developing a Strategic Business Plan (and especially Sections 1.3 to 1.5).
The resulting strategies can then be filtered and moulded to form the basis of a realistic strategic plan - see Devising Business Strategies for further insights into the development of strategies and the free Online Strategic Planner for creating a 3-page strategic plan. Here is a sample strategic plan compiled using the planner. A plan along these lines should be incorporated into a business plan and it would, in effect, become the foundation for all the assessments, actions, projects and programs detailed throughout the plan.
Here are some quotations to motivate and inspire the planning and development of your business:
For more quotations, see this list.
Having built up a moderate list of new business ideas, these must be evaluated so that a short-list of preferred options with the greatest potential and lowest risk can be assessed in greater depth.
One way of evaluating ideas would be to use a simple scoring system using gut-feel with a limited number of criteria such as personal fit, degree of risk, funding need and so on - see a comprehensive list of factors at Getting New Business Ideas.
Before scoring individual ideas, run through the criteria and set what you feel should be minimum desirable scores for each. The resultant total could be used as your overall minimum threshold. If some ideas don't achieve satisfactory scores, drop them and look for better ones.
Once your short-list has been developed, you will need to start devoting substantial time to assessment, research, development and planning. For a start, you could pursue the following tasks:
For more insights into these tasks, see Getting New Business Ideas.
Bear in mind that the incubation period for a new business can easily last several months or even years. Don't rush into the first feasible idea without letting it incubate or develop in your mind for a reasonable period. There might be a tendency to get all fired up and enthusiastic such that your heart is starting to rule your head. Instead, stand back and think!! Do not be afraid to seek external assistance from professional advisers or from enterprise support organizations which are virtually everywhere. These include SBDCs in the US, Enterprise Agencies & Business Links in the UK, County Enterprise Boards in Ireland, EC BICs throughout the EU and so on...... For help with converting your preferred business idea into a business plan, see Getting New Business Ideas and How to Write a Business Plan.
Entrepreneurs and business managers are often so preoccupied with immediate issues that they lose sight of their ultimate objectives. That's why a preparation of a strategic plan is a virtual necessity. This may not be a recipe for success, but without it a business is much more likely to fail.
A strategic plan should not be confused with a business plan. The former is likely to be a (very) short document whereas a business plan is usually a much more substantial and detailed document. A strategic plan can provide the foundation and frame work for a business plan. For more information about business plans, refer to How to Write a Business Plan, Insights into Business Planning and Free-Plan: Business Plan Guide & Template.
A strategic plan is not the same thing as an operational plan. The former should be visionary, conceptual and directional in contrast to an operational plan which is likely to be shorter term, tactical, focused, implementable and measurable. As an example, compare the process of planning a vacation (where, when, duration, budget, who goes, how travel are all strategic issues) with the final preparations (tasks, deadlines, funding, weather, packing, transport and so on are all operational matters).
A satisfactory strategic plan must be realistic and attainable so as to allow managers and entrepreneurs to think strategically and act operationally - see Developing a Strategic Business Plan and Devising Business Strategies for further insights. Use the Online Strategic Planner to create your own 2-3 page strategic plan.
Here are some suggested resolutions for better business planning applicable to any established business:
Looking for New Business Ideas
When looking around for business ideas, bear in mind that these could be based on any of the following approaches:
You should narrow your search to specific market or product areas as quickly as possible. For example, the "food business" is too broad a search area. Do you mean manufacturing, distribution or retailing, or do you mean fresh, frozen, pre-prepared etc. or do you mean beverages, sauces, confectionery etc.? It is better to pursue several specific ideas (hypotheses) rather than one diffuse concept which lacks specifics and proves impossible to research and evaluate. Generally, you should always aim for quality rather than cheapness. Be very cautious about pursuing ideas which involve any prospect of price wars or are very price sensitive; of getting sucked into short-lived fads; or of having to compete head-to-head with large, entrenched businesses.
Observe consumer behavior:
Look at changing existing products or services with a view to:
For further suggestions and tips, see the white paper on Getting New Business Ideas.