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The Ultimate Guide To Business Plans - P2

BY: Nguyen-Ngoan  |   Aug. 8, 2018
Business Plan
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The Company

“You don't have to fear your own company being perceived as human. You want it. People don't trust companies; they trust people.” ― Stan Slap

This section of your business plan will fundamentally answer two questions:

  1. Who are you?
  2. What do you plan to do?

Answering these questions in a concise, direct, and simple manner should provide an ample introduction of why you’re in business, why you’re different, what you have going for you, and why you’re a good bet if you’re asking for an investment.

It's also a good opportunity, if you haven’t done so already, to evaluate and put to paper some of the more intangible facets of your business principles, ideals, and cultural philosophies that will allow you to better grasp your own corporate identity. Okay, so here are some obvious and necessary components that need to be here:

  • Structure of your business (ex. sole proprietorship, general partnership, limited partnership, or an incorporated company)
  • The date your business was established
  • The nature of your business (what are you selling?)
  • The industry you are in
  • Business vision, mission, and values
  • Background information on your business or its history
  • Business Objectives (short and long-term)
  • The team

Here are some tips to help you tackle some of the more tricky ones that are listed above:

Structure of Your Business

In case you’re wondering which category you fall under, here are some common definitions:

  • Sole Proprietorship: Someone who owns an unincorporated by themselves
  • Partnership: Here two or more persons join to create and sustain a business while contributing some form of money, property, and skill while being directly impacted by the profit or loss of the business
  • Corporation: This structure enables prospective shareholders to exchange money and/or property in exchange for capital stock.
  • Limited Liability Company (LLC): This is a state-authorized business structure that falls under state specific regulations that is composed of members, who are the owners.

Business Vision, Mission, and Values

This is when you really start getting into the core of why your business exists, what you hope to accomplish, and what you actually stand for. Now, don’t spend more than a previously allocated time to get the answer to those questions together, let’s face it, as a fledgling company, you’re learning as much about yourself each day as you are about your customer. Meaning, don’t by any means feel that anything you state here is set in stone. But what this does mean is giving yourself a starting point to build on top of at a later date (hopefully when you’re in your growth phase).

First off, it’s important to clarify your values. In short, this means taking into account all the various stakeholders that your company is accountable to, that includes owners, employees, suppliers, customers, and investors. Now consider how you would like to ideally conduct business with any one of those stakeholders. Start making a list and your core values should start to emerge.

From there, you can pen down your mission statement. Let’s break those words up first, according to Dictionary.com, a mission can be defined as “an important goal or purpose that is accompanied by strong conviction,” and a statement can be defined as “a single sentence or assertion.” Now let’s put the two together to break down what you mission statement should be. It should state the purpose of why your business exists in a convincing manner in no more than a single sentence, the shorter, the better.

Here are some do’s and don’ts we’ve deduced from several experts on the subject matter.

Do’s

  • Create something that connects with both employees and customers
  • Make it about you
  • Highlight your value proposition
  • Make it tangible
  • Mention a specific goal

Don’ts

  • Make it useless
  • Make it long
  • Make it generic
  • Make it confusing

Example of a Bad Mission Statement: General Motors

“G.M. is a multinational corporation engaged in socially responsible operations, worldwide. It is dedicated to provide products and services of such quality that our customers will receive superior value while our employees and business partners will share in our success and our stockholders will receive a sustained superior return on their investment.”

Example of a Good Mission Statement: Nike

“To bring inspiration and innovation to every athlete in the world.”

Once that’s out of the way, you can move on to crafting your vision statement.Again, let’s start by defining what the word vision means. It is “the act of anticipating that which will be or may come to be.” So, what impact do you envision your business having on the world once you’ve achieved your vision? Now that you’re thinking that far down the road about your business, put it it, an assertion. You can have more than a single sentence for this one, but we don’t recommend going over three at most. Gloss it over to make sure that anyone who comes in its proximity feels any one of the following emotions; inspiration, hope, commitment, and awe.

Just like the mission statement above, here are so do’s and don’ts along with some examples:

Do’s

  • Make it compelling
  • Make it detailed
  • Paint the intended end outcome
  • Highlight why your company exists
  • Make it the outcome of your mission statement

Don’ts

  • Make it bland
  • Make it generic
  • Make it uninspiring
  • Make it obviously unreasonable

Example of a bad vision statement: Dell

“To be the most successful computer company in the world at delivering the best customer experience in markets we serve.”

Example of a good vision statement: Amazon

"Our vision is to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online."

Business Objectives (short and long-term)

Now that you’ve got the “what” and “why” answered for your business, it’s time to jump into the “how.” Once you’ve figured out your vision and mission, it’s time to lay down how you’re going to execute and bring them to reality? That’s where setting goals and objectives come into play. We’ll start with a friendly reminder of the importance of making them SMART. Which means making them:

  • S - specific
  • M - measurable
  • A - actionable
  • R - realistic
  • T - time-frame

At this point, you’re probably wondering what’s the difference between a goal and objective? One way to categorize them are that goals tend to lean towards being more qualitative, while objectives almost always tend to be more quantitative. Goals usually revolve around achieving big picture business intentions centred around market position, customer service, growth, and company culture among other key things. Objectives on the other hand focus more on practical, day-in day-out metrics that revolve around revenue, number of customers, and product-related metrics.

Lastly, let’s define the context around timelines for an entrepreneurial venture. Short-term mean the next 9-12 months, while long-term typically should refer to the next 1-5 years.

The Team  

This is where you hammer home the point that you not only know what you’re doing and where you’re going, but that you’ve got the right mix of talent and experience to actually make it all happen. For this section you can highlight key members from your management team as well as their salaries (which might just be you for the time being) as well as listing your advisors or board members, in addition to any external professional service providers who may be consulting with like lawyers or accountants. Another thing you might consider listing are the positions you’ll be looking to hire in the near-term future.

The Industry

“The environment is everything that isn’t me.” ― Albert Einstein

Remember the time you walked into an exam without ever having opened the textbook? The first thought that probably came to your mind was that you should have done your homework, right? When you’re starting a new business, there’s a lot more at stake than just a passing or failing grade, so you’re going to want to show that you’ve done your research and care enough about your own success to have scoped out the lay of the land.

You’re also going to have to use this section to demonstrate that the industry’s market size is worth going after, who you main competitors will be if you decide to pursue it, and how you’ll be able to carve out a niche for yourself and give them a run for their money.  

Market Size

Let’s start with getting an idea of just how big the opportunity is and why it’s worth going after. This means figuring out how many customers you’re going after and what are the revenue possibilities? This is a convincing first step to lure in whoever is reading your business plan to become intrigued and dig further into your findings. But, you might get stuck on figuring this one out, so here are some general categories to point you in the right direction:

  • Free resources on the web
  • Government sources
  • Trade associations
  • Financial Services Firms
  • Online Data Providers

Industry Forces and Trends

Now you’ll need to outline what’s happening in the industry from a number of wide angles that would help the reader of your business plan get the gist of whether on the whole if its a good or bad place to be. A great general-purpose tool for doing just that is something called the PEST Analysis. Here’s what it stands for and what you should consider:

PEST Analysis

P - Political factorsWhat role the government plays in your industry?

E - Economic factorsWhat is the state of economy on both a local and national level?

S - Social factorsWhat the relevant changes in matters like lifestyle trends, demographics, consumer attitudes, buying patterns and opinions?

T - Technological factorsWhat is the impact of changing technological trends on your industry?

Another handy tool to have in your arsenal when conducting industry research is the almighty Porter’s 5 Forces Analysis. Don’t worry if you’ve never attended a business strategy class in your life, it’s actually quite straightforward. Here are how they break down:

Porter's 5 Forces Analysis

1. Threat of New EntrantsHow difficult (or easy) is for someone to enter your specific vertical? If it’s very easy then most likely the space will be crowded with competitors fighting for margins. Conversely, if it’s very difficult, that that in itself can become a competitive advantage.

2. Threat of Substitute Products (or Services)How likely is it that another product or service could decrease demand or displace you and potentially the entire industry all together?

3. Bargaining Power of CustomersWhen it comes to pricing and terms, how much power does your customer have? Are they organized enough to exercise their purchase power or is their so much competition that they have their pick resulting in pricing wars amongst providers?

4. Bargaining Power of SuppliersThis refers to how dependant you are on a given supplier to operate your business. If it’s difficult or near impossible for you to switch, that means they have the upper hand, whereas, if the switching costs are low, you can negotiate better terms for yourself.

5. Competitive Rivalry of MarketFactoring in the first four forces, you can arrive at a good understanding of the playing field and whether it’s in your favour you enter it, how long you’ll be able to last, through what means you’ll carve a space for yourself, and what you’re up against.

Competition

Once you’ve given your reader a good idea of the important trends and paradigm shifts in the industry, you’re going to have to start dropping names and point out your major competitors. This means factoring in not just your direct competition (those with similar offerings) but the indirect competition as well, meaning the 800 pound gorillas lurking in the jungle (or the Amazon and Googles of the world).

To help both you and reader get a good grasp on how formidable those competitors might be, you’ll want to mention things like their annual profits, market share, and distinct competitive advantage. It’s much easier to find information on public companies than private companies, but it’s always a good idea to do as much background research as possible. You’ll also want to use something called a SWOT Analysis when discussing these competitors to make sure you’ve covered the right amount of ground. Here’s what it stands for:

SWOT Analysis

S - StrengthsWhat do they have going for them? Is it their technology, brand, people, or lean value chain?

W - WeaknessWhat do they not have going for them? Are they missing experienced management, have unreliable customer service, or just plain old poor customer retention?

O - OpportunitiesWhat are they positioned to take advantage of? Are their environmental trends or changes they are likely to benefit from?

T - ThreatsWhat’s keeping them up at night? Or what should they be worried about?

Lastly, before we move onto “how” you’re going to get your product or service in other people’s hands, we need to discuss what makes your offering distinct from everything else in the marketplace.  These variables are often referred to as your “value propositions,” “unique selling points” or “competitive strategy.” First, we’ll start by once again taking a page from our friend Michael Porter’s playbook  and refer to his Generic Competitive Strategy, which states three routes for standing out from the competition.

Generic Competitive Strategy

1. Cost LeadershipThis refers to having the capacity to scale operations in order to offer lower prices than the majority of the players in an effort to maximize profits.

2. DifferentiationThis is where your product or service offers something distinct than those of the current cost leaders in your industry and banks on standing out based on the “newness” factor.

3. SegmentationThis is where you focus on a very specific or “niche” target market and focus on building traction with a smaller audience first before moving on to the bigger fish.

We’re also big fans of a book you should be reading called “Business Model Generation” by Alexander Osterwalder and Yves Pigneur who list some very handy ways that your offering can stand out from the crowd. Based on the list in their book, here are a few particular ones you can compete on:

  • Newness - Satisfying a previously undiscovered need or want with no similar offering
  • Performance - You’ve built something that is incrementally faster or better than what exists in the marketplace
  • Customization - You tailor your offerings to each individual customer or customer segment
  • Design - Your offering is markedly better designed or stands out from the others
  • Price - You offer the same thing as everyone else at a lower price
  • Cost reduction - You help your customers save money
  • Risk reduction - You help reduce the risk your customers take when purchasing what you have to offer
  • Accessibility - You’ve tapped into a previously underserved or never served market
  • Convenience - You’ve made something that’s much easier to use than whatever else is in the marketplace
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