The 5 Fundamentals You Need to Know When Creating a Business Plan

March 30, 2021 | Adam Morris | 0 Comments



The 5 Fundamentals You Need to Know When Creating a Business Plan

Business Plan

A business plan. What’s that for? Why on earth would you need one? 

In our last blog, we spoke about building your business by validating your idea over and over and over again. Focus on that validation and let your business grow organically from that great idea. But what’s all this talk about a business plan?

Your Google tips on business plans, and you’ll get endless articles about how to write a business plan, what should go into it, and why you need one.

We’ll link to some of those resources if that’s the route that you’re going on. But for this blog, we’re really taking a look at what purpose the business plan serves and what components of it might be useful for you as you’re developing your business. Once again, refer back to the previous blog on how to validate your idea because focusing on that customer interaction will get you further, faster. 

But there’s a lot more that goes into a business than just validating an idea. And your business plan is really this overall architecture for taking a look at what your goals are for your business and how you’re going to achieve those. Taking a look at your resources, the market, what demands from different stakeholders are on your business. It’s going to give you a vision of how to develop your business going forward.

For a social enterprise, you have two bottom lines. One, you’ve got to be sustainable as a business, but two your whole purpose for existing is for the social impact that you’re going to deliver. 

What is that? And how are you going to deliver that impact? I’m not going to spend much time on this because typically social entrepreneurs have a really good start on that.

Also, if you’re validating an idea quite often, you’re already interacting with the people you’re going to impact. If you don’t have a clear idea of this, here are some other resources you can look at:

And we’ll also be discussing this in upcoming blogs in more detail.

Why do people create business plans?

Quite often, it’s because they’re looking for investment or reaching out to mentors or other partners, and they want to clearly describe what their capabilities are, what they’re doing, and be able to provide that kind of documentation and research that they’ve thought this through.

But another big purpose of a business plan is to help give you some focus. And make sure that you’re covering your bases, basically making sure that there are no holes in how you’re going to operate your business by looking at some common areas that people look at and the business plan. Those areas are:

  1. Your basic business concept.
  2. The market that you’re operating in. 
  3. What your strategy is. That includes your financial plan and maybe your marketing plan.
  4. Your actual product or services and what sets you apart from your competition. 
  5. The backgrounds of the people that are in your business and what capabilities they have.

So let’s go through each of these in detail.

Your Basic Business Concept

A business plan starts with an executive summary, and this is really just detailing your basic business concept. At a high-level overview of what industry you’re operating in, how you will structure your business, and what your product or services.

Basically, tell me what you’re doing, how you’re operating, and what, who you’re operating for. 

Understanding Your Market

This has two parts. The first is understanding your customer. And the second is understanding what your competition is.

Understanding Your Customer

Your customer is who you’re selling to. And really, as you’re validating your business, this is who you’re talking to. You’re going to get a sense of how big your customer base is. You’re going to find out how much they spend and how much they’re willing to spend on the solution you’re providing. It’s really about understanding their needs and your access to find the right customer with the right messaging to get the services you’re trying to offer. 

Understanding Your Competition

The second side of understanding the market is taking a look at your competition. There’s a famous exercise you’ll find for any business practice, which is a SWOT Analysis. SWOT stands for strengths, weaknesses, opportunities, and threats.

In this analysis, typically, you’ll write down what your strengths and weaknesses are and what the opportunities are for you and your unique skills as a business, and what the threats are from your competition. Businesses use this to really figure out how they’re different from other companies providing similar services.

What’s really important about this is you’re not just looking for companies which are competing with you, but you’re looking for different ways that people can get the solutions they need to their problems. So if you’re making a widget to solve a problem and somebody else is selling a similar widget, they’re a competitor. 

But perhaps somebody has a change in their lifestyle, so it’s that they don’t need the widget. A lot of looking at your competition is also looking at different ways that people can solve the problem outside of using your business services. And you want to be able to understand that your purpose as a business is to deliver the best value for all these alternatives.

If you can’t, then maybe you should be looking at a different business idea or a different way of approaching it so that you are delivering more value. 

I think people get hung up on this, but at the end of the day, a business exists to help alleviate problems that people are having in their lives: making them feel uncomfortable, painful things they want to get rid of. You’re here to make the world a better place through your business. That’s not just for a social enterprise. That’s for any business.

Festival businesses typically understand what problem that they are solving and what they’re doing to address it. So really, understanding your market ties back into validation. You’re talking to your customer; you understand what other solutions are out there. And that’s going to give you a better idea of how you can deliver the best service.

Your Strategy and Financial Plan

This is all about how your business is going to operate. People will throw around fancy terms like key performance indicators, which typically are just measures of how you’ll know if you’re on track for success. But most importantly, you have to understand your own financial plan, how cash works in your company, how much cash you’re going to need, and when you’ll be able to pay it back. Do you have huge costs that you have to pay upfront to be able to produce whatever product or service you’re selling? You have to know that, and you have to understand how you’ll market to your customer and what those marketing costs to the customer are. So that can be part of your financial plan. 

There’s a whole ecosystem around how your business is going to operate. It’s not just the cost of producing the goods that you’re going to sell, but it’s also operating costs. If you have employees, that’s a huge part of your business. It’s being able to cover that and understand when you’re going to be getting the money in the door to pay your employees or other suppliers. 

So this section of the business plan is really just having a solid idea of how your business will function, especially how the money is going to move in and out. This will point out any holes you might face that you might need to cover through investment or another financing.

Your Actual Product or Service

This is about diving into the details of what it is that you’re offering and why you might be a better choice for that. This is also about understanding your competitive advantage against the other alternatives for solving the problems that you’re seeking to solve.

Your Background and Capabilities

Understanding with the team you currently have, what skills you already have to make this business a success, and which ones are lacking, perhaps you lack financial knowledge or marketing knowledge, or product development knowledge. Perhaps you don’t have enough people to execute and produce everything that you need to.

It’s really about understanding who’s at the helm of the ship and driving it and who’s making the ship run. And is that what you need for this to be successful? Taking a look at the talent behind the business is going to give you an idea of, “yes, I can get this up and running.”

Conclusion

If you’re just starting out, I really recommend focusing on validating your idea a lot more than spending time polishing up a business plan.

If you’re on track to get venture capital funding, yes, you will need a business plan, but if you’re just starting out and you have an idea that you’re playing with, focus on developing that idea validating it with small tests and build the business plan as you go. Understanding that the business plan is really going to give you that long-term strategy for how you’re going to become a success will also be a good way to communicate to other people where you’re headed, what your capabilities are, and why they should believe in you.

But a business plan is only as good as your experience and your knowledge about the service you’re delivering. So again, start with validating your idea and talking to people before creating your business plan.

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