What you really Should Know about Business Plans
This article is based ‘loosely’ on my same-topic interview for GBC Radios’ Uniiq Business Hour program of past Thursday, the 15th of February; this is by no means a full and comprehensive look at Business Plans.
There are a lot of myths and misperception regarding what a Business Plan is, what is for, and how to write a good one. Most amazing thing is that almost all people who write books or give (especially paid-) advice on writing Business Plans -even in Ghana, they have rarely run a few successful businesses themselves.
The Business Plan: This & That
Let me start by clarifying what a Business Plan is not: A Business Plan is NOT a document that you write only when you want financing from a Bank or a Foundation or a VC (=Venture Capitalist).
A Business Plan is all about your Business Strategy – it is actually your Business Strategy Blueprint. You take the time to write it, because when we write things down, we take a bit of time to better think about what we write and also a lot of things get clarified when they are transferred from our head to the paper.
And of course, you have the formal benefit of having a written Strategy that you can communicate / share with others in your team or external 3rd parties.
The internet is full of free Business Plan Templates, (if I recall correctly even Microsoft Office has a few samples). So, please go ahead, get 3-4 of them and choose one closer to your needs and add any ‘missing elements’ that the other 2-3 plans might have extra.
The 3 Critical Elements of any Business Plan
Whatever Template you might choose, they do have several chapters and all templates -more or less- have the same content. But 3 of them are the most critical ones:
#1. Know your Market – The Marketing plan.
Between Marketers, there is an old joke: ‘Marketing is when you lie to the Consumer- Market Research is when you lie to yourself’
Now, that said, I assume you understand that Market Research is of paramount important to the success of your Business. Get out of your Comfort Zone and go out there and talk to your potential Customers. Do it yourself – don’t hire someone else to do it for you. Get to hear first-hand what your customers really need.
Just because you developed the Perfect Product or Service and can deliver / provision it at an excellent price with the highest possible quality and the best Marketing and Advertising Campaigns, don’t assume that this will be a success and that there is even a demand from it. Let me give you a simple example:
Almost 15 years ago, people were all tired of dongles to attach to our computers for internet connections, so PC- manufacturers start producing notebooks & laptops that they had a small ‘case’ at the bottom to place a simcard for data connections. Samsung did the same with -at that time- new 7 “ tablet, which eventually turned that tablet into a Smartphone with today’s standards. At that time, people had phones with 2-3 inches- diagonal screens.
So, everybody in Europe and at least the US thought that placing a 7” phone-tablet in your pocket was the stupidest possible thing to do. Of course, now everyone can’t wait for 7” startphone!!
That’s a simple example of an excellent product that the market 15 years ago was not ready for it.
Part of your Marketing Plan should address your demographics and geographies that you are after and why, along with a realistic estimate of potential Buyers. I see a long of overoptimistic projections, especially with internet apps or ecommerce startups… sorry, you will not have every internet user in the World as your Customers. Amazon itself can’t handle been present in Africa.
And your Marketing Strategy should have a timeline element to it… e.g. Year #1 we will focus in selling to Accra-based buyers, Year #2 Greater Accra And Ashanti Regions etc… or Year~1 wee will sell this and that, Year# 2 we will add additional products and services for these demographics, etc..
Know Your Enemy: you need to really know all your competitors at least in your geography. And with know, I mean go and become their customer- buy their products and services and observe their weaknesses. That will help you refine your USPs (Unique Selling Points) and possibly find the right price.
By the way, don’t underestimate the ‘small competitors’; if they are in business that means that they are doing something right. And, visiting them and using their services/ products might open your mind or exposure to a weakness that you have that you are not yet aware of it.
Pricing is a very complex process. There is no golden rule or rule of thumb about it. If you are too expensive, you run the risk that no one will buy. If you are too cheap, you run the risk that you will perceived as offering a product or service of lesser value.
You will need to try different prices for different customers and use that kind of experimentation to find out the right price.
And again, talk to your potential buyers and try to understand what they are willing to pay for, why or why not and how much.
#2. Know your Next Steps – The Execution Plan
In all articles and books, the generic Guidelines are to plan your actions for the first one or the first 3 years. I prefer and recommend the 3-year planning horizon as an approach.
My advice on the Execution Plan?
- I hope that you agree with me that -in theory- you should be able to plan at least 1-2 actions per day that will help you develop and grow your business.
- Let’s assume for calculation simplicity that a year has 200 (actually, it has 220) billable / working days
- So, you now got 1-2 actions / day X 200 days = 200-400 actions per year.
- Now, that’s 200-400 actions / year X 3 years = a total of 600-1200 planned actions!!
- Ideally, if you want to make your plan ‘water-proof’, for each of those 600-1200 action-steps, calculate the associated risks and develop relevant contingencies (Risk Management)
Take my word for it – although I believe that by now it is evident, that if you manage to create a list of 600-1200 business actions within a 3-year timeline and evaluate the relevant risks and plan for their contingencies, it is rather unlikely that your business will fail.
And of course, like in every plan an Execution / Project Plan must be continuously updated- at least once every 3-6 months.
#3. Know your Money Flow – The Financial Plan
Finally, create an interactive SpreadSheet (Excel or any other SpreadSheet application will do fine, no need for any expensive software product) that has realistic detailed costs / expenses and revenue numbers for Years 1,2 and 3, and a summary for Years 4 and 5.
You also need to ‘run’ / calculate a Worst Case, a Normal Case and a Best Case set of Scenarios.
If your idea is not scalable, it might not be a good idea for a business. And the Scenarios will show you whether there is sensible scalability.
By the way, I assume (and possibly every potential Financier will assume the same) that you plan for yourself the smallest possible salary till the business breaks even.
These are just a few things you need to be aware of, when you start writing a Business Plan. But there are several others that I didn’t mention due to space limitations – e.g. do SWOT Analysis (please google this if you don’t know what it is) of your Management Team, develop an HR plan, etc…
And I am very aware that all these can be very overwhelming. But, the good news is that you don’t need to be a marketing expert or a project manager or a finance/ accounting graduate to develop all the relevant parts. A few hours of extra study (yes self-study) will do the ‘trick’; allow me to kindly refer you to this article of mine: https://thebftonline.com/business/the-10-000-hrs-myth-learning-new-things-for-your-business
Once again, your Business Plan is YOUR Business Strategy and not a document for VCs, Banks and all sorts of sexy Financiers, And, a Business Plan been a Strategy, needs to be executed, so you need to create a (High Level) Business Plan for it, including all possible risks and contingencies for them. And, a Strategy and its Execution do require a financial assessment and a relevant financial plan & projections.
If you really invest the time to do all that ‘homework’ (it will take you 2-6 months), it is rather unlikely that your start-up will fail, unless you do something amazingly bad with your PR or Customer Service & Support.
And once again, take your time to do a proper Market Research and ideally do it yourself. Don’t pamper yourself with glorifying Sales Assumptions produced in the comfort of your desk chair or other cosy Environment.
Thank you and Good Luck,
About the Author: Spiros Tsaltas, a former University Professor, is the Principal at a unique Customer Loyalty Start-up: HireLoyalty (www.HireLoyalty.com) - based in Accra, offering both Consulting and Training in anything relating to Customer Loyalty.
Spiros has been involved with several Start-ups worldwide and he has also been a Consultant for Startups at SEED for the past 3+ years. Spiros welcomes all your comments/ remarks/ feedback /suggestions at Press [at] HireLoyalty.com. HireLoyalty can be reached at +233 20 741 3060 or +233 26 835 2026
© 2018 Spiros Tsaltas and © 2018 HireLoyalty