Does Your Business Start-Up Need a Business Plan?
A friend of mine recently completed his MBA in Entrepreneurial Studies at USF. He was already a successful entrepreneur prior to entering the program having having started over 20 businesses and currently running two sustaining companies with two additional start-ups in the works. Few of his companies ever had business plans. That said all his MBA courses taught him he had to have a business plan. It’s the academic way.
Recently I have put together three full business plans for various companies. In all cases I recommended that they must have products/services and customers before it made sense to go to the effort that we went through in building these plans. However, in all cases they believed they needed the full blown plan first and due to my experience insisted that I build them.
Their request was rooted in their belief that their ideas were so outstanding that angels, venture capitalists and banks would flock to back them because they had stellar business plans showing billion dollar plus markets, 10% market share and a great return. (I have yet to meet an entrepreneur that wasn’t in love with their business idea. If I ever do I seriously doubt that I will spend much time with them.) That said few business ideas no matter how great will ever receive external financial backing. I hate being put in the position of telling my customers I told you so. The good news is that two of them backed up and took my advice and are doing vs. writing and its working.
Let me save you some time therefore money and clear up the semantic issues. A business idea is not a business start-up. If you have a business idea here is what you need to do:
- Define why the company should exist (What is going to make people want to come to work for this company and what is going to make customers want to buy from this company?)
- Define the problem and why it needs to be fixed.
- Define who is the target customer. Who is feeling enough pain and will benefit enough from your offering to pay for your new product or service?
- Define what you believe the buy cycle for this target customer to be.
- Define what products/services need to be provided? At what point do you have a “whole offering?” That point that the target customer will agree there is enough benefit to invest in your products/services.
- Define what the cost of development and delivery of the products/services as well as target customer acquisition cost are going to be.
- Determine who your competitors are and what their reactions will be. Do not underestimate your competitors ability to react to new market entrants. (Define what it is that you do and what makes you different.)
- Once you have this done you can begin to determine if you believe you are going to be able to sell your product/services at a price point that you will be able to make a profit. Your business model should begin to take shape.
All of this should be written in a brief executive summary supported by your Excel sheets. While similar information is necessary to be included in a business plan, this is not a business plan. This is a business hypothesis. You have to prove this hypothesis. I can assure you that some parts are wrong and others need tweaking. When you have several customers paying money for your products/services you have a business start-up. And yes, your business start-up needs a business plan.
by: Terry L. Massey