It's time to rethink your business plan
Where do you want your company to go?
by Richard Siedlecki
All too often, entrepreneurs spend far too much time creating business plans that feature lofty but unattainable goals. They describe products and services in a bombastic "say nothing" style and address competitive advantages that are pedestrian or even questionable.
Clearly, when it comes to business planning, a lot of businesses could use some help.
Based on plans that I've read, about 25 percent of them don't give me any hope or confidence in the management. More than half don't clearly differentiate their businesses or products and services. And about 30-40 percent fail to convince me that the business can sustain itself over time.
But don't despair - all is not lost! Here are some guidelines that can help you rethink and rewrite your business plan to emphasize profitable and sustainable growth.
The structure of a successful plan
You don't need any special software or expertise to answer these questions about business planning:
- What is the purpose of your business and what are you trying to accomplish?
- What is the unique or big idea behind what you are marketing?
- Have you clearly defined and segmented your target audience and can you reach them in a cost-efficient manner?
- How does your long-term marketing strategy separate your business from your competition so that your target audience perceives you as being different?
- What are the costs related to your products and services and what are the financial breakevens?
- How long will it take you to recover your costs and make money based on your financial projections?
- What resources and management controls have you established to ensure that your business will sustain itself over the next three to five years? (Hint: Consider money, people and equipment.)
Answering these questions can help you flush out ideas, spot weaknesses and build on your strengths. In addition, your answers can help shape your business thinking and give you a clearer, more focused perspective.
Establish a strong competitive position
Your competitive analysis is one of the most important sections of your business plan. Assess your competitors' strengths and weaknesses so your business plan can spotlight your advantages and how you can compete more successfully. Use the following as a guide for your thinking:
- What is it that your competitors are not doing that can open up opportunity for you?
- What is it that your competitors are doing but not doing well enough?
- What is the market share of your key competitors - and the opportunities for you?
- What business locations or sites are available to establish a strategic competition position? (Consider locations in your major markets or close to your distributors and suppliers.)
- What are the financial strengths and weaknesses of your key competitors? (This usually correlates to their staying power.) For example, do they lack the capital to expand their locations?
- What marketing resources do your major competitors lack? (For example, do they have enough salespeople to adequately serve their customers in specific regions?)
- How do your products and services compare with your biggest competitors in terms of price, service, guarantees/warranties and other advantages? Which of those are most important to customers and prospects?
Strengthening your plan
Consider these suggestions for polishing and strengthening your business plan, or for creating a plan if you don't have one now:
- Differentiate your business. You don't have to be a large, deep-pocketed corporation to establish a competitive advantage. In fact, it's usually easier for a smaller company, because you can uncover niches, maneuver faster and concentrate your resources on specific competitive opportunities. That's why marketing is one of the key areas to be addressed in your business plan.
- Present your competitive advantages. Your plan should emphasize the competitive differences you offer and factors that may restrict competitors from entering your market areas, or make it difficult for them to compete with you head-on. These may include:
- Trademarks and servicemarks
- Exclusive contracts
- Manufacturing resources or processes and special technology that are difficult for competitors to emulate
- Unique distribution
- High product or service margins
- Fast turnaround on orders
- Special skills, experiences or specialists
- Make the numbers work. In addition to generating the typical financial information - income statements, balance sheets, cash flows, breakeven analysis (historical and projected) - your plan should help you determine your capital needs and address your cash flow. Use the following review as a guide:
How much capital will you need to achieve your goals and objectives over the next five years?
Are your financial projections logical, reachable and within industry norms? Are your "what if" scenarios prudent and practical?
What kind of financial structure are you projecting - and what percentage will be debt and equity? What (if applicable) are the ideal terms?
How will you use the capital? And what do you expect to achieve (the outcomes)?
What kind of action will you take if you fall short of your objectives, or if you underestimate the capital you will need? Be specific.
What steps and controls will you take to ensure that you'll have a strong cash flow? Be specific relative to inventory, extending credit, accounts receivable, forecasting your needs, etc.
Note: Cash is not the same as income. You can be making money and still run out of cash to pay employees, suppliers, leases, utility companies, etc.
- Lead with strong management. Be sure your plan presents a business with a strong management team that can lead your company in the years to come. Explain how you will build that team. Also ask:
Does the management team have successful experience in your business or industry? What kind of alliances and partnerships can you establish with outside consultants, advisors and professionals to help complement your team?
Is the management team positive and passionate about your company and the products and services you market? Do they follow the plan, yet stay flexible so they can react and adapt to change?
Does your management team work with your employees, motivate them, help them and empower them?
Do they lead with integrity and by example?
Does the management team reinforce positive results and reward accomplishment?
Make the decision now to rethink and redo your business plan. Figure out where you're at now, where you're headed and how you will get there. This is an important exercise to do at least once a year - it's the best workout you can do for your business.
Richard Siedlecki is a self-employed management consultant (established in 1978) who focuses on business and marketing plans, new business start-ups, developing competitive advantage in highly competitive markets, getting more profitable sales from existing customers and creating customer loyalty programs. His specialty is direct marketing via direct mail, catalogs and the Web.