What Makes a Good Business Plan?

Over the years I have read and critiqued many business plans produced by students in my Entrepreneur classes.  Few are great, others are not so great.  So, what is the difference in the great ones that make them stand out?  What are the elements they should contain? 

The answers to these questions encompass, among other things, what the business is, the products or services that you want to develop, how the operation works, what you are up against in the way of the competition, what consumer need you are fulfilling, and lastly, what is your experience in this business?  Of course, you will begin with a concept, but a business plan is not just for concepts.  There are goals that must be presented with solid, reasonable tactics and strategies that will result in a good business.

The development of these tactics and strategies are in the marketing plan, the crux of your business plan. Following the tools of marketing, the 4Ps of Product, Price, Placement and Promotion, is the key.  To do this you must do market research to vet or validate your business concept.

Many students fail to do significant market research.  Learning all about the consumer and his psychological makeup will help you design a product or service that will appeal to him. Comparing your product to the competition in the way of price, quality and costs to manufacture are important factors to work on. Differentiating your product from the competition to attract buyers is important. Looking at consumer buying trends, new innovative products and, of course, the technology that will reduce costs to manufacture and distribute products must be considered and studied.  Knowing these and incorporating them in your planning will help you stay ahead of the competition.

Communication with prospective consumers is so vital to convey what you have to offer and to attract and motivate them to buy.  Advertising and promotion — by utilizing social media, ads in newspapers, television, local ad placement — are ways to keep your name in front of the consumer.

Financial projections are another important part of a business plan. They reflect how you are going to make money.  You will consider your costs and expenses and determine the number of units that will be sold and at what price.  This is where competitive analysis comes into play.  How much are your competitors charging for similar products or services?  How much are they selling?   Is there demand for your product?   Do you believe you will be able to take a share of their market away from them in order to have a successful business? Starting in the first year, how much will you project to sell, then determine for the second year how much of an increase or growth from the first year is reasonable, and so on. You must consider seasonality, cyclicality and economic conditions, and adjust the projections for these. The answers to these questions are daunting and difficult to achieve without research. 

The writing style the plan contains is concise and accurate information geared toward your audience of potential investors and bankers.  Including charts, graphs, and pictures of the product make appealing reading and can show at a glance the data and points being made.  Show your completed draft to some friends who do not know your business to determine whether they understand it and address any ambiguities.

The key to a good business plan is market research. The more research you do, the better your planning will be.  For a start-up business, the projections will help to determine whether you have enough money to start the business and stay in business.

Why Do Businesses Fail?

We have a great idea and we are anxious to go into business and become an entrepreneur.  You are advised to do your market research, consult with focus groups to test the market, determine your competitors, and write that business plan.  You look for investors and put your own money and probably friends and family money into the business.  You plan, strategize, write and then you are on your way. You are energized with the hope that your business will be great.  But what can go wrong?

Here are five common reasons why new businesses fail:

  1. Lack of Sufficient Capital

Opening a new business, no matter how small or large takes a lot of money, and many new owners do not foresee this.  I recommend planning your strategy and write a formal business plan.  It is important to understand the difference between a startup budget (money you will need to open your doors) and an operating budget (money for your monthly costs and expenses).

  1. Insufficient Marketing

You may think that you must hire a public relations firm to write your news articles and keep your name out front.  But as a startup you do not have the money to do this.  There is so much out there that is free or relatively inexpensive in the way of social marketing tools, like, Constant Contact, Twitter, Instagram and Facebook. You can use these initially.  You can even have a presence on the Internet by creating a website.  In today’s world, especially with the Millenniums and their use of the smartphones, you need to have a website.

  1. Not Understanding your Target Market

You need to know that the market you are entering is growing or self- sustaining.  It is foolish to enter a market that is declining; you will be unsuccessful and waste the investment you have made in the business.  You need to understand the demographics of the area and what their buying habits are and what they like to do.  Gearing products to the wrong group of people are recipes for disaster.  If you find that you have targeted the wrong market, you may not have enough time to pivot to another market.

  1. No Experience in the Business

It is beneficial to have some experience in the type of business you want to establish.  If you want to open a restaurant, and never have been in a restaurant’s kitchen or know what the margins are for running the business, you are wasting your time and money.  You will need to know what you are getting into.

  1. Going into Business for the Wrong Reasons

The entrepreneur Guy Kawasaki says that going into business to get rich is the wrong reason for going into business.  You should go into business to fulfill a need of society, or what can make life better for us.  It takes a lot of time to run a business, probably up to 80 hours a week, and the entrepreneur can become overwhelmed with the responsibilities.  It is important to have a support group, especially your family, going into it.

When Plan A Doesn’t Work