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WJH Business Plan FAQ
1. Why do I need
a business plan?
2. But I have
a really small company. Do I need a plan?
3. So, are
there different types of plan depending on the need?
4. How should
I approach the creation of the plan?
5. How
do you go about creating the actual plan?
6. What about an Executive
Summary?
7. What about
a suggested format for a complete plan?
8. What about packaging the business
plan?
9. What are
some typical issues I should consider when creating a plan?
10. What does it cost for you
to help me develop a plan?
11.
How do I know what a specific plan will cost me?
If you have any other questions, please
contact us.
1.
Why do I need a business plan?
The answer to this depends
on where your company stands in terms of age and needs.
For a start-up or early phase
company, there is often the attitude that a business plan is written
only for investors or the bankers and then put on a shelf.
For a more established company, the idea may be that you don't
need a business plan because you never have had one. Both
of these thought processes miss most of the real purpose of the
plan. In practice there are several high level reasons for
developing a business plan.
a. The plan is a test of the company team’s knowledge, experience,
and resolve. If a management team can't plan their business
and articulate the plan in a professional manner, how can the
same people run the business? Of course, the counter argument
is that the skills required in writing a business plan and running
a business are different, and maybe the skills the business needs
are more important than the skills needed to generate the plan.
The level of detail and professionalism the plan depends on
the business. Obviously, many businesses involve more than
one person and require a more thorough and well documented plan.
The members of the management team must have a plan so they can
agree on directions, plans, expenditures, etc. Investors
must have a plan so they can make a decision. The planning
process should force the team to completely understand the markets,
their product's fit, the way they will build the company, the
capital required, and the profit potential.
(Consider the business plan as a planning tool - you could change
the first sentence of this section to say that the creation of
the plan builds knowledge, experience, and resolve.)
b. The plan is a road map for the journey the company is
about to take. For example, a basic criticism of technology-based
companies (and, in particular, the technologists who often start
the companies) is that they are creating products based solely
on the availability of a particular technological solution and
not on market needs. The business plan should resolve this issue
and provide a business-based path for the company to follow.
A “business-based path” is the road map that describes the combination
of market need and fulfillment capability (perhaps, but not always,
technology based) that allows the business to exist and prosper.
c. The business plan educates the reader and builds credibility
for the team. While a business plan should not be a tutorial
that explains everything about your business, it should be considered
a brief primer that summarizes the important aspects of the business
and shows the reader that you are an expert.
d. The plan is a means of reducing the number of internal
problems a company will have later. This is especially true
because individuals within the company will have their own perceptions
regarding the goals and operations of the company. It is
amazing how many people build companies without developing a consensus
among the early participants on even simple things. The
business planning process can build this consensus (or at least
define the areas of disagreement) and cause changes to be made
to either the team or the plan.
e. The business plan exposes (if done properly) risky and
incorrect assumptions and decisions by the team. If an assumption
about the market, a potential customer, or the product is incorrect,
it is extremely valuable if this can be discovered in the planning
process. However, even if all of the problems are not discovered,
a well thought-out plan will provide the knowledge that gives
the company the flexibility it needs to survive any surprises.
f. The plan also provides a necessary document if the company
is going to talk to strategic partners or capital sources (whether
equity or debt). It gets the potential partner up to speed
and shows the depth of knowledge and expertise of the management
team. It also increases the odds of the company's successful
acquisition of capital.
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2.
But I have a really small company. Do I need a plan?
The one-person lawn mowing
business does not need a large, formal, written and bound plan
with graphs and references. However, sitting down and thinking
about the competition, market, costs, profits, and where to advertise
is appropriate. Writing the results of this exercise down
in a small notebook so that it can be referred to later is (for
this business) the creation of a plan.
As stated in the answer to
question #1, the planning process should force you to completely
understand the markets, your product's fit, the way you will build
the company, the capital required, and the potential profit.
These are interesting (and necessary) questions even for the smallest
of companies.
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3.
So, are there different types of plan depending on the need?
Yes. For example we
have seen (and been involved in developing) the following types
of plans.
a. The simple "notebook" plan that documents the questions
and the answers.
b. A "plan" that is contained entirely in a financial model
that shows all of the assumptions and opportunities with regard
to the company. (In this case the "plan" is not a written
document, but rather, an Excel spreadsheet. However, it
is important to make sure that key assumptions are spelled out
in specific text in the spreadsheet and not simply embedded in
the numbers.)
c. A plan in the form of a presentation (PowerPoint
or otherwise). This type of plan does a good job of articulating
assumptions, opportunities and threats.
d. A full textual business plan of from 10 to 100+ pages
with appendices, financial models and other relevant documents
attached.
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4. How should I approach
the creation of the plan?
First you need to decide what
type of plan you need.
A good way to think about
approaching the creation of a plan is to consider that the business
planning process (and consequently the plan itself) proposes,
educates, defines, focuses, documents, and sells.
Proposes - The plan starts out as a set of proposals among
the owners and management team members. It is the vehicle
for converting proposals into details than can be agreed upon
and implemented. If
the plan is to be presented to outside investors (particularly
to venture capitalists), it is especially important to keep in
mind that the plan is an operational proposal. In general,
the investor expects the management team to be sophisticated enough
to have put together a plan that is both complete and executable.
At the same time, they expect that they, as investors, will have
some influence over certain aspects of the implementation process.
Therefore, the plan could change. (Company valuation and
equity ownership is a typical example of this.)
Educates and Defines - During the business planning
process, it is the management team that is educated. The
process is an excuse for learning everything about the market,
the competition, and other aspects of the business. This
educational process results in a defining of the issues,
concerns, strengths, weaknesses, implementation steps, and
other components within the plan. The completed
plan is then used to educate potential investors,
new employees, potential strategic partners, and others.
(This is one key to an excellent plan. Remember, it is a teaching
document. Do not assume the reader is knowledgeable about
the product, market, etc.)
Focuses - The plan should focus the company in the minds
of the management team and any outside players. This is
critical. The business plan is a device for finding the focus
of the team and the company.
It is surprising that many teams either do not know or do not
agree upon why they are in business. The plan focuses the
reasons, the efforts, and the rewards. This, in itself,
is enough reason to go through the process of writing the plan.
Documents – Obviously, the plan documents the team's ideas and
the roadmap. However, times change – so must the plan. The
important thing is to reach a balance. Sometimes the plan needs
to be the company's "bible". However, it also must be a
living document that adapts as opportunities and challenges
change.
Sells - The business plan is a way to show off the knowledge,
professionalism, and skills of a management team. It is
one of the first things a potential investor or strategic partner
sees that provides an in depth view of the company. As the
document is being written keep in mind that it has a role as a
selling piece.
Our approach at WJH is to
start with a meeting (or a series of meetings) where we cover
each of these topics and collect the information needed to develop
the plan.
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5. How do you go about
creating the actual plan?
A typical approach is to address
the following issues roughly in the order shown.
Define a need - Defines something that is not getting done
or needs to be done better within a market.
Define your solution – Define the product or service that
addresses the previously defined needs.
Define the market – Define the people/entities who care
about the need being addressed. Define attributes of this market
- size in terms of members and dollars spent, geographic dispersion,
trends (buying more or less, more people entering the market),
drivers (why do they buy), etc.
Define the financial opportunity - Use the general market
data and take a top down approach to develop the size of the specific
niche at which your products or services are aimed.
Define the competition - It is important to cover
the competition thoroughly. You need to define both direct and in-direct competitors.
The idea that your idea is so new there is no competition is
almost always wrong. (Sometimes the competition can be
defined in the "need" chapter. If it has not been previously
defined, it should be addressed here.)
Define the solution status - If a product already exists,
a data sheet or similar information can be included in this section.
If the product does not yet exist, development schedules should
be presented in the product development plans section. If it is
a service business, how close are you to being able to provide the
service?
Define the company - An overview of the entity (history,
organization, legal status, offices, existing customers, existing
investors or strategic partnerships, etc.) should be included.
Define the major operational components of the company and their
roles.
If this is a product company, introduce the product development
plans - This section discusses the development organizational
structure, philosophy, etc. Present the future product
road map. (This chapter contains milestones and discussion. Detailed
development schedules can be in an appendix.)
Discuss intellectual property issues – Directly address
the status of you intellectual property (positive, negative, or
unknown).
Introduce the sales and marketing plans - Discuss product
positioning, strategic and tactical sales, and marketing plans.
Introduce the operational entities - Discuss operations,
manufacturing, customer service, finance, etc. Special production
requirements, production plans, insurance, etc., are addressed
here.
Introduce the personnel - Describe the key players. (Resumes
can be in an appendix.) Highlight the people you have and the
type of people you must recruit. Provide a time frame for filling
key slots.
Define the financial plans - This section should present
a 3 to 5 year (5 years is better) pro forma financial plan and
discuss the important factors. More detail can be in an appendix.
Critical issues are cash flow, equity or debt infusions, and profitability.
If being used to obtain financing, define the proposed deal
- Outline the terms of your proposition to financial partners.
Discuss capital needed, financing rounds anticipated, equity arrangements,
and any other considerations. The financing terms will obviously
be negotiated and may change, but this, at least, provides a place
to start the negotiations.
Summarize - This chapter should be a "marketing" chapter
and it should be short. It should be a reminder of what
a good deal this is.
Appendices - As noted, the appendices provide additional
detail and support documents. Data sheets, analysts' reports,
resumes, and financial detail can be included.
These sections are simply
a starting point. The actual chapters within a business plan vary
depending on the details and the natural flow of the data.
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6. What about an Executive
Summary?
For a full plan, we often
recommend the use of two "summary" documents. For smaller
plans, the summary sheet may be all that is needed.
Summary Sheet - The Summary Sheet is a “one pager” (a maximum
of front and back of a single sheet) that provides a quick overview
of the company's market niche, product, contact information, and
financial information. Many investors (especially the senior
members of a VC firm), potential partners, and other people who
will want to know about the company need a quick overview. Investors,
in particular, specialize and have definite target markets and
financial goals. They want to quickly know if this is their kind
of project. The Summary Sheet provides this. It can
be sent out without the business plan in an initial contact with
someone.
Executive Summary - The Executive Summary is also a "quick
read" document, but it provides more detail. It is often
written last and is a condensation (like "Reader's Digest”) of
the full business plan. Depending on the size of the complete
plan, 5 to 10 pages is a reasonable goal for the Executive Summary.
Like the Summary Sheet, it is often used as a stand alone document
and should be written as such.
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7. What about a suggested
format for a complete plan?
One suggested format is as
follows.
Title page
Trademark, Confidentiality and Disclaimer page
Table of Contents
Chapter 1 – Introduction
Chapters 2 to n – Follows the topics addressed in the answer to
Question 3.
Reference (not personal or company references, but any noted references
within the body of the plan)
Index (if applicable, not necessary most of the time)
Appendices – may include resumes, personal or company references,
financial models, competitive data…
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8. What about packaging
the business plan?
Most investors and potential
partners are primarily interested in content, not form. However,
if the plan is for investors or others, this is a chance to put
your best foot forward and a well-designed, professional package
is, therefore, appropriate. And, of course, sometimes the
plan is a “selling” document and appearance counts.
A particularly important consideration
in the packaging of the plan is ease of use. Remember that plans
will often be carried in briefcases and read on airplanes.
While a three ring binder is appropriate if the size of the plan
warrants, other binding techniques can be more effective and less
cumbersome. One of the reasons we suggest that the one page
summary, the executive summary, and the appendices are separate
from the plan is that this provides smaller packages for the reader.
Also, keep in mind that the
one-pager and the executive summary should have an electronic
version that can be quickly sent to interested parties.
We can help you with various
packaging techniques. We have in-house binding services
and can also work with local vendors to create a package that
shows your business in the best light.
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9. What are some
typical issues I should consider when creating a plan?
Always think about the following
-
a. Be careful about the length. If you are using the
plan to raise money, it should not be either too short or too
long. You want to make sure that you provide the information,
but many investors want a relatively short version initially.
However, they also want the plan to cover their specific "hot
topics". Of course, the best document for raising money
is one that is written so that it is specifically focused on the
hot topics, needs, and biases of a particular investor.
b. Be careful about being over optimistic with your projections.
Verbiage about how your idea is "bigger than anything Microsoft
has ever done" is not very effective (and not very believable).
c. Don't try to hide your weaknesses. While you don't
to print a weakness paragraph in red, bold text, you need to make
sure that your understand your weaknesses and the reader needs
to feel comfortable that you are not trying to hide the weaknesses.
d. Understand that the premise that your product or service
is so wonderful that people will beat a path to your door/website
is not a sales and marketing plan. You need to understand
and show that you understand the realities of the distribution
channels, the end seller's business, the buyer's needs, and many
other aspects of your target market and buyer.
e. Make sure that your financial projections are based on
reasonable and supportable assumptions and that you can intelligently
discuss these assumptions and the underlying model.
f. Don't ignore the intellectual property issues. The story
that you don't need patents because you are faster or smarter
than the competition, or the story that your former employer has
no interest at all in the technology and so you are free to use
it with no other agreement will not sell.
g. Be realistic about the risks you face. Don't ignore
changes in the market and how rapidly they can happen.
h. Really understand your competition. Know more (a
lot more) than their name and last year's revenue.
i. Understand the real need for your product and services.
Too many people design a product or service they would love to
have and then assume everyone else is just like them. Don't
worry about impressing yourself. Worry about impressing
a buyer.
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10. What does it
cost for you to help me develop a plan?
The cost, of course, depends
on what you need. Simple plans can cost as little as $1,500.
Complete plans with market research, financial modeling, and lots
of text generation can cost from $5,000 to over $75,000.
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11. How do I know
what a specific plan will cost me?
Set up an appointment with
us and we will evaluate what you are looking for, make some initial
recommendations, and provide a proposal. The proposal will
include a fixed price and a defined set of deliverables.
There is no charge for the initial meeting prior to your acceptance
of the proposal.
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