Before you start a company, you need a plan. And for those of you contemplating starting a business that will require outside funding — either in the form of venture capital or a business loan — all the more reason you will need a formal business plan before you can secure the cash.
The business plan is the road map for the nascent company. It should provide clear direction and vision while providing the entrepreneur with the flexibility to correct the course of his or her business based on market conditions. Tips and even workshops for writing good business plans are plentiful. Still, often missing from business plans are some basic components, components that are typically under the purview of marketing. I know this firsthand based on the hundreds of business plans we have received at campsix that were significantly weak in critical areas.
Specifically, these plans failed to clearly define the arena in which the company wished to play, either by not defining the market category, not understanding the true market size, or not defining the existing and potential competition. Here are some tips for developing those areas of your business plan:
Say who you are. Some business plans are like Tootsie Pops: It takes you forever to get to the heart of the matter. I’ve read some business plans where it takes three pages to get to a description of what the company does, and even then, it’s a bit fuzzy. My point is that a good plan must clearly and succinctly describe the company and define what it does in the very first paragraph. Being able to pinpoint the market you are addressing and how you are going to address it may seem easy, but it requires a great deal of research to get it right.
The common problem is that the descriptions in most business plans are often so heavily laden with Dilbert-style buzzwords that they become almost indecipherable, if not completely indistinct. But with good research, market knowledge, and an understanding of the competitive landscape, you can craft a vivid and compelling business proposition that stands out from the crowd.
Don’t mistake market size for the addressable market. Mistaking the total market size for the actual market in which you will be doing business is the most common and most fatal of all business-plan errors. For example, if online advertising is your company’s key revenue stream, you may be tempted to say something like “The market for online advertising will reach a total expenditure of $5 billion by the year such and such.” While your assumption may be correct, it is irrelevant to your business. Why? Because your business probably focuses only on a particular niche within the total market size.
Let’s say that your company is targeted toward women — wait, even more focused, toward teenage girls. The more relevant number would be the addressable market size, or how much money is going to be spent in online advertising targeting teenage girls. And while I don’t have those numbers, I can assure you it is much less than the total market size. One more thing — remember that you will not be commanding 100 percent of that addressable market. You need to convince potential investors that your business can obtain enough of a share of that addressable market to be a going concern.
Know the competition. Another common mistake in business plans is a less-than-thorough and/or unrealistic understanding of the competition. The competition is more than the people in the immediate space you may be competing in. Sometimes the toughest competition comes from an outside or peripheral player who jumps into a space when it sees a big opportunity.
With all the research tools literally at your fingertips, there is no excuse not to provide a thorough examination of existing and potential competitors in your space. You should look at everything from company positioning, product offerings, product feature sets, and so on. You need to prove to potential investors that you understand the competitive landscape and have a plan for navigating your way through it. And nothing will kill a pitch faster than not including a potential competitor in your plan strategy and then having the person you are pitching to ask why that competitor is not in there. You come out looking dumb, naove, or both.
Certainly there are other critical components to a good business plan, including financial projections, revenue models, pricing, and channel strategy. Still, you’ll never get that far with potential funders if you can’t grab them with your core business concept, the potential size of the market, and a desirable competitive landscape.
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