“Ideas are easy. Execution is everything.” This is Silicon Valley venture capitalist John Doerr’s advice to aspiring entrepreneurs during a speech he delivered at Stanford Graduate School of Business. But between an idea and its execution is planning. This is where having a good business plan comes into play. You can’t launch a startup without a plan; but what makes a good business plan? What questions for your business plan should you ask and answer to make sure that you’ll get started on the right track?
Why having a business plan is critical
Before we jump into the key questions to answer for a good business plan, let’s take a quick look at why you need a business plan in the first place.
- Your business plan is your company’s foundation and backbone. It will give you a solid framework on and around which you’ll build your business — from the ground up.
- It will serve as your roadmap. Your business plan will lay out your short- and long-term objectives, and guide you from one milestone, one goal to the next. It will keep you focused on what’s relevant, especially during the first few years when you’re still establishing your presence in your industry.
- Having a business plan and asking the right questions for a business plan will prove that you mean serious business, pun intended. This is important not only if you’re looking for investors or partners, but also when you’re hiring people to build a top quality team. A good business plan will give you credibility and inspire confidence in your ability to put your plan into action.
- It will help you understand the competition. Crafting your business plan involves studying and understanding the competition; this will put you in a better place within the competitive landscape.
- It will help you understand your target market. Your business plan will also require an in-depth analysis of your customers so you’ll be fully equipped to meet their needs and keep up with the trends in your market.
- You’ll get a clearer picture of your financial needs. Your business plan will lay out the hard numbers. How much capital do you need? How is the money going to be spent? Will you need to raise additional capital in the future? When can you reasonably expect a return on your investment?
- It will help you determine your brand’s position in the market. This will depend on how your various competitors are already positioned and any gaps you can fill to stand out.
Questions to ask for a business plan
What are the essential questions for a business plan that you need to ask and answer so you can properly plot your entrepreneurial journey and focus on the specific steps you need to take to achieve your short- and long-term goals and make your business succeed?
Key question for a business plan #1: What need are you addressing?
More important than the question, “What does your business do?” is this key question for a business plan: What need is your business addressing? A successful business addresses a real need, so your business plan must carefully outline your purpose beyond just earning money.
You can get excited about a business idea that you think will be useful — something that will sell. But don’t forget that your point of view is different from that of your target market. Naturally, you’ll have some bias about how great your idea is; but you have to be logical and critical about whether or not your business will be aligned with your customers’ purchasing decisions, and whether or not your business will be addressing a fundamental need. And your plan must include valid data that prove the existence of this need.
According to Irwin Glenn, Profit Velocity Managing Director:
“Is the idea for the product or service innovative, a unique invention, or is the dream truly inspired? By innovative, I want to understand if the business plan is centered around a new twist on already-existing technology or services delivered in a new and compelling way? If inventive, can the idea be protected against new or existing competition?”
Key question for a business plan #2: What makes your business different from the competition?
The next key question for your business plan that you need to answer is, “How is your business different from the competition?”
However great your idea is, chances are somebody out there had already come up with it. It’s getting increasingly difficult to come up with a business idea that’s genuinely unique in this fast-paced world. And even if you’ve proved with good research that there’s a big enough demand for the kind of product or service you want to offer, it doesn’t mean you’ll immediately get a decent share of the market. You’ll have lots of competition from similar businesses who have been around longer and have already established a solid foothold in your industry. So you’ll need to offer something different to be noticed by your customers.
You’ll need to do more research — this time, on the competition — to figure out how you can set your business apart. Whether it’s by presenting your product/service in a different way, adding something small but special to it, being louder and more snazzy than your competitors, you need to create a distinct identity for your business and emphasize it from the get-go. On your business plan, describe how you are different and how you will assert this advantageous difference.
Scott Locke, Dorf and Nelson LLP Intellectual Property Department Chair, has this to say about having a competitive advantage:
“I always look for what will give the business a competitive advantage relative to businesses that want to offer the same or similar goods and services and an analysis of the competitive landscape. I pay particular attention as to whether there is valuable intellectual property, be it patents, trademarks, copyrights or trade secrets, that will serve as barriers to entry for competitors. Similarly, I like to see a discussion of the intellectual property of the most direct competitors and how the new business will avoid infringing on it.”
Key question for a business plan #3: Who is your customer?
Another critical question for your business plan that you must address is, “Who is your customer?”
Apart from understanding their purchasing decisions to find out if there’s a real need that your business can fill, understanding who your customer is involves diving deeper into your key demographic. You need to identify their age, gender status, geographic location, education, employment status, marital status, etc. Your business plan must specify your initial key demographic based on these identifiers. As a startup, you can focus on a single key demographic for the first year or so, and then expand to new ones once you’ve established your business in your initial market.
Key question for a business plan #4: How are you going to make money?
The answer to this key question for your business plan may seem simple and obvious, but it should be more than just “By selling this product/service.” How your business will make money involves multiple approaches, after all — which you can get into by also answering these secondary questions on your business plan: How are you going to sell your products/services? Where are you going to sell them? How much are your products/services? Will you spend money on advertising?
This part of your business plan will allow you to see if your business is sustainable in terms of your financial projections, and how and where you can make adjustments to achieve your financial goals within a realistic period. You will also have a clearer understanding of the financial risks you have to take to get your business off the ground.
Strategy Leaders CEO, Andy Gray, has this to say about the financial risks of becoming an entrepreneur for the first time:
“When looking at business plans, I always want to know how the owners plan to get paying customers to engage at a fee and quantity that allows them, as owners, to be in business and sustain themselves. My frequently asked question is, ‘How do you plan to feed and clothe yourself and where do you plan to sleep while you’re getting this venture off the ground?”
Key question for a business plan #5: What is your marketing strategy?
However great or unique your business idea is, if you don’t know how to market it effectively, it will fail. Even if you add your business to Google Maps, you won’t rank high on local searches without solid marketing. This is why having a properly outlined marketing strategy is the appropriate answer to this key question for your business plan. Your marketing strategy must be based on the strategies that your competitors have used and proven to be effective. Why? Because you can be sure that these resonate with your target market and because you need to be seen — to promote your business — where all the action is already happening.
Key question for a business plan #6: What do you need to turn your business idea into action?
Answering this key question for a business plan should give your potential investors or partners a clear picture of the bottom line — so they can decide if your business is feasible. You need initial capital and resources to get started, and you should identify your starting line (which often varies from one industry to the next) and provide the details of what you need to spend on from this starting line when you craft your business plan. How much revolving capital will you need for the initial run of your business? Do you need to hire people or purchase/rent equipment? How long will it take before you can circulate your initial capital?
Key question for a business plan #7: What are your short- and long-term goals?
When you answer this key question for your business plan, you must include a timeline for your short- and long-term goals. Short-term goals are ideally achieved within a startup’s first two years; long-term goals are set for beyond the first 2 years, after your business is finally experiencing its initial ROI. Make sure your goals and their respective timeframes are realistic. Here are some business goals you may want to consider:
- Reduce business overhead
- Increase productivity
- Reach a specific number of followers on social media through organic growth
- Reach a specific number of social media followers through paid advertising
- Develop a new product
- Launch your new product
- Open another store
Here’s a piece of advice on how to expectations for a new business, from Charles North, President and CEO of Dutchess County Regional Chamber of Commerce:
“I look for it to be a realistic business plan, not something that is pie in the sky. I want to see reasonable expectations. I tend to look more on the conservative side since I feel that is the safest way to go. The idea doesn’t have to be reasonable, the plan does. The idea can be anything. I always look for projections on what the business will do in the first year, second year, third year and fourth year showing sales, expenses, and plots of the bottom line as the business progresses. Those assumptions have to be reasonable.
Going from point A to point B: A good business plan will help you turn your idea into reality
Answering these fundamental questions for a business plan will not only help you craft a plan that will impress potential investors or partners, but one that will effectively guide your business from point A to point B and to success. Keep in mind that you should expect your first business plan to evolve as you adapt to new opportunities, challenges, and trends. Some of these key questions may remain the same, others may not, but your answers should evolve with the changing times and the changing needs of your business.
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