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Savvy Business Planning.

To Plan or Not to Plan?

The Business Plan's Purpose

Shine a Light on the Product

Do you want to plan your startup into a Small Giant?

Business Plan Outline

Business Planning Resources

To Plan or Not to Plan?

Business plans. Oof! You don't like the idea? It sounds like it's only for those people who are in the high-tech game and want to raise money from a venture capitalist. Wrong. Even if you're building a home or lifestyle business, you'll be likely to fail without writing a business plan of some sort. It's interesting to know though, that only 53% of the Inc. 500 CEOs surveyed (in 2004) created formal written business plans before launching their companies, but I bet the others did do some planning. They just did not call it a business plan.

How to write business plan is a tough question to answer, especially since it can take many forms. Be sure what you business plan is for. It can vary from

a back-of-the-envelope kind of a thing for you to get clear focus (you'll be surprised how helpful this is);
a here's-an-opportunity-for-you appeal to friends and family (you want their support, but they'll be risking their money, too);
a give-us-a-loan request to your bank (who want above all to judge whether you'll be able to repay and what security you're offering, and by the way go for a loan before you need it— trying to get one when you're strapped for cash will probably be too late);
I-need-a-loan-guarantee evidence for the SBA or a Government body (they've got to avoid being profligate with public money);
surely-this-venture-qualifies application for a grant or sponsorship (these state/foundation guys want to see if you can meet their objectives also);
a can-you-help-with-money-and-experience pitch to an angel investor (who'll need to see an opportunity and like the proposition as well);
an all-bells-and-whistles formal plan seeking serious funding from a venture capitalist (they'll be after high growth and an exit strategy + they seldom invest in startups).

It is possible that you'll need more than one of these at some time and you may need to move from one to the other, but in any case the underlying principles for any kind of business plan will remain constant.

What are the keys to preparing a business plan?

start with yourself—know who you are and what you want
remember that "success is hastened or delayed by your habits"¹
be clear about purpose and execution
answer the question, "why do it?"
define the problem and your solution—a compelling 'story'
create a clear vision—to steer by
search for what and/or who is missing—evaluate necessary resources
ensure a workable business model
know the market opportunities for your product and who your customers are
set achievable strategies
establish quantified goals
state realistic numbers and timelines
be honest on risks—do a SWOT analysis
share drafts with valid reviewers
polish the plan to perfection

1. Paramahansa Yogananda

Here are seven things to bear in mind when you start planning your business-to-be:

When to do it? NOT at the very beginning. That's when you need to 'know' what it is, why the world needs it, who it's for and how they're going to buy it. AND you need to start selling as well as figuring out how you're going to make money. Plan when to plan, though.
Since so few businesses actually get to pitch a VC firm, I suggest you stick with the nuts and bolts. I prepared a small business plan for WorkSavvy, even though I needed no external funding. Why? Because it helped me to get clear about what I was going to do and see where I had no answers. A business plan provides a benchmark for the life of the business. It alsoprovides a discipline and check on yourself.
Bear in mind that your business plan will be little use unless it is dynamic and you update it and change it as your thinking and data evolve. According to the 2002 survey of Inc. 500 founders, 40% of those who had prepared business plans, 65% said they had strayed significantly from their original conception, adapting their plans as they went along.
BUT do not change the financial forecasts in mid-period, once the business has started. If you do, you'll confuse yourself and anyone else who reads them. A 'financial person' I monitored (as a board member of a VC company) changed his forecasts every couple of months. At the six-month stage, the management of the company had no idea where they were and I had no way of understanding anything anymore. At the year-end, thecompany was in trouble and he was let go.
Don't be too verbose. Keep the document to 30 pages maximum. If you can't cover the ground in less, it may mean that you are not yet clear enough to press the button. You can always put the detail in appendices.
Who does it? No one can tell you how to write a business plan! At least not yours, even if there are many helping hands available—including WorkSavvy.
You need to write or mastermind the writing of the business plan yourself. Of course you can, and probably should, get help. If you are building the business as a team, then the team needs to work on it. The lead entrepreneur will naturally enough take the lead and will draw up a timetable (weeks/months) with responsibilities clearly identified. Planning the plan will involve knowing when you need what data/numbers. Chances are that by now you are working with an outside accountant and he/she will have things to say about the numbers, but do not be tempted to subcontract the business plan to the accountant or any one else. A good way to start would be to do a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis.

Now that you're ready to go, is there something that you should do before starting? I think there are some vital questions to be answered. I tell you why in the Guide to Creating Your Own Good Fortune: Setting Standards for Business Success.

The Business Plan's Purpose

When you do get to it, the business plan:

a way of testing yourself and your ideas as much as writing a sales pitch for the bank or investors;
about finding out what you don't know—you'll see the gaps and almost certainly will know how fill them;
the means by which realism can be injected into the vision;
an opportunity to describe and assess all the functions of the business;
a disciplined way of avoiding self-deception and disclosing bad news to yourself;
a document you can share with others, get useful feedback and reinforce your resolve;
a matter of writing things down to encourage your own commitment;
the basic tool for codifying how the end results are to be achieved.

is not

cast in stone and is likely to go through many iterations;
going to gloss over missing material and human resources, since the writer almost certainly hasn't got them all;
a way to avoid the evidence staring you in the face;
about making over-optimistic claims— your forecasts will probably not turn out to have been right.

is unlikely

to work out to the letter;
to achieve funding (probably no more than 0.006% of all US business plans do);
to be convincing through the use of superlatives.

"A Law of Capital Attraction... Write your business plan so you can build and run your business without investors. Then they'll want to invest. " - Burke Franklin (one of my alliance partners - see his BizPlan Builder product to help you write your business plan).

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Shine a Light on the Product

One of the best ways to check the validity of your assumptions is to get out into the market place. I have seen too many people with planning paranoia - carrying on refining the business plan continuously and hiding from the marketplace. In fact, there are many successful entrepreneurs who have embarked on the planning process, but who never complete it, because they have tested their assumptions in the real world early and found sales that got them launched directly.

Successful 'bootstrappers' do it all the time (take a look at my article, Virtual Seed Money: Use the Bootstrapper's Cashbox). Quite apart from getting cash in early and even financing the business that way, contacting prospects, even before you are finally ready will give you a reality check. Is the product going to fly? Does it have a fatal flaw? Is the distrubtion channel inappropriate? If only it had one missing characteristic, it would fly. These are very much the kind of issue that you can test out with real people, rather than by desk research, or even marketing research, for it can only take you part of the way.

"Wow! You seem to have this thing down to a science." - a WorkSavvy alliance partner

I have recently helped a businessman with his plan; the business made complete sense to me, though it was not in a sector I knew. We collected demographic and statistical data galore. It all seemed to confirm the basic proposition. We got down to finer and finer detail. Then we decided to stop relying on hunch, the entrepreneur's experience and my savvy. We went to many people whom we thought would be our buyers. What we discovered was that some of our presumptions were wrong. But others were so bang on that we needed to follow up the sales right away. The product was not ready, but what we could offer was services. One prospect started chasing us.

If you keep contacting prospects during the planning process, the data gathering will have you progressively sharpening the business plan to the point where opening the business is inevitable, rather than day one being based on a wish and a prayer.

You can use what I call Positive Inquiry. Cold calling research is one of the most daunting means of getting information for building a business plan. But if you do it well, you can not only find out what you are seeking, but it often sales leads as well. Here are some tips:

When you call to ask a prospect questions, use positive inquiry to let opportunities come to the surface. If you can, refer to a mutual contact or some point or reference that he will recognize. Express interest in the prospect's business and the issues he faces.
Be sure that you have done your homework. Have some basic information about the business in front of you―such as a website about page.
Start the interview by introducing yourself, headlining the subject matter and asking for the prospect's help. Be sure to check that you are calling at a good time. If not, fix a call back, or offer to summarize your questions in an email. Are you speaking to the right person? If not, ask who is.
You surely do not know as much as he does about his own situation. However your obvious interest in the subject will give the prospect an opportunity to share his views. He is very involved in his own field and will have plenty of knowledge and opinions about it.
Get the prospect to talk, but make sure you listen. Make a brief statement relevant to the business and say, "I am trying to check my assumptions, so perhaps you could tell me how you see it." Then get out of the way.
After the answer is finished, feed back your understanding of what has been said. Make it a brief paraphrase, but feed back some of the words and descriptions he used. Maybe there will be a a correction or further explanation.
You will surely get clues for your next question from the first response. That is why you are going to be listening so very carefully, making notes and trying to gauge which aspect is appropriate for further questioning.
When you ask the next question, use what you've learned so far, and be sure to follow his train of thinking, rather than ramming your preprepared question down his throat. Once you have a good appreciation of the prospect's situation and problems, you can always close with "one last subject on which I would like your view...", if you need to.
If you express genuine interest in his business, he is more than likely to reveal an opportunity to you. It may be of direct interest, or something you could help him with. Do not be shy to ask if you may make another contact.

Do you want to plan your startup into a Small Giant?

Is your business a David (rather than Goliath) or a Jack (as in the Beanstalk)? Before you get too excited about making you millions from an IPO, determine what kind of business you want yours to be. In between the venture capital-backed hi-tech startup looking to emulate Google and the lifestyle business that will free you from the stresses of the corporate life, there is a big swathe of enterprises that are ambitious to make a contribution, but not necessarily to grow huge. Is this the kind of outfit you'd like yours to be. Take a look at an excellent big-hearted little book, Small Giants: Companies That Choose to Be Great Instead of Big by Bo Burlingham. You will learn a lot about the possibilities and it could be a giant help before you crash on with your business plan. The 14 companies may inspire you to rethink your plan or to reinforce your own intuition about the kind of company you want yours to be. The style of your enterprise will need to be exemplified in your business plan. No plan is going to work for you or to pull in investors unless there is something to be believed in. Make sure you know what that is. You may also like to take a look at Bo's blog to stimulate further thinking. Bo is not prolific there, but there are interesting links to follow.

Business Plan Outline

Here's my proposed business plan outline or business plan sample. Of course you can adapt it to suit your unique circumstances. You'll find many other suggested formats and sample business plans, but the same information is likely to be there. I believe the best business plans are those that you create yourself, rather than using a business plan template—mine or anyone else's, though of course, you can usefully use business plan software (see blow), but completely adapted to your needs. This outline will help to structure your thoughts and help you to begin 'somewhere'!

An executive summary—written last, only 1-3 pages, compelling
A 30 word sell—the value proposition (worth & importance of the idea to the world), then state the problem—the opportunity—and your solution
Mission & Values—nail them to the mast, but no platitudes & go for possibilities, not competitive aspirations
Scale and Schedule—how big and when
The Market—who needs it (and how much: past and projected, with numbers and evidence) and why
The Product or Service—what is it and where is its value (advantages vs. existing) and what new products will follow on
The People—the ones who'll make it work (known names of workplaces) and who's missing (critical team), including (advisory) board, and partners, if appropriate
Marketing & Promotion—how's the market to know and be converted, focusing on target segments
Sales Strategy & Tactics—customer acquisition efficiency & distribution channels
Production—how will the product be made or procured
Financial Plan—capital and its sources, income statements (profit & loss), balance sheets + cash flow forecasts (include assumptions, avoid absurd projections)—a summary only; see sample income statement below
Operations—who, what, where, how
Implementation Time Schedule, with milestones and critical success factors
Risk Analysis via Strengths, Weaknesses, Opportunities, Threats—critical risks (SWOT)
Desired Financing, with timing—if appropriate
Use of Funds or Deal—if appropriate
Appendices—all the detail of accounts, references, data and press.

Notes:

Here is a summary income statement of the kind that should appear in the business plan:

Revenue	Year 1	Year 2	Year 3
Gross revenue	425,000	760,000	1,200,000
Cost of goods sold	375,000	510,000	625,000
Gross margin	50,000	250,000	575,000
Gross margin %	12%	33%	48%
Operating expenses
Research & Development	50,000	40,000	55,000
Sales	75,000	85,000	120,000
Marketing	25,000	50,000	100,000
G&A	45,000	65,000	95,000
Total Expenses	195,000	240,000	370,000
Earnings (before interest, tax, depreciation & amortization)	(145,000)	10,000	205,000

Before you go too far and if you don't already know, I counsel you to visit Savvy Business Finance to look at some finance basics: the difference between the income statement (profit & loss), balance sheet & cash flow, as well as the difference between assets & revenue. Also take a look at Savvy Business Organization, especially the first section on Organizing Yourself.
If you would like an amplified version of the structure I outline above, with more guidance on 'how to', then write me an email at will @ worksavvy.ws , asking for a copy of Business Plans: Craft One That Works and I'll gladly send you a copy in pdf format.
If you need more extensive help and have read the page About WorkSavvy as well as Savvy Business Finance, then also write to me (will @ worksavvy.ws) and we can consider ways of working together.
Even if you never intend to present a business plan to a venture capitalist, understanding what VCs like to see in a business plan can be a real help with your own. For example you can take a look at what Sequoia Capital expect in their document How to Format A Plan.
How long should the business plan be? No more than 30 pages. Guy Kawasaki of Garage Technologies says 20, and he has another 'rule': 10/20/30 for when you get to 'pitch' for investment; this means use only ten slides, use only twenty minutes and use thirty-point font for the slide text.

Business Planning Resources:

Small Business Plan Books: There is a very big literature on the making of business plans and dozens of books are available.

My preference by far is for Business Plans that Work: a Guide for Small Business by Jeffry Timmons, Andrew Zacharakis and Stephen Spinelli, because all three are very widely experienced and not just theoreticians . In the book one of the cases used is of Fossa Medical, an innovative company producing less-invasive and less-costly solutions to kidney stone removal, led by Gloria Ro Kolb (she has led the company through a number of financings). If you look at her business plan in the book and then visit the Fossa website, you'll be able to see a lot of differences. I cannot thinkof a better way to see how a real live business plan works in practice.

Gloria says, "My advice to entrepreneurs would be to get as much feedback as you can and don't be defensive. Use every negative comment as a way to improve or correct the plan. Also, view the business plan as a working document that continually changes. That being said, don't spend too much time on the financial projections, since that will all change with every missed deadline, delay in funding, etc., yet make sure you understand and justify those numbers. Don't forget that the readers are potential investors, and at the end they don't want to know all the details, but want to have confidence that you do and, that they can get a high return realistically." This is excellent advice from some one who has been there—and done it.

Before you get too far down the business plan track, I recommend strongly that you read Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant by W Chan Kim and Renée Mauborgne. Although written for big business, they'll take you to a winning place and away from all that market share and competitive advantage stuff that is destructive and inappropriate for startups. One of the cases considered in some detail is the Cirque du Soleil that has created its own unique market space in entertainment.

If you want to have a look at titles for yourself search for Business Plans in the box below.

Web Resources for the Small Business Plan: If you're having trouble raising the capital you think you need for start up, learn the low cash startup secrets of America's fastest growing companies in the AVC Smart Startup Guide from Anti Venture Capital. Learn how the best entrepreneurs start companies with creative financing.

If you type in 'business plan' to your search engine, you'll get a huge list, much of which is poor, but there are some gems. Among which I'd rate the free resources from BizPlanit. More good advice is available in the many Inc. Magazine articles on bplans and well worth spending time on is Bank of America's 'course' on Developing a Business Plan.

Stephen Lawrence and Frank Moyes who teach at the Deming Centre for Entrpreneurship at the Leeds School of Business at the University of Colorado at Boulder have an excellent free offering of business plan templates, business plan financials and other goodies that they have prepared for their students. You may use them via Business Plan Preparation: tools for writing business plans. Frank asks me to tell any user that it would be appropriate to give them credit!

If you want up-to-date information on VC activity in the US, go to the Money Tree Report™ that comes out quarterly and covers the deals by the most active investors (with their names). Just bear in mind that over half the money goes into five sectors:software, biotechnology, medical devices & equipment, telecoms and semiconductors. Also don't overlook the fact that only 1.8% currently goes to startup & seed finance (15% to early stage, 43% to expansion, 40% to later stage companies).

If you are indeed going for venture capital funding you will want to follow the kinds of structure that the fund actually wants (actual examples can be seen at eplanet ventures or Writing a Compelling Executive Summary by Garage Technology Ventures). A Web search on VC will yield many more. If you are looking to approach business angels, make a point of checking out what they are looking for in a plan. The European Business Angel Network lists networks within EU member countries. In the USA the Angel Capital Association lists business angel groups by region.

There are very handy worksheets for business plan financials (manufacturing and service industry) that you can download for free in Excel spreadsheet format from Bizfilings.

An excellent book that you can consult online, for free, is by Tim Berry the founder of Palo Alto Software (see below). It is called Hurdle: the Book on Business Planning.

Business Plan Software: There are several business planning software products out there. None are wildly expensive and you could get help in formatting by using one. It is important to remember that if you just go through the motions of making a business plan, particularly if you're using software, then it will show. It has to be your business plan so don't worry about changing and adapting templates if that's the way you go.

Are you improvising your entrepreneurship or would you like to plan it?

I recommend the best business planning software, JIAN's BizPlan Builder. Click here to learn more about it. The BizPlan Builder from JIAN (say gee-on) is available in PC or Mac versions. There are many good things about the software, but here are some of the things I rate are that BizPlan:

comes with a detailed and helpful 360-page Handbook of Business Planning that is helpful for both novices and the more experienced. This Handbook is your guide to the software and amounts to being a teach-yourself course on business planning and helps you to think not only about your own needs, but also how outsiders (specially banks or other funders) will react. It also has a great section on 65 ways to Finance Your Business;
helps you to decide what kind of plan to build and formats appropriately. As I have said above, BPs can have several different purposes and here at JIAN you choose between an Angel/VC plan, if you are looking for capital; Concept plan that is really like an executive summary and can be added to later; Internet plan for a business that is predominantly Web-based; Retail plan for any kind of store; and a Service/Bank plan if you are starting a small/personal service business and seek a bank loan;
the structure and contents are totally flexible, but come with the facility to ditch what you do not need or want, or the ability to drag and drop plan text and financials from any other plans you may have previously created;

In short, I think that BizPlan Builder 2008 is the best investment you can make for under $100. You can download it right away and be working on your plan within minutes of now. I really think that you have nothing to lose.

The JIAN software even a company valuation system using different models (e.g., Harvard, DCF) and a table to calculate capital allocation when you are looking to raise equity. On the JIAN website you can find additional support, links to finance sources and the means to be put in touch with consultants—like me! Financials that are included in BizPlan product, but you can also get them onn their own: BizPlan Financials.

Burke Franklin, the owner of the companyis developing a Web-based version of BizPlan Builder now. Burke is widely experienced in business planning as well as business planning software, having raised investment himself, so the product and all its support features are based on real experience. JIAN also has other related business planning software, such as Marketing Builder.

The obvious choice for basic small business accounting software is Quicken (Home & Business version, but for PC only) if you are a home-based business (no balance sheets) or QuickBooks, both by Intuit. QuickBooks: Pro Edition for fast and easy financial management. QuickBooks: Premier Edition gives you comprehensive financial management and planning tools to help take your business to the next level. Quick Books has support in Australia, Canada, China, Germany, Hong Kong, New Zealand, Phillipines, Singapore, South Africa, Thailand & United Kingdom. If you are not an accountant or there is not one in the business, you'll be well advised to seek out a QuickBooks Pro Adviser or a bookkeeping service to help set up your accounting system, even if you do want to do your own bookkeeping.

Bear in mind, though, that you don't need to go that way, if your business is starting off really small. But do not just shove everything in a shoe box. At the end of the year, it will just be too much to sort. Use a three-ring binder (in US) or a four-ring binder (in EU) and for each month use columnar sheets (tear-off pre-punched pads are handy); one for revenue, one for expenditure and one for tracking petty cash. You can start doing analysis by income or expenditure type to help you see where the money is coming from or going to. Then have a transparent pocket for each month, so you can keep all your credit card slips, invoices and other accounting 'evidence' together in one place. Get help from a freelance bookkeeper (at say $25-50 an hour) if you will feel more secure. Such a person is likely to offer you a free (full-featured) Quick Books Simple Start program! A very good company organization and accounting glossary is available at Bizfilings.

While you are working on the business plan, you'll collect all sorts of data - from your work in the field, from the Web, friends, magazines, books... where do you file it all? In Evernote. I do. It's a very versatile 'single place for all your notes'. I use mine for monthly expenses, clipping Web pages, cutting and pasting... then I can search on key words, categories and other ways. It's a very handy tool and it's free! A handwriting recognition version can be purchased.

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William Keyser • WorkSavvy LLC • will @ worksavvy.ws