what are the three main factors addressed in a business plan chapter 6

Want to create or adapt books like this? Learn more about how Pressbooks supports open publishing practices.

5.6 The Business Plan

Learning objective.

• Discuss the importance of planning for your business, and identify the key sections of a business plan.

If you want to start a business, you must prepare a business plan. This essential document should tell the story of your business concept, provide an overview of the industry in which you will operate, describe the goods or services you will provide, identify your customers and proposed marketing activities, explain the qualifications of your management team, and state your projected income and borrowing needs.

Purpose of a Business Plan

The business plan is a plan or blueprint for the company, and it’s an indispensable tool in attracting investors, obtaining loans, or both. Remember, too, that the value of your business plan isn’t limited to the planning stages of your business and the process of finding start-up money. Once you’ve acquired start-up capital, don’t just stuff your plan in a drawer. Treat it as an ongoing guide to your business and its operations, as well as a yardstick by which you can measure your performance. Keep it handy, update it periodically, and use it to assess your progress.

In developing and writing your business plan, you must make strategic decisions in the areas of management, operations, marketing, accounting, and finance—in short, in all the functional areas of business that we described in Chapter 1 “The Foundations of Business” . Granted, preparing a business plan takes a lot of time and work, but it’s well worth the effort. A business plan forces you to think critically about your proposed business and reduces your risk of failure. It forces you to analyze your business concept and the industry in which you’ll be operating, and it helps you determine how you can grab a percentage of sales in that industry.

The most common use of a business plan is persuading investors, lenders, or both, to provide financing. These two groups look for different things. Investors are particularly interested in the quality of your business concept and the ability of management to make your venture successful. Bankers and other lenders are primarily concerned with your company’s ability to generate cash to repay loans. To persuade investors and lenders to support your business, you need a professional, well-written business plan that paints a clear picture of your proposed business.

Sections of the Business Plan

Though formats can vary, a business plan generally includes the following sections: executive summary, description of proposed business, industry analysis, mission statement and core values, management plan, goods or services and (if applicable) production processes, marketing, global issues, and financial plan. Let’s explore each of these sections in more detail. ( Note : More detailed documents and an Excel template are available for those classes in which the optional business plan project is assigned.)

Executive Summary

The executive summary is a one- to three-page overview of the business plan. It’s actually the most important part of the business plan: it’s what the reader looks at first, and if it doesn’t capture the reader’s attention, it might be the only thing that he or she looks at. It should therefore emphasize the key points of the plan and get the reader excited about the prospects of the business.

Even though the executive summary is the first thing read, it’s written after the other sections of the plan are completed. An effective approach in writing the executive summary is to paraphrase key sentences from each section of the business plan. This process will ensure that the key information of each section is included in the executive summary.

Description of Proposed Business

Here, you present a brief description of the company and tell the reader why you’re starting your business, what benefits it provides, and why it will be successful. Some of the questions to answer in this section include the following:

• What will your proposed company do? Will it be a manufacturer, a retailer, or a service provider?
• What goods or services will it provide?
• Why are your goods or services unique?
• Who will be your main customers?
• How will your goods or services be sold?
• Where will your business be located?

Because later parts of the plan will provide more detailed discussions of many of these issues, this section should provide only an overview of these topics.

Industry Analysis

This section provides a brief introduction to the industry in which you propose to operate. It describes both the current situation and the future possibilities, and it addresses such questions as the following:

• How large is the industry? What are total sales for the industry, in volume and dollars?
• Is the industry mature or are new companies successfully entering it?
• What opportunities exist in the industry? What threats exist?
• What factors will influence future expansion or contraction of the industry?
• What is the overall outlook for the industry?
• Who are your major competitors in the industry?
• How does your product differ from those of your competitors?

Mission Statement and Core Values

This portion of the business plan states the company’s mission statement and core values . The mission statement describes the purpose or mission of your organization—its reason for existence. It tells the reader what the organization is committed to doing. For example, one mission statement reads, “The mission of Southwest Airlines is dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit” (Southwest Airline’s, 2011).

Core values are fundamental beliefs about what’s important and what is (and isn’t) appropriate in conducting company activities. Core values are not about profits, but rather about ideals. They should help guide the behavior of individuals in the organization. Coca-Cola, for example, intends that its core values—leadership, passion, integrity, collaboration, diversity, quality, and accountability—will let employees know what behaviors are (and aren’t) acceptable (The Coca-Cola Company, 2011).

Management Plan

Management makes the key decisions for the business, such as its legal form and organizational structure. This section of the business plan should outline these decisions and provide information about the qualifications of the key management personnel.

A. Legal Form of Organization

This section dentifies the chosen legal form of business ownership: sole proprietorship (personal ownership), partnership (ownership shared with one or more partners), or corporation (ownership through shares of stock).

B. Qualifications of Management Team and Compensation Package

It isn’t enough merely to have a good business idea: you need a talented management team that can turn your concept into a profitable venture. This part of the management plan section provides information about the qualifications of each member of the management team. Its purpose is to convince the reader that the company will be run by experienced, well-qualified managers. It describes each individual’s education, experience, and expertise, as well as each person’s responsibilities. It also indicates the estimated annual salary to be paid to each member of the management team.

C. Organizational Structure

This section of the management plan describes the relationships among individuals within the company, listing the major responsibilities of each member of the management team.

Goods, Services, and the Production Process

To succeed in attracting investors and lenders, you must be able to describe your goods or services clearly (and enthusiastically). Here, you describe all the goods and services that you will provide the marketplace. This section explains why your proposed offerings are better than those of competitors and indicates what market needs will be met by your goods or services. In other words, it addresses a key question: What competitive advantage will the company’s goods and services have over similar products on the market?

This section also indicates how you plan to obtain or make your products. Naturally, the write-up will vary, depending on whether you’re proposing a service company, a retailer, or a manufacturer. If it’s a service company, describe the process by which you’ll deliver your services. If it’s a retail company, tell the reader where you’ll purchase products for resale.

If you’re going to be a manufacturer, you must furnish information on product design, development, and production processes. You must address questions such as the following:

• How will products be designed?
• What technology will be needed to design and manufacture products?
• Will the company run its own production facilities, or will its products be manufactured by someone else?
• Where will production facilities be located?
• What type of equipment will be used?
• What are the design and layout of the facilities?
• How many workers will be employed in the production process?
• How many units will be produced?
• How will the company ensure that products are of high quality?

This critical section focuses on four marketing-related areas—target market, pricing, distribution, and promotion:

• Target market . Describe future customers and profile them according to age, gender, income, interests, and so forth. If your company will sell to other companies, describe your typical business customer.
• Pricing . State the proposed price for each product. Compare your pricing strategy to that of competitors.
• Distribution . Explain how your goods or services will be distributed to customers. Indicate whether they’ll be sold directly to customers or through retail outlets.
• Promotion . Explain your promotion strategy, indicating what types of advertising you’ll be using.

In addition, if you intend to use the Internet to promote or sell your products, also provide answers to these questions:

• Will your company have a Web site? Who will visit the site?
• What will the site look like? What information will it supply?
• Will you sell products over the Internet?
• How will you attract customers to your site and entice them to buy from your company?

Global Issues

In this section, indicate whether you’ll be involved in international markets, by either buying or selling in other countries. If you’re going to operate across borders, identify the challenges that you’ll face in your global environment, and explain how you’ll meet them. If you don’t plan initially to be involved in international markets, state what strategies, if any, you’ll use to move into international markets when the time comes.

Financial Plan

In preparing the financial section of your business plan, specify the company’s cash needs and explain how you’ll be able to repay debt. This information is vital in obtaining financing. It reports the amount of cash needed by the company for start-up and initial operations and provides an overview of proposed funding sources. It presents financial projections, including expected sales, costs, and profits (or losses). It refers to a set of financial statements included in an appendix to the business plan.

Here, you furnish supplemental information that may be of interest to the reader. In addition to a set of financial statements, for example, you might attach the résumés of your management team.

Key Takeaways

• A business plan tells the story of your business concept, provides an overview of the industry in which you will operate, describes the goods or services you will provide, identifies your customers and proposed marketing activities, explains the qualifications of your management team, and states your projected income and borrowing needs.
• In your business plan, you make strategic decisions in the areas of management, operations, marketing, accounting, and finance. Developing your business plan forces you to analyze your business concept and the industry in which you’ll be operating. Its most common use is persuading investors and lenders to provide financing.

A business plan generally includes the following sections:

• Executive summary . One- to three-page overview.
• Description of proposed business . Brief description of the company that answers such questions as what your proposed company will do, what goods or services it will provide, and who its main customers will be.
• Industry analysis . Short introduction to the industry in which you propose to operate.
• Mission statement and core values . Declaration of your mission statement , which are fundamental beliefs about what’s important and what is (and isn’t) appropriate in conducting company activities.
• Management plan . Information about management team qualifications and responsibilities, and designation of your proposed legal form of organization.
• Goods, services, and the production process . Description of the goods and services that you’ll provide in the marketplace; explanation of how you plan to obtain or make your products or of the process by which you’ll deliver your services.
• Marketing . Description of your plans in four marketing-related areas: target market, pricing, distribution, and promotion.
• Global issues . Description of your involvement, if any, in international markets.
• Financial plan . Report on the cash you’ll need for start-up and initial operations, proposed funding sources, and means of repaying your debt.
• Appendices . Supplemental information that may be of interest to the reader.

(AACSB) Analysis

Let’s start with three givens: (1) college students love chocolate chip cookies, (2) you have a special talent for baking cookies, and (3) you’re always broke. Given these three conditions, you’ve come up with the idea of starting an on-campus business—selling chocolate chip cookies to fellow students. As a business major, you want to do things right by preparing a business plan. First, you identified a number of specifics about your proposed business. Now, you need to put these various pieces of information into the relevant section of your business plan. Using the business plan format described in this chapter, indicate the section of the business plan into which you’d put each of the following:

• You’ll bake the cookies in the kitchen of a friend’s apartment.
• You’ll charge $1 each or $10 a dozen.
• Your purpose is to make the best cookies on campus and deliver them fresh. You value integrity, consideration of others, and quality.
• Each cookie will have ten chocolate chips and will be superior to those sold in nearby bakeries and other stores.
• You expect sales of $6,000 for the first year.
• Chocolate chip cookies are irresistible to college students. There’s a lot of competition from local bakeries, but your cookies will be superior and popular with college students. You’ll make them close to campus using only fresh ingredients and sell them for $1 each. Your management team is excellent. You expect first-year sales of $6,000 and net income of $1,500. You estimate start-up costs at $600.
• You’ll place ads for your product in the college newspaper.
• You’ll hire a vice president at a salary of $100 a week.
• You can ship cookies anywhere in the United States and in Canada.
• You need $600 in cash to start the business.
• There are six bakeries within walking distance of the college.
• You’ll bake nothing but cookies and sell them to college students. You’ll make them in an apartment near campus and deliver them fresh.

The Coca-Cola Company, “Workplace Culture,” The Coca-Cola Company, http://www.thecoca-colacompany.com/citizenship/workplace_culture.html (accessed August 31, 2011).

Southwest Airline’s company Web site, about SWA section, http://www.southwest.com/about_swa/mission.html (accessed August 31, 2011).

Exploring Business Copyright © 2016 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

Share This Book

11.4 The Business Plan

Learning objectives.

By the end of this section, you will be able to:

• Describe the different purposes of a business plan
• Describe and develop the components of a brief business plan
• Describe and develop the components of a full business plan

Unlike the brief or lean formats introduced so far, the business plan is a formal document used for the long-range planning of a company’s operation. It typically includes background information, financial information, and a summary of the business. Investors nearly always request a formal business plan because it is an integral part of their evaluation of whether to invest in a company. Although nothing in business is permanent, a business plan typically has components that are more “set in stone” than a business model canvas , which is more commonly used as a first step in the planning process and throughout the early stages of a nascent business. A business plan is likely to describe the business and industry, market strategies, sales potential, and competitive analysis, as well as the company’s long-term goals and objectives. An in-depth formal business plan would follow at later stages after various iterations to business model canvases. The business plan usually projects financial data over a three-year period and is typically required by banks or other investors to secure funding. The business plan is a roadmap for the company to follow over multiple years.

Some entrepreneurs prefer to use the canvas process instead of the business plan, whereas others use a shorter version of the business plan, submitting it to investors after several iterations. There are also entrepreneurs who use the business plan earlier in the entrepreneurial process, either preceding or concurrently with a canvas. For instance, Chris Guillebeau has a one-page business plan template in his book The $100 Startup . 48 His version is basically an extension of a napkin sketch without the detail of a full business plan. As you progress, you can also consider a brief business plan (about two pages)—if you want to support a rapid business launch—and/or a standard business plan.

As with many aspects of entrepreneurship, there are no clear hard and fast rules to achieving entrepreneurial success. You may encounter different people who want different things (canvas, summary, full business plan), and you also have flexibility in following whatever tool works best for you. Like the canvas, the various versions of the business plan are tools that will aid you in your entrepreneurial endeavor.

Business Plan Overview

Most business plans have several distinct sections ( Figure 11.16 ). The business plan can range from a few pages to twenty-five pages or more, depending on the purpose and the intended audience. For our discussion, we’ll describe a brief business plan and a standard business plan. If you are able to successfully design a business model canvas, then you will have the structure for developing a clear business plan that you can submit for financial consideration.

Both types of business plans aim at providing a picture and roadmap to follow from conception to creation. If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept.

The full business plan is aimed at executing the vision concept, dealing with the proverbial devil in the details. Developing a full business plan will assist those of you who need a more detailed and structured roadmap, or those of you with little to no background in business. The business planning process includes the business model, a feasibility analysis, and a full business plan, which we will discuss later in this section. Next, we explore how a business plan can meet several different needs.

Purposes of a Business Plan

A business plan can serve many different purposes—some internal, others external. As we discussed previously, you can use a business plan as an internal early planning device, an extension of a napkin sketch, and as a follow-up to one of the canvas tools. A business plan can be an organizational roadmap , that is, an internal planning tool and working plan that you can apply to your business in order to reach your desired goals over the course of several years. The business plan should be written by the owners of the venture, since it forces a firsthand examination of the business operations and allows them to focus on areas that need improvement.

Refer to the business venture throughout the document. Generally speaking, a business plan should not be written in the first person.

A major external purpose for the business plan is as an investment tool that outlines financial projections, becoming a document designed to attract investors. In many instances, a business plan can complement a formal investor’s pitch. In this context, the business plan is a presentation plan, intended for an outside audience that may or may not be familiar with your industry, your business, and your competitors.

You can also use your business plan as a contingency plan by outlining some “what-if” scenarios and exploring how you might respond if these scenarios unfold. Pretty Young Professional launched in November 2010 as an online resource to guide an emerging generation of female leaders. The site focused on recent female college graduates and current students searching for professional roles and those in their first professional roles. It was founded by four friends who were coworkers at the global consultancy firm McKinsey. But after positions and equity were decided among them, fundamental differences of opinion about the direction of the business emerged between two factions, according to the cofounder and former CEO Kathryn Minshew . “I think, naively, we assumed that if we kicked the can down the road on some of those things, we’d be able to sort them out,” Minshew said. Minshew went on to found a different professional site, The Muse , and took much of the editorial team of Pretty Young Professional with her. 49 Whereas greater planning potentially could have prevented the early demise of Pretty Young Professional, a change in planning led to overnight success for Joshua Esnard and The Cut Buddy team. Esnard invented and patented the plastic hair template that he was selling online out of his Fort Lauderdale garage while working a full-time job at Broward College and running a side business. Esnard had hundreds of boxes of Cut Buddies sitting in his home when he changed his marketing plan to enlist companies specializing in making videos go viral. It worked so well that a promotional video for the product garnered 8 million views in hours. The Cut Buddy sold over 4,000 products in a few hours when Esnard only had hundreds remaining. Demand greatly exceeded his supply, so Esnard had to scramble to increase manufacturing and offered customers two-for-one deals to make up for delays. This led to selling 55,000 units, generating $700,000 in sales in 2017. 50 After appearing on Shark Tank and landing a deal with Daymond John that gave the “shark” a 20-percent equity stake in return for $300,000, The Cut Buddy has added new distribution channels to include retail sales along with online commerce. Changing one aspect of a business plan—the marketing plan—yielded success for The Cut Buddy.

Link to Learning

Watch this video of Cut Buddy’s founder, Joshua Esnard, telling his company’s story to learn more.

If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept. This version is used to interest potential investors, employees, and other stakeholders, and will include a financial summary “box,” but it must have a disclaimer, and the founder/entrepreneur may need to have the people who receive it sign a nondisclosure agreement (NDA) . The full business plan is aimed at executing the vision concept, providing supporting details, and would be required by financial institutions and others as they formally become stakeholders in the venture. Both are aimed at providing a picture and roadmap to go from conception to creation.

Types of Business Plans

The brief business plan is similar to an extended executive summary from the full business plan. This concise document provides a broad overview of your entrepreneurial concept, your team members, how and why you will execute on your plans, and why you are the ones to do so. You can think of a brief business plan as a scene setter or—since we began this chapter with a film reference—as a trailer to the full movie. The brief business plan is the commercial equivalent to a trailer for Field of Dreams , whereas the full plan is the full-length movie equivalent.

Brief Business Plan or Executive Summary

As the name implies, the brief business plan or executive summary summarizes key elements of the entire business plan, such as the business concept, financial features, and current business position. The executive summary version of the business plan is your opportunity to broadly articulate the overall concept and vision of the company for yourself, for prospective investors, and for current and future employees.

A typical executive summary is generally no longer than a page, but because the brief business plan is essentially an extended executive summary, the executive summary section is vital. This is the “ask” to an investor. You should begin by clearly stating what you are asking for in the summary.

In the business concept phase, you’ll describe the business, its product, and its markets. Describe the customer segment it serves and why your company will hold a competitive advantage. This section may align roughly with the customer segments and value-proposition segments of a canvas.

Next, highlight the important financial features, including sales, profits, cash flows, and return on investment. Like the financial portion of a feasibility analysis, the financial analysis component of a business plan may typically include items like a twelve-month profit and loss projection, a three- or four-year profit and loss projection, a cash-flow projection, a projected balance sheet, and a breakeven calculation. You can explore a feasibility study and financial projections in more depth in the formal business plan. Here, you want to focus on the big picture of your numbers and what they mean.

The current business position section can furnish relevant information about you and your team members and the company at large. This is your opportunity to tell the story of how you formed the company, to describe its legal status (form of operation), and to list the principal players. In one part of the extended executive summary, you can cover your reasons for starting the business: Here is an opportunity to clearly define the needs you think you can meet and perhaps get into the pains and gains of customers. You also can provide a summary of the overall strategic direction in which you intend to take the company. Describe the company’s mission, vision, goals and objectives, overall business model, and value proposition.

Rice University’s Student Business Plan Competition, one of the largest and overall best-regarded graduate school business-plan competitions (see Telling Your Entrepreneurial Story and Pitching the Idea ), requires an executive summary of up to five pages to apply. 51 , 52 Its suggested sections are shown in Table 11.2 .

Are You Ready?

Create a brief business plan.

Fill out a canvas of your choosing for a well-known startup: Uber, Netflix, Dropbox, Etsy, Airbnb, Bird/Lime, Warby Parker, or any of the companies featured throughout this chapter or one of your choice. Then create a brief business plan for that business. See if you can find a version of the company’s actual executive summary, business plan, or canvas. Compare and contrast your vision with what the company has articulated.

• These companies are well established but is there a component of what you charted that you would advise the company to change to ensure future viability?
• Map out a contingency plan for a “what-if” scenario if one key aspect of the company or the environment it operates in were drastically is altered?

Full Business Plan

Even full business plans can vary in length, scale, and scope. Rice University sets a ten-page cap on business plans submitted for the full competition. The IndUS Entrepreneurs , one of the largest global networks of entrepreneurs, also holds business plan competitions for students through its Tie Young Entrepreneurs program. In contrast, business plans submitted for that competition can usually be up to twenty-five pages. These are just two examples. Some components may differ slightly; common elements are typically found in a formal business plan outline. The next section will provide sample components of a full business plan for a fictional business.

Executive Summary

The executive summary should provide an overview of your business with key points and issues. Because the summary is intended to summarize the entire document, it is most helpful to write this section last, even though it comes first in sequence. The writing in this section should be especially concise. Readers should be able to understand your needs and capabilities at first glance. The section should tell the reader what you want and your “ask” should be explicitly stated in the summary.

Describe your business, its product or service, and the intended customers. Explain what will be sold, who it will be sold to, and what competitive advantages the business has. Table 11.3 shows a sample executive summary for the fictional company La Vida Lola.

Business Description

This section describes the industry, your product, and the business and success factors. It should provide a current outlook as well as future trends and developments. You also should address your company’s mission, vision, goals, and objectives. Summarize your overall strategic direction, your reasons for starting the business, a description of your products and services, your business model, and your company’s value proposition. Consider including the Standard Industrial Classification/North American Industry Classification System (SIC/NAICS) code to specify the industry and insure correct identification. The industry extends beyond where the business is located and operates, and should include national and global dynamics. Table 11.4 shows a sample business description for La Vida Lola.

Industry Analysis and Market Strategies

Here you should define your market in terms of size, structure, growth prospects, trends, and sales potential. You’ll want to include your TAM and forecast the SAM . (Both these terms are discussed in Conducting a Feasibility Analysis .) This is a place to address market segmentation strategies by geography, customer attributes, or product orientation. Describe your positioning relative to your competitors’ in terms of pricing, distribution, promotion plan, and sales potential. Table 11.5 shows an example industry analysis and market strategy for La Vida Lola.

Competitive Analysis

The competitive analysis is a statement of the business strategy as it relates to the competition. You want to be able to identify who are your major competitors and assess what are their market shares, markets served, strategies employed, and expected response to entry? You likely want to conduct a classic SWOT analysis (Strengths Weaknesses Opportunities Threats) and complete a competitive-strength grid or competitive matrix. Outline your company’s competitive strengths relative to those of the competition in regard to product, distribution, pricing, promotion, and advertising. What are your company’s competitive advantages and their likely impacts on its success? The key is to construct it properly for the relevant features/benefits (by weight, according to customers) and how the startup compares to incumbents. The competitive matrix should show clearly how and why the startup has a clear (if not currently measurable) competitive advantage. Some common features in the example include price, benefits, quality, type of features, locations, and distribution/sales. Sample templates are shown in Figure 11.17 and Figure 11.18 . A competitive analysis helps you create a marketing strategy that will identify assets or skills that your competitors are lacking so you can plan to fill those gaps, giving you a distinct competitive advantage. When creating a competitor analysis, it is important to focus on the key features and elements that matter to customers, rather than focusing too heavily on the entrepreneur’s idea and desires.

Operations and Management Plan

In this section, outline how you will manage your company. Describe its organizational structure. Here you can address the form of ownership and, if warranted, include an organizational chart/structure. Highlight the backgrounds, experiences, qualifications, areas of expertise, and roles of members of the management team. This is also the place to mention any other stakeholders, such as a board of directors or advisory board(s), and their relevant relationship to the founder, experience and value to help make the venture successful, and professional service firms providing management support, such as accounting services and legal counsel.

Table 11.6 shows a sample operations and management plan for La Vida Lola.

Marketing Plan

Here you should outline and describe an effective overall marketing strategy for your venture, providing details regarding pricing, promotion, advertising, distribution, media usage, public relations, and a digital presence. Fully describe your sales management plan and the composition of your sales force, along with a comprehensive and detailed budget for the marketing plan. Table 11.7 shows a sample marketing plan for La Vida Lola.

Financial Plan

A financial plan seeks to forecast revenue and expenses; project a financial narrative; and estimate project costs, valuations, and cash flow projections. This section should present an accurate, realistic, and achievable financial plan for your venture (see Entrepreneurial Finance and Accounting for detailed discussions about conducting these projections). Include sales forecasts and income projections, pro forma financial statements ( Building the Entrepreneurial Dream Team , a breakeven analysis, and a capital budget. Identify your possible sources of financing (discussed in Conducting a Feasibility Analysis ). Figure 11.19 shows a template of cash-flow needs for La Vida Lola.

Entrepreneur In Action

Laughing man coffee.

Hugh Jackman ( Figure 11.20 ) may best be known for portraying a comic-book superhero who used his mutant abilities to protect the world from villains. But the Wolverine actor is also working to make the planet a better place for real, not through adamantium claws but through social entrepreneurship.

A love of java jolted Jackman into action in 2009, when he traveled to Ethiopia with a Christian humanitarian group to shoot a documentary about the impact of fair-trade certification on coffee growers there. He decided to launch a business and follow in the footsteps of the late Paul Newman, another famous actor turned philanthropist via food ventures.

Jackman launched Laughing Man Coffee two years later; he sold the line to Keurig in 2015. One Laughing Man Coffee café in New York continues to operate independently, investing its proceeds into charitable programs that support better housing, health, and educational initiatives within fair-trade farming communities. 55 Although the New York location is the only café, the coffee brand is still distributed, with Keurig donating an undisclosed portion of Laughing Man proceeds to those causes (whereas Jackman donates all his profits). The company initially donated its profits to World Vision, the Christian humanitarian group Jackman accompanied in 2009. In 2017, it created the Laughing Man Foundation to be more active with its money management and distribution.

• You be the entrepreneur. If you were Jackman, would you have sold the company to Keurig? Why or why not?
• Would you have started the Laughing Man Foundation?
• What else can Jackman do to aid fair-trade practices for coffee growers?

What Can You Do?

Textbooks for change.

Founded in 2014, Textbooks for Change uses a cross-compensation model, in which one customer segment pays for a product or service, and the profit from that revenue is used to provide the same product or service to another, underserved segment. Textbooks for Change partners with student organizations to collect used college textbooks, some of which are re-sold while others are donated to students in need at underserved universities across the globe. The organization has reused or recycled 250,000 textbooks, providing 220,000 students with access through seven campus partners in East Africa. This B-corp social enterprise tackles a problem and offers a solution that is directly relevant to college students like yourself. Have you observed a problem on your college campus or other campuses that is not being served properly? Could it result in a social enterprise?

Work It Out

Franchisee set out.

A franchisee of East Coast Wings, a chain with dozens of restaurants in the United States, has decided to part ways with the chain. The new store will feature the same basic sports-bar-and-restaurant concept and serve the same basic foods: chicken wings, burgers, sandwiches, and the like. The new restaurant can’t rely on the same distributors and suppliers. A new business plan is needed.

• What steps should the new restaurant take to create a new business plan?
• Should it attempt to serve the same customers? Why or why not?

This New York Times video, “An Unlikely Business Plan,” describes entrepreneurial resurgence in Detroit, Michigan.

• 48 Chris Guillebeau. The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future . New York: Crown Business/Random House, 2012.
• 49 Jonathan Chan. “What These 4 Startup Case Studies Can Teach You about Failure.” Foundr.com . July 12, 2015. https://foundr.com/4-startup-case-studies-failure/
• 50 Amy Feldman. “Inventor of the Cut Buddy Paid YouTubers to Spark Sales. He Wasn’t Ready for a Video to Go Viral.” Forbes. February 15, 2017. https://www.forbes.com/sites/forbestreptalks/2017/02/15/inventor-of-the-cut-buddy-paid-youtubers-to-spark-sales-he-wasnt-ready-for-a-video-to-go-viral/#3eb540ce798a
• 51 Jennifer Post. “National Business Plan Competitions for Entrepreneurs.” Business News Daily . August 30, 2018. https://www.businessnewsdaily.com/6902-business-plan-competitions-entrepreneurs.html
• 52 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition . March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf
• 53 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition. March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf; Based on 2019 RBPC Competition Rules and Format April 4–6, 2019. https://rbpc.rice.edu/sites/g/files/bxs806/f/2019-RBPC-Competition-Rules%20-Format.pdf
• 54 Foodstart. http://foodstart.com
• 55 “Hugh Jackman Journey to Starting a Social Enterprise Coffee Company.” Giving Compass. April 8, 2018. https://givingcompass.org/article/hugh-jackman-journey-to-starting-a-social-enterprise-coffee-company/

This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's permission.

Want to cite, share, or modify this book? This book uses the Creative Commons Attribution License and you must attribute OpenStax.

Access for free at https://openstax.org/books/entrepreneurship/pages/1-introduction

• Authors: Michael Laverty, Chris Littel
• Publisher/website: OpenStax
• Book title: Entrepreneurship
• Publication date: Jan 16, 2020
• Location: Houston, Texas
• Book URL: https://openstax.org/books/entrepreneurship/pages/1-introduction
• Section URL: https://openstax.org/books/entrepreneurship/pages/11-4-the-business-plan

© Jun 26, 2024 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution License . The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.

Business Plan Example and Template

Learn how to create a business plan

What is a Business Plan?

A business plan is a document that contains the operational and financial plan of a business, and details how its objectives will be achieved. It serves as a road map for the business and can be used when pitching investors or financial institutions for debt or equity financing .

A business plan should follow a standard format and contain all the important business plan elements. Typically, it should present whatever information an investor or financial institution expects to see before providing financing to a business.

Contents of a Business Plan

A business plan should be structured in a way that it contains all the important information that investors are looking for. Here are the main sections of a business plan:

1. Title Page

The title page captures the legal information of the business, which includes the registered business name, physical address, phone number, email address, date, and the company logo.

2. Executive Summary

The executive summary is the most important section because it is the first section that investors and bankers see when they open the business plan. It provides a summary of the entire business plan. It should be written last to ensure that you don’t leave any details out. It must be short and to the point, and it should capture the reader’s attention. The executive summary should not exceed two pages.

3. Industry Overview

The industry overview section provides information about the specific industry that the business operates in. Some of the information provided in this section includes major competitors, industry trends, and estimated revenues. It also shows the company’s position in the industry and how it will compete in the market against other major players.

4. Market Analysis and Competition

The market analysis section details the target market for the company’s product offerings. This section confirms that the company understands the market and that it has already analyzed the existing market to determine that there is adequate demand to support its proposed business model.

Market analysis includes information about the target market’s demographics , geographical location, consumer behavior, and market needs. The company can present numbers and sources to give an overview of the target market size.

A business can choose to consolidate the market analysis and competition analysis into one section or present them as two separate sections.

5. Sales and Marketing Plan

The sales and marketing plan details how the company plans to sell its products to the target market. It attempts to present the business’s unique selling proposition and the channels it will use to sell its goods and services. It details the company’s advertising and promotion activities, pricing strategy, sales and distribution methods, and after-sales support.

6. Management Plan

The management plan provides an outline of the company’s legal structure, its management team, and internal and external human resource requirements. It should list the number of employees that will be needed and the remuneration to be paid to each of the employees.

Any external professionals, such as lawyers, valuers, architects, and consultants, that the company will need should also be included. If the company intends to use the business plan to source funding from investors, it should list the members of the executive team, as well as the members of the advisory board.

7. Operating Plan

The operating plan provides an overview of the company’s physical requirements, such as office space, machinery, labor, supplies, and inventory . For a business that requires custom warehouses and specialized equipment, the operating plan will be more detailed, as compared to, say, a home-based consulting business. If the business plan is for a manufacturing company, it will include information on raw material requirements and the supply chain.

8. Financial Plan

The financial plan is an important section that will often determine whether the business will obtain required financing from financial institutions, investors, or venture capitalists. It should demonstrate that the proposed business is viable and will return enough revenues to be able to meet its financial obligations. Some of the information contained in the financial plan includes a projected income statement , balance sheet, and cash flow.

9. Appendices and Exhibits

The appendices and exhibits part is the last section of a business plan. It includes any additional information that banks and investors may be interested in or that adds credibility to the business. Some of the information that may be included in the appendices section includes office/building plans, detailed market research , products/services offering information, marketing brochures, and credit histories of the promoters.

Business Plan Template

Here is a basic template that any business can use when developing its business plan:

Section 1: Executive Summary

• Present the company’s mission.
• Describe the company’s product and/or service offerings.
• Give a summary of the target market and its demographics.
• Summarize the industry competition and how the company will capture a share of the available market.
• Give a summary of the operational plan, such as inventory, office and labor, and equipment requirements.

Section 2: Industry Overview

• Describe the company’s position in the industry.
• Describe the existing competition and the major players in the industry.
• Provide information about the industry that the business will operate in, estimated revenues, industry trends, government influences, as well as the demographics of the target market.

Section 3: Market Analysis and Competition

• Define your target market, their needs, and their geographical location.
• Describe the size of the market, the units of the company’s products that potential customers may buy, and the market changes that may occur due to overall economic changes.
• Give an overview of the estimated sales volume vis-à-vis what competitors sell.
• Give a plan on how the company plans to combat the existing competition to gain and retain market share.

Section 4: Sales and Marketing Plan

• Describe the products that the company will offer for sale and its unique selling proposition.
• List the different advertising platforms that the business will use to get its message to customers.
• Describe how the business plans to price its products in a way that allows it to make a profit.
• Give details on how the company’s products will be distributed to the target market and the shipping method.

Section 5: Management Plan

• Describe the organizational structure of the company.
• List the owners of the company and their ownership percentages.
• List the key executives, their roles, and remuneration.
• List any internal and external professionals that the company plans to hire, and how they will be compensated.
• Include a list of the members of the advisory board, if available.

Section 6: Operating Plan

• Describe the location of the business, including office and warehouse requirements.
• Describe the labor requirement of the company. Outline the number of staff that the company needs, their roles, skills training needed, and employee tenures (full-time or part-time).
• Describe the manufacturing process, and the time it will take to produce one unit of a product.
• Describe the equipment and machinery requirements, and if the company will lease or purchase equipment and machinery, and the related costs that the company estimates it will incur.
• Provide a list of raw material requirements, how they will be sourced, and the main suppliers that will supply the required inputs.

Section 7: Financial Plan

• Describe the financial projections of the company, by including the projected income statement, projected cash flow statement, and the balance sheet projection.

Section 8: Appendices and Exhibits

• Quotes of building and machinery leases
• Proposed office and warehouse plan
• Market research and a summary of the target market
• Credit information of the owners
• List of product and/or services

Related Readings

Thank you for reading CFI’s guide to Business Plans. To keep learning and advancing your career, the following CFI resources will be helpful:

• Corporate Structure
• Three Financial Statements
• Business Model Canvas Examples
• See all management & strategy resources
• Share this article

Create a free account to unlock this Template

Access and download collection of free Templates to help power your productivity and performance.

Already have an account? Log in

Supercharge your skills with Premium Templates

Take your learning and productivity to the next level with our Premium Templates.

Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI's full course catalog and accredited Certification Programs.

Already have a Self-Study or Full-Immersion membership? Log in

Access Exclusive Templates

Gain unlimited access to more than 250 productivity Templates, CFI's full course catalog and accredited Certification Programs, hundreds of resources, expert reviews and support, the chance to work with real-world finance and research tools, and more.

Already have a Full-Immersion membership? Log in

Get ready for a new eCorner experience! Later this summer, eCorner will become part of the website for STVP, the Stanford Engineering Entrepreneurship Center. You'll be able to access all eCorner content at stvp.stanford.edu . Existing links and bookmarks will redirect. Sign up for our newsletter to stay in the loop!

Ideas and Inspiration from STVP, the Stanford Engineering Entrepreneurship Center

Chapter 6: The Business Story and Plan

Entrepreneurs respond to attractive opportunities by forming new firms. In this chapter, we consider the five-step process for establishing a new enterprise. One particularly noteworthy step in the process is the development of a story and a business plan, including a compelling business model. The story is a compelling synopsis of why this venture is needed at this moment in time and how it can achieve success. We then detail the task of writing a business plan, which is an effort to better prepare the venture for testing its assumptions and hypotheses. An example of a well-prepared business model is provided in appendix A. Visit the textbook website for additional sample business plans, models and slide (or pitch) decks.

1. “Purpose of a Business Plan” with Tom Byers, Stanford University

2. “Work Backwards From the Customer” with Diego Piacentini, Amazon

3. “Have a Sense of Urgency” with Mike Maples, Floodgate

Continue to Chapter 7

Tom Byers , Stanford University

Tom Byers is a Professor in the Department of Management Science & Engineering at Stanford University and a faculty director of the Stanford Technology Ventures Program (STVP).

Andrew Nelson , University of Oregon

Andrew Nelson is Associate Vice President for Entrepreneurship and Innovation and an Associate Professor of Management at the University of Oregon.

Richard Dorf , University of California, Davis

Richard C. Dorf is a Professor Emeritus of Management and Electrical and Computer Engineering at the University of California, Davis.

Getting to Product-Market Fit [Entire Talk]

Video clips.

What Product-Market Fit Feels Like

Conducting valuable research, refining price point and messaging, going narrow, using your mission to find your customer, challenges and joys of hardware.

Mental Health Tech, Mentally Healthy Startups [Entire Talk]

Gaining Startup Skills and Mentors

Founder-market fit, scale the bright spots, mission-driven hiring, mental-health practices for founders, ai and mental health startups.

Exploration in Sports Technology [Entire Talk]

The Privilege to Take a Risk

Product innovation first, finding your first customers, go global from the get-go, maintaining values as you grow, ingraining sustainability.

We earn commissions if you shop through the links below.  Read more

8 Components of a Business Plan

Back to Business Plans

Written by: Carolyn Young

Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.

Edited by: David Lepeska

David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.

Published on February 19, 2023 Updated on August 18, 2024

A key part of the business startup process is putting together a business plan , particularly if you’d like to raise capital. It’s not going to be easy, but it’s absolutely essential, and an invaluable learning tool. 

Creating a business plan early helps you think through every aspect of your business, from operations and financing to growth and vision. In the end, the knowledge you’ll gain could be the difference between success and failure. 

But what exactly does a business plan consist of? There are eight essential components, all of which are detailed in this handy guide.

1. Executive Summary 

The executive summary opens your business plan , but it’s the section you’ll write last. It summarizes the key points and highlights the most important aspects of your plan. Often investors and lenders will only read the executive summary; if it doesn’t capture their interest they’ll stop reading, so it’s important to make it as compelling as possible.

The components touched upon should include:

• The business opportunity – what problem are you solving in the market?
• Your idea, meaning the product or service you’re planning to offer, and why it solves the problem in the market better than other solutions.
• The history of the business so far – what have you done to this point? When you’re just getting started, this may be nothing more than coming up with the idea, choosing a business name , and forming a business entity.
• A summary of the industry, market size, your target customers, and the competition.
• A strong statement about how your company is going to stand out in the market – what will be your competitive advantage?
• A list of specific goals that you plan to achieve in the short term, such as developing your product, launching a marketing campaign, or hiring a key person. 
• A summary of your financial plan including cost and sales projections and a break-even analysis.
• A summary of your management team, their roles, and the relevant experience that they have to serve in those roles.
• Your “ask”, if applicable, meaning what you’re requesting from the investor or lender. You’ll include the amount you’d like and how it will be spent, such as “We are seeking $50,000 in seed funding to develop our beta product”. 

Remember that if you’re seeking capital, the executive summary could make or break your venture. Take your time and make sure it illustrates how your business is unique in the market and why you’ll succeed.

The executive summary should be no more than two pages long, so it’s important to capture the reader’s interest from the start. 

• 2. Company Description/Overview

In this section, you’ll detail your full company history, such as how you came up with the idea for your business and any milestones or achievements. 

You’ll also include your mission and vision statements. A mission statement explains what you’d like your business to achieve, its driving force, while a vision statement lays out your long-term plan in terms of growth. 

A mission statement might be “Our company aims to make life easier for business owners with intuitive payroll software”, while a vision statement could be “Our objective is to become the go-to comprehensive HR software provider for companies around the globe.”

In this section, you’ll want to list your objectives – specific short-term goals. Examples might include “complete initial product development by ‘date’” or “hire two qualified sales people” or “launch the first version of the product”. 

It’s best to divide this section into subsections – company history, mission and vision, and objectives.

3. Products/Services Offered 

Here you’ll go into detail about what you’re offering, how it solves a problem in the market, and how it’s unique. Don’t be afraid to share information that is proprietary – investors and lenders are not out to steal your ideas. 

Also specify how your product is developed or sourced. Are you manufacturing it or does it require technical development? Are you purchasing a product from a manufacturer or wholesaler? 

You’ll also want to specify how you’ll sell your product or service. Will it be a subscription service or a one time purchase?  What is your target pricing? On what channels do you plan to sell your product or service, such as online or by direct sales in a store? 

Basically, you’re describing what you’re going to sell and how you’ll make money.

• 4. Market Analysis 

The market analysis is where you’re going to spend most of your time because it involves a lot of research. You should divide it into four sections.

Industry analysis 

You’ll want to find out exactly what’s happening in your industry, such as its growth rate, market size, and any specific trends that are occurring. Where is the industry predicted to be in 10 years? Cite your sources where you can by providing links. 

Then describe your company’s place in the market. Is your product going to fit a certain niche? Is there a sub-industry your company will fit within? How will you keep up with industry changes? 

Competitor analysis 

Now you’ll dig into your competition. Detail your main competitors and how they differentiate themselves in the market. For example, one competitor may advertise convenience while another may tout superior quality. Also highlight your competitors’ weaknesses.

Next, describe how you’ll stand out. Detail your competitive advantages and how you’ll sustain them. This section is extremely important and will be a focus for investors and lenders. 

Target market analysis 

Here you’ll describe your target market and whether it’s different from your competitors’.  For example, maybe you have a younger demographic in mind? 

You’ll need to know more about your target market than demographics, though. You’ll want to explain the needs and wants of your ideal customers, how your offering solves their problem, and why they will choose your company. 

You should also lay out where you’ll find them, where to place your marketing and where to sell your products. Learning this kind of detail requires going to the source – your potential customers. You can do online surveys or even in-person focus groups. 

Your goal will be to uncover as much about these people as possible. When you start selling, you’ll want to keep learning about your customers. You may end up selling to a different target market than you originally thought, which could lead to a marketing shift. 

SWOT analysis 

SWOT stands for strengths, weaknesses, opportunities, and threats, and it’s one of the more common and helpful business planning tools.   

First describe all the specific strengths of your company, such as the quality of your product or some unique feature, such as the experience of your management team. Talk about the elements that will make your company successful.

Next, acknowledge and explore possible weaknesses. You can’t say “none”, because no company is perfect, especially at the start. Maybe you lack funds or face a massive competitor. Whatever it is, detail how you will surmount this hurdle. 

Next, talk about the opportunities your company has in the market. Perhaps you’re going to target an underserved segment, or have a technology plan that will help you surge past the competition. 

Finally, examine potential threats. It could be a competitor that might try to replicate your product or rapidly advancing technology in your industry. Again, discuss your plans to handle such threats if they come to pass. 

5. Marketing and Sales Strategies

Now it’s time to explain how you’re going to find potential customers and convert them into paying customers.  

Marketing and advertising plan

When you did your target market analysis, you should have learned a lot about your potential customers, including where to find them. This should help you determine where to advertise. 

Maybe you found that your target customers favor TikTok over Instagram and decided to spend more marketing dollars on TikTok. Detail all the marketing channels you plan to use and why.

Your target market analysis should also have given you information about what kind of message will resonate with your target customers. You should understand their needs and wants and how your product solves their problem, then convey that in your marketing. 

Start by creating a value proposition, which should be no more than two sentences long and answer the following questions:

• What are you offering
• Whose problem does it solve
• What problem does it solve
• What benefits does it provide
• How is it better than competitor products

An example might be “Payroll software that will handle all the payroll needs of small business owners, making life easier for less.”

Whatever your value proposition, it should be at the heart of all of your marketing.

Sales strategy and tactics 

Your sales strategy is a vision to persuade customers to buy, including where you’ll sell and how. For example, you may plan to sell only on your own website, or you may sell from both a physical location and online. On the other hand, you may have a sales team that will make direct sales calls to potential customers, which is more common in business-to-business sales.

Sales tactics are more about how you’re going to get them to buy after they reach your sales channel. Even when selling online, you need something on your site that’s going to get them to go from a site visitor to a paying customer. 

By the same token, if you’re going to have a sales team making direct sales, what message are they going to deliver that will entice a sale? It’s best for sales tactics to focus on the customer’s pain point and what value you’re bringing to the table, rather than being aggressively promotional about the greatness of your product and your business. 

Pricing strategy

Pricing is not an exact science and should depend on several factors. First, consider how you want your product or service to be perceived in the market. If your differentiator is to be the lowest price, position your company as the “discount” option. Think Walmart, and price your products lower than the competition. 

If, on the other hand, you want to be the Mercedes of the market, then you’ll position your product as the luxury option. Of course you’ll have to back this up with superior quality, but being the luxury option allows you to command higher prices.

You can, of course, fall somewhere in the middle, but the point is that pricing is a matter of perception. How you position your product in the market compared to the competition is a big factor in determining your price.

Of course, you’ll have to consider your costs, as well as competitor prices. Obviously, your prices must cover your costs and allow you to make a good profit margin. 

Whatever pricing strategy you choose, you’ll justify it in this section of your plan.

• 6. Operations and Management 

This section is the real nuts and bolts of your business – how it operates on a day-to-day basis and who is operating it. Again, this section should be divided into subsections.

Operational plan

Your plan of operations should be specific , detailed and mainly logistical. Who will be doing what on a daily, weekly, and monthly basis? How will the business be managed and how will quality be assured? Be sure to detail your suppliers and how and when you’ll order raw materials. 

This should also include the roles that will be filled and the various processes that will be part of everyday business operations . Just consider all the critical functions that must be handled for your business to be able to operate on an ongoing basis. 

Technology plan

If your product involves technical development, you’ll describe your tech development plan with specific goals and milestones. The plan will also include how many people will be working on this development, and what needs to be done for goals to be met.

If your company is not a technology company, you’ll describe what technologies you plan to use to run your business or make your business more efficient. It could be process automation software, payroll software, or just laptops and tablets for your staff. 

Management and organizational structure 

Now you’ll describe who’s running the show. It may be just you when you’re starting out, so you’ll detail what your role will be and summarize your background. You’ll also go into detail about any managers that you plan to hire and when that will occur.

Essentially, you’re explaining your management structure and detailing why your strategy will enable smooth and efficient operations. 

Ideally, at some point, you’ll have an organizational structure that is a hierarchy of your staff. Describe what you envision your organizational structure to be. 

Personnel plan 

Detail who you’ve hired or plan to hire and for which roles. For example, you might have a developer, two sales people, and one customer service representative.

Describe each role and what qualifications are needed to perform those roles. 

• 7. Financial Plan 

Now, you’ll enter the dreaded world of finance. Many entrepreneurs struggle with this part, so you might want to engage a financial professional to help you. A financial plan has five key elements.

Startup Costs

Detail in a spreadsheet every cost you’ll incur before you open your doors. This should determine how much capital you’ll need to launch your business. 

Financial projections 

Creating financial projections, like many facets of business, is not an exact science. If your company has no history, financial projections can only be an educated guess. 

First, come up with realistic sales projections. How much do you expect to sell each month? Lay out at least three years of sales projections, detailing monthly sales growth for the first year, then annually thereafter. 

Calculate your monthly costs, keeping in mind that some costs will grow along with sales. 

Once you have your numbers projected and calculated, use them to create these three key financial statements: 

• Profit and Loss Statement , also known as an income statement. This shows projected revenue and lists all costs, which are then deducted to show net profit or loss. 
• Cash Flow Statement. This shows how much cash you have on hand at any given time. It will have a starting balance, projections of cash coming in, and cash going out, which will be used to calculate cash on hand at the end of the reporting period.
• Balance Sheet. This shows the net worth of the business, which is the assets of the business minus debts. Assets include equipment, cash, accounts receivables, inventory, and more. Debts include outstanding loan balances and accounts payable.

You’ll need monthly projected versions of each statement for the first year, then annual projections for the following two years.

Break-even analysis

The break-even point for your business is when costs and revenue are equal. Most startups operate at a loss for a period of time before they break even and start to make a profit. Your break-even analysis will project when your break-even point will occur, and will be informed by your profit and loss statement. 

Funding requirements and sources 

Lay out the funding you’ll need, when, and where you’ll get it. You’ll also explain what those funds will be used for at various points. If you’re in a high growth industry that can attract investors, you’ll likely need various rounds of funding to launch and grow. 

Key performance indicators (KPIs)

KPIs measure your company’s performance and can determine success. Many entrepreneurs only focus on the bottom line, but measuring specific KPIs helps find areas of improvement. Every business has certain crucial metrics. 

If you sell only online, one of your key metrics might be your visitor conversion rate. You might do an analysis to learn why just one out of ten site visitors makes a purchase. 

Perhaps the purchase process is too complicated or your product descriptions are vague. The point is, learning why your conversion rate is low gives you a chance to improve it and boost sales. 

8. Appendices

In the appendices, you can attach documents such as manager resumes or any other documents that support your business plan.

As you can see, a business plan has many components, so it’s not an afternoon project. It will likely take you several weeks and a great deal of work to complete. Unless you’re a finance guru, you may also want some help from a financial professional. 

Keep in mind that for a small business owner, there may be no better learning experience than writing a detailed and compelling business plan. It shouldn’t be viewed as a hassle, but as an opportunity! 

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.

• Executive Summary 
• Products/Services Offered 
• Marketing and Sales Strategies

Subscribe to Our Newsletter

Featured resources.

Crafting the Perfect Business Plan: A Deep Dive with Upmetrics’ Vinay Kevadiya

Carolyn Young

Published on October 13, 2023

In the first segment of our conversation with Vinay Kevadiya, the visionary behind Upmetrics, we explored the platform’s origins and itsunique ...

LivePlan Software Review: Features, Cost, Pros & Cons

Published on September 15, 2023

When you’re starting a business, a business plan is essential whether you’re going to obtain financing or not. Creating a business plan helpsyou ...

What to Include in Your Business Plan Appendix?

Published on September 13, 2023

Launching a business involves countless tasks, and one of the crucial early hurdles is writing a business plan. Many entrepreneurs who aren’tlooki ...

No thanks, I don't want to stay up to date on industry trends and news.

• Sources of Business Finance
• Small Business Loans
• Small Business Grants
• Crowdfunding Sites
• How to Get a Business Loan
• Small Business Insurance Providers
• Best Factoring Companies
• Types of Bank Accounts
• Best Banks for Small Business
• Best Business Bank Accounts
• Open a Business Bank Account
• Bank Accounts for Small Businesses
• Free Business Checking Accounts
• Best Business Credit Cards
• Get a Business Credit Card
• Business Credit Cards for Bad Credit
• Build Business Credit Fast
• Business Loan Eligibility Criteria
• Small-Business Bookkeeping Basics
• How to Set Financial Goals
• Business Loan Calculators
• How to Calculate ROI
• Calculate Net Income
• Calculate Working Capital
• Calculate Operating Income
• Calculate Net Present Value (NPV)
• Calculate Payroll Tax

12 Key Elements of a Business Plan (Top Components Explained)

Starting and running a successful business requires proper planning and execution of effective business tactics and strategies .

You need to prepare many essential business documents when starting a business for maximum success; the business plan is one such document.

When creating a business, you want to achieve business objectives and financial goals like productivity, profitability, and business growth. You need an effective business plan to help you get to your desired business destination.

Even if you are already running a business, the proper understanding and review of the key elements of a business plan help you navigate potential crises and obstacles.

This article will teach you why the business document is at the core of any successful business and its key elements you can not avoid.

Let’s get started.

Why Are Business Plans Important?

Business plans are practical steps or guidelines that usually outline what companies need to do to reach their goals. They are essential documents for any business wanting to grow and thrive in a highly-competitive business environment .

1. Proves Your Business Viability

A business plan gives companies an idea of how viable they are and what actions they need to take to grow and reach their financial targets. With a well-written and clearly defined business plan, your business is better positioned to meet its goals.

2. Guides You Throughout the Business Cycle

A business plan is not just important at the start of a business. As a business owner, you must draw up a business plan to remain relevant throughout the business cycle .

During the starting phase of your business, a business plan helps bring your ideas into reality. A solid business plan can secure funding from lenders and investors.

After successfully setting up your business, the next phase is management. Your business plan still has a role to play in this phase, as it assists in communicating your business vision to employees and external partners.

Essentially, your business plan needs to be flexible enough to adapt to changes in the needs of your business.

3. Helps You Make Better Business Decisions

As a business owner, you are involved in an endless decision-making cycle. Your business plan helps you find answers to your most crucial business decisions.

A robust business plan helps you settle your major business components before you launch your product, such as your marketing and sales strategy and competitive advantage.

4. Eliminates Big Mistakes

Many small businesses fail within their first five years for several reasons: lack of financing, stiff competition, low market need, inadequate teams, and inefficient pricing strategy.

Creating an effective plan helps you eliminate these big mistakes that lead to businesses' decline. Every business plan element is crucial for helping you avoid potential mistakes before they happen.

5. Secures Financing and Attracts Top Talents

Having an effective plan increases your chances of securing business loans. One of the essential requirements many lenders ask for to grant your loan request is your business plan.

A business plan helps investors feel confident that your business can attract a significant return on investments ( ROI ).

You can attract and retain top-quality talents with a clear business plan. It inspires your employees and keeps them aligned to achieve your strategic business goals.

Key Elements of Business Plan

Starting and running a successful business requires well-laid actions and supporting documents that better position a company to achieve its business goals and maximize success.

A business plan is a written document with relevant information detailing business objectives and how it intends to achieve its goals.

With an effective business plan, investors, lenders, and potential partners understand your organizational structure and goals, usually around profitability, productivity, and growth.

Every successful business plan is made up of key components that help solidify the efficacy of the business plan in delivering on what it was created to do.

Here are some of the components of an effective business plan.

1. Executive Summary

One of the key elements of a business plan is the executive summary. Write the executive summary as part of the concluding topics in the business plan. Creating an executive summary with all the facts and information available is easier.

In the overall business plan document, the executive summary should be at the forefront of the business plan. It helps set the tone for readers on what to expect from the business plan.

A well-written executive summary includes all vital information about the organization's operations, making it easy for a reader to understand.

The key points that need to be acted upon are highlighted in the executive summary. They should be well spelled out to make decisions easy for the management team.

A good and compelling executive summary points out a company's mission statement and a brief description of its products and services.

An executive summary summarizes a business's expected value proposition to distinct customer segments. It highlights the other key elements to be discussed during the rest of the business plan.

Including your prior experiences as an entrepreneur is a good idea in drawing up an executive summary for your business. A brief but detailed explanation of why you decided to start the business in the first place is essential.

Adding your company's mission statement in your executive summary cannot be overemphasized. It creates a culture that defines how employees and all individuals associated with your company abide when carrying out its related processes and operations.

Your executive summary should be brief and detailed to catch readers' attention and encourage them to learn more about your company.

Components of an Executive Summary

Here are some of the information that makes up an executive summary:

• The name and location of your company
• Products and services offered by your company
• Mission and vision statements
• Success factors of your business plan

2. Business Description

Your business description needs to be exciting and captivating as it is the formal introduction a reader gets about your company.

What your company aims to provide, its products and services, goals and objectives, target audience , and potential customers it plans to serve need to be highlighted in your business description.

A company description helps point out notable qualities that make your company stand out from other businesses in the industry. It details its unique strengths and the competitive advantages that give it an edge to succeed over its direct and indirect competitors.

Spell out how your business aims to deliver on the particular needs and wants of identified customers in your company description, as well as the particular industry and target market of the particular focus of the company.

Include trends and significant competitors within your particular industry in your company description. Your business description should contain what sets your company apart from other businesses and provides it with the needed competitive advantage.

In essence, if there is any area in your business plan where you need to brag about your business, your company description provides that unique opportunity as readers look to get a high-level overview.

Components of a Business Description

Your business description needs to contain these categories of information.

• Business location
• The legal structure of your business
• Summary of your business’s short and long-term goals

3. Market Analysis

The market analysis section should be solely based on analytical research as it details trends particular to the market you want to penetrate.

Graphs, spreadsheets, and histograms are handy data and statistical tools you need to utilize in your market analysis. They make it easy to understand the relationship between your current ideas and the future goals you have for the business.

All details about the target customers you plan to sell products or services should be in the market analysis section. It helps readers with a helpful overview of the market.

In your market analysis, you provide the needed data and statistics about industry and market share, the identified strengths in your company description, and compare them against other businesses in the same industry.

The market analysis section aims to define your target audience and estimate how your product or service would fare with these identified audiences.

Market analysis helps visualize a target market by researching and identifying the primary target audience of your company and detailing steps and plans based on your audience location.

Obtaining this information through market research is essential as it helps shape how your business achieves its short-term and long-term goals.

Market Analysis Factors

Here are some of the factors to be included in your market analysis.

• The geographical location of your target market
• Needs of your target market and how your products and services can meet those needs
• Demographics of your target audience

Components of the Market Analysis Section

Here is some of the information to be included in your market analysis.

• Industry description and statistics
• Demographics and profile of target customers
• Marketing data for your products and services
• Detailed evaluation of your competitors

4. Marketing Plan

A marketing plan defines how your business aims to reach its target customers, generate sales leads, and, ultimately, make sales.

Promotion is at the center of any successful marketing plan. It is a series of steps to pitch a product or service to a larger audience to generate engagement. Note that the marketing strategy for a business should not be stagnant and must evolve depending on its outcome.

Include the budgetary requirement for successfully implementing your marketing plan in this section to make it easy for readers to measure your marketing plan's impact in terms of numbers.

The information to include in your marketing plan includes marketing and promotion strategies, pricing plans and strategies , and sales proposals. You need to include how you intend to get customers to return and make repeat purchases in your business plan.

5. Sales Strategy

Sales strategy defines how you intend to get your product or service to your target customers and works hand in hand with your business marketing strategy.

Your sales strategy approach should not be complex. Break it down into simple and understandable steps to promote your product or service to target customers.

Apart from the steps to promote your product or service, define the budget you need to implement your sales strategies and the number of sales reps needed to help the business assist in direct sales.

Your sales strategy should be specific on what you need and how you intend to deliver on your sales targets, where numbers are reflected to make it easier for readers to understand and relate better.

6. Competitive Analysis

Providing transparent and honest information, even with direct and indirect competitors, defines a good business plan. Provide the reader with a clear picture of your rank against major competitors.

Identifying your competitors' weaknesses and strengths is useful in drawing up a market analysis. It is one information investors look out for when assessing business plans.

The competitive analysis section clearly defines the notable differences between your company and your competitors as measured against their strengths and weaknesses.

This section should define the following:

• Your competitors' identified advantages in the market
• How do you plan to set up your company to challenge your competitors’ advantage and gain grounds from them?
• The standout qualities that distinguish you from other companies
• Potential bottlenecks you have identified that have plagued competitors in the same industry and how you intend to overcome these bottlenecks

In your business plan, you need to prove your industry knowledge to anyone who reads your business plan. The competitive analysis section is designed for that purpose.

7. Management and Organization

Management and organization are key components of a business plan. They define its structure and how it is positioned to run.

Whether you intend to run a sole proprietorship, general or limited partnership, or corporation, the legal structure of your business needs to be clearly defined in your business plan.

Use an organizational chart that illustrates the hierarchy of operations of your company and spells out separate departments and their roles and functions in this business plan section.

The management and organization section includes profiles of advisors, board of directors, and executive team members and their roles and responsibilities in guaranteeing the company's success.

Apparent factors that influence your company's corporate culture, such as human resources requirements and legal structure, should be well defined in the management and organization section.

Defining the business's chain of command if you are not a sole proprietor is necessary. It leaves room for little or no confusion about who is in charge or responsible during business operations.

This section provides relevant information on how the management team intends to help employees maximize their strengths and address their identified weaknesses to help all quarters improve for the business's success.

8. Products and Services

This business plan section describes what a company has to offer regarding products and services to the maximum benefit and satisfaction of its target market.

Boldly spell out pending patents or copyright products and intellectual property in this section alongside costs, expected sales revenue, research and development, and competitors' advantage as an overview.

At this stage of your business plan, the reader needs to know what your business plans to produce and sell and the benefits these products offer in meeting customers' needs.

The supply network of your business product, production costs, and how you intend to sell the products are crucial components of the products and services section.

Investors are always keen on this information to help them reach a balanced assessment of if investing in your business is risky or offer benefits to them.

You need to create a link in this section on how your products or services are designed to meet the market's needs and how you intend to keep those customers and carve out a market share for your company.

Repeat purchases are the backing that a successful business relies on and measure how much customers are into what your company is offering.

This section is more like an expansion of the executive summary section. You need to analyze each product or service under the business.

9. Operating Plan

An operations plan describes how you plan to carry out your business operations and processes.

The operating plan for your business should include:

• Information about how your company plans to carry out its operations.
• The base location from which your company intends to operate.
• The number of employees to be utilized and other information about your company's operations.
• Key business processes.

This section should highlight how your organization is set up to run. You can also introduce your company's management team in this section, alongside their skills, roles, and responsibilities in the company.

The best way to introduce the company team is by drawing up an organizational chart that effectively maps out an organization's rank and chain of command.

What should be spelled out to readers when they come across this business plan section is how the business plans to operate day-in and day-out successfully.

10. Financial Projections and Assumptions

Bringing your great business ideas into reality is why business plans are important. They help create a sustainable and viable business.

The financial section of your business plan offers significant value. A business uses a financial plan to solve all its financial concerns, which usually involves startup costs, labor expenses, financial projections, and funding and investor pitches.

All key assumptions about the business finances need to be listed alongside the business financial projection, and changes to be made on the assumptions side until it balances with the projection for the business.

The financial plan should also include how the business plans to generate income and the capital expenditure budgets that tend to eat into the budget to arrive at an accurate cash flow projection for the business.

Base your financial goals and expectations on extensive market research backed with relevant financial statements for the relevant period.

Examples of financial statements you can include in the financial projections and assumptions section of your business plan include:

• Projected income statements
• Cash flow statements
• Balance sheets
• Income statements

Revealing the financial goals and potentials of the business is what the financial projection and assumption section of your business plan is all about. It needs to be purely based on facts that can be measurable and attainable.

11. Request For Funding

The request for funding section focuses on the amount of money needed to set up your business and underlying plans for raising the money required. This section includes plans for utilizing the funds for your business's operational and manufacturing processes.

When seeking funding, a reasonable timeline is required alongside it. If the need arises for additional funding to complete other business-related projects, you are not left scampering and desperate for funds.

If you do not have the funds to start up your business, then you should devote a whole section of your business plan to explaining the amount of money you need and how you plan to utilize every penny of the funds. You need to explain it in detail for a future funding request.

When an investor picks up your business plan to analyze it, with all your plans for the funds well spelled out, they are motivated to invest as they have gotten a backing guarantee from your funding request section.

Include timelines and plans for how you intend to repay the loans received in your funding request section. This addition keeps investors assured that they could recoup their investment in the business.

12. Exhibits and Appendices

Exhibits and appendices comprise the final section of your business plan and contain all supporting documents for other sections of the business plan.

Some of the documents that comprise the exhibits and appendices section includes:

• Legal documents
• Licenses and permits
• Credit histories
• Customer lists

The choice of what additional document to include in your business plan to support your statements depends mainly on the intended audience of your business plan. Hence, it is better to play it safe and not leave anything out when drawing up the appendix and exhibit section.

Supporting documentation is particularly helpful when you need funding or support for your business. This section provides investors with a clearer understanding of the research that backs the claims made in your business plan.

There are key points to include in the appendix and exhibits section of your business plan.

• The management team and other stakeholders resume
• Marketing research
• Permits and relevant legal documents
• Financial documents

Was This Article Helpful?

Martin luenendonk.

Martin loves entrepreneurship and has helped dozens of entrepreneurs by validating the business idea, finding scalable customer acquisition channels, and building a data-driven organization. During his time working in investment banking, tech startups, and industry-leading companies he gained extensive knowledge in using different software tools to optimize business processes.

This insights and his love for researching SaaS products enables him to provide in-depth, fact-based software reviews to enable software buyers make better decisions.

• 13 min read

Chapter 6: Key Elements of the Business Plan

Updated: Apr 18, 2022

If you only take one thing away from this book, take this chapter. This is important stuff. Absolutely no one will take you seriously without a formal, written business plan. And even then, it has to be realistic, well thought out, and well researched.

This is what separates the dreamers from the doers. And I am not going to kid you, it is a lot of work.

However painstaking this exercise is, it is worth every moment you spend on it. The development of your formal, well written, comprehensive business plan forces you to ask questions and address issues that you perhaps have not even considered.

It is meant to be realistic, so if you are doing it honestly, much of the work can be and will be unpleasant.

It will make you realize that there are challenges you have not considered. It will make you learn more about the industry you have chosen to disrupt. It will make you set goals and make you develop strategies. If you succeed in this exercise, it will convince you that this is the path you have chosen for your future and it will energize you like no other.

The key then again here is honesty. You are only hurting yourself and wasting other people’s precious time unless you face facts and deal in the reality.

Another important thing to remember is that this business plan, your business plan, is a work in process. It is a live instrument. It is always changing, it is always growing, it is always evolving. As you get more data, today’s business plan is not your last business plan. Do not hesitate to update it, add to it, enhance it, enrich it, especially as more facts and more data come to your attention.

People came into our incubator. They were convinced that they had THE IDEA. We were intended to provide the location, the programming, the expertise, and the resources to develop and to grow their idea.

All they “needed”, they would then tell us, was $250,000 to launch. Well, more often than not, it turned out that they did not really need an immediate $250,000 to launch. In reality, what they really needed was a better, more focused business plan and $100,000 for a better marketing program.

A great marketing program can rescue a struggling sales strategy.

The point is, before you jump into that cockpit and buckle up for the ride of your life, you need a flight plan. No one will take you seriously without a business plan. You cannot even take yourself seriously without a written business plan.

To you, the young, energetic, optimistic entrepreneur, it is not really even the business plan that is the important aspect here. It is the process. You will hear that time and again. It is all about the process.

The process of writing a serious business plan forces you to carefully examine the market that you are invading with your service or your device or your product. It has to be realistic, as in, based in reality, and not your personal vision of reality. It will be objective, informative, detailed, resourced, and precise.

It must be realistic. You need hard market data and resourced facts to back up and support your claims. There is no emotion to this. Your passion will surface simply in the detailed effort you have put into the process of developing your business plan.

Personally, my focus is on the management team and the financial projections. But I am a former lender, and character is important to me. Generally speaking, numbers do not lie, but financial projections have to be realistic. This is where your strategy and your goals will come into play and manifest themselves. More often than not, I am investing in the management, not just the product or the service.

Many lenders, many investors, your venture people, they will focus on the marketing and sales strategy, since after all, that is how they get paid back.

The point is, every element of your business plan is important to someone scrutinizing your dream. Invest the time it takes to present everything fully, in the very best light. Try not to leave any questions for the investor. Show them that you have considered everything and answer every viable concern in your business plan.

Investors will question your experience, your expertise in the industry in order to predict the velocity of their return. They will question your resources. If they have to question your passion, you have already lost.

And, they are comparing your plan to the other 117 business plans on their desk. If you want their money, that’s your competition. Make the reader want to turn the page and learn more. The best business plans get the dough, pure and simple.

You can obtain many versions of a sound business plan outline anywhere on the internet. But basically, this outline below is what it will always come down to. I will list the outline for you to follow, and do not invent a new one. I will explain each element and I will tell you what to focus on and why it is valuable and important. I will also add some suggestions for complementary material, again, simply because it is imperative to show that you have considered everything you need to launch your business.

Business Plan Outline

Executive Summary

Business Description

Definition of Market

Description of Products and Services

Organization and Management

Marketing and Sales Strategy

Financial Management

Financial Projections and Analysis

#1 .) An Executive Summary is exactly what it sounds, a summary. Never more than one page. It is meant to be an introduction to you and your idea. It is your concept and your “ask”. Key word is brief. To get the reader invested, to distinguish your idea, it has to be compelling. Simply stated, this is the Who, the What, the Why, and the How. You will fill in the blanks later, but this is your introduction to the Business Plan.

This is your passion. This is your drive. This is your destiny. This is what keeps you up at night. This is where you make the reader want to share your passion. This is where you want the reader to get involved in this partnership.

#2 .) The Business Description more fully describes your concept. You have heard about the elevator speech. This is the detailed description of your idea, presented in a clear and concise and articulate way, so that the reader’s eyes do not fold up into the back of his head.

#3 .) The Definition of Market is where your initial research shows up. You need this especially to convince yourself that there is a market out there, that there s a need for your product at this time. This market needs you, and it needs you now. Tell the reader what is missing in this market and why you have the solution. The sooner you get this product out of your basement and on to the shelves of Best Buy, the better off this world will be.

#4 .) The Description of Products and Services section is where you explain what keeps you up at night. The concept is clear in your head. This is where you make it clear in the head of your investors. How did this idea pop into your head? What does this product do better than the competition? What industry are we disrupting? Why is this product the answer to the world’s confusion?

You do not need to reveal any secret sauce here. That is your private information and you are right to protect it. With the proper signed non-disclosure agreements much later, your personal intellectual property will come out. But not at this time. You do not want your interviewer abruptly dismissing you only to have him call his fraternity buddy after your session with “his” hot new idea. It happens.

#5 .) Organization and Management: This is the section where you describe the current corporate structure. Do you have a sole proprietorship? Is this some kind of partnership? There are many different types of corporations? Which type are you thinking of pursuing.

You are going to have to do your homework on this one. There are many options to explore. It is not uncommon to start one way and change to another as the situation evolves. You will need to talk with an organizational or an entrepreneurial attorney to most fully explore which option is best for you.

There is no real wrong option. Depending on what your goals are, depending on your business development plans, or your growth plans, depending upon your appetite for risk, some options are definitely better for you than others. This will take research and time, but it will force yourself to address many important issues and it will save you a ton of Advil down the road. Invest the time and do it right. Then describe it in this section.

Additionally, this is the section where you get to talk about yourself. What role do you play? What responsibilities do you have? Who else will be in any management position? How are the various corporate or managerial tasks allocated? What qualifications do you bring to the company?

You don’t need a full resume, but the more personal information you are comfortable with sharing with the investors, it is easier it will be for them to judge your ability to lead a company.

Obviously, education and past experience play an important role in this section. Share yours along with the other key members of your team.

#6 .) Marketing and Sales Strategy: You could have stumbled onto the coronavirus vaccine in your lab, but unless you know how to properly market this, it stays in the lab. You have vision. You have drive. You have advanced degrees. You have a support network. You probably are not great at every aspect of building and growing a company. Somewhere along the line, sooner rather than later, you are going to budget, and you need staying power.

Today, more than ever, with digital advertising and internet marketing, you will need help. Developing an interactive website, narrowing down your specific target audience, product surveys, feedback on Twitter, this all takes time and expertise. You are trying to develop a product and bring it market. You don’t have the time to develop a comprehensive marketing plan. Call the experts. Then use your time where it is most productive.

#7 .) Financial Management: Most likely, you are an idea lady. You have the vision. You have noticed a hole in the universe. You have developed the faster, smarter, cheaper, and more efficient mouse trap. But you don’t even know how to balance your checkbook. This is understandable. It is almost desired. This is where the resourcefulness we talked about comes in. You’ve got a guy. You have noticed you need this. You have talked with financial experts. You are developing a team. You have discussed the need to keep track of income, expenses, purchases, capital outlays, payroll, local and state and federal taxes, financial controls, internet security. You will keep track of every Office Depot receipt. You will meet regularly with your financial expert who understands all of the mundane financial reporting requirements and prepare the necessary reports and statements.

You have this covered.

#8 .) Financial Projections and Analysis: This is the language that your investor understands. Do not be surprised if this is the section she flips to right after the Executive Summary. Some people live for this stuff. This is the section you will most likely spend most of your time on. At least it will certainly seem like that to you.

When you get your questions? This will be where they come from. Trust me.

This is not science fiction. This is true hard core financial projections. You need reality based income and expense statements, cash flow statements, balance sheets, monthly projections of your first year in business. Then you will need a five year projection showing business growth, return on investment, operating reserves, capital outlays, cost of goods, every expense from paper clips and rubber bands to office rent and advertising.

You will be quizzed on the source and the substantiation of each and every number you provide.

You need to know and understand this section like your ex-girlfriend’s Facebook page. Act like your life depends on it, because it does.

It is vitally important to explain where you are going, and it is even more important to explain how you intend to get there. And when. I do not believe it can be understated how important this section is to your success in this interview.

Fear not, there are people and resources out there to help with this task. You have to know where to look.

Personally, I always have the entrepreneur include adding the relevant real estate considerations. Office location surrounding area, office lease terms, furniture, fixtures, office equipment, lab equipment, technology infrastructure, parking, access to public transportation, ability to expand, ability to contract (downsize), and of course, cost. It shows that you have considered one of your earliest major expenses and most likely your largest contributor to overhead. It makes you consider your physical surroundings.

These are important considerations: first impressions of your new clients and your prospective employees, customer access, attraction of staff and co-workers, your ability to make customer calls, to get coffee, to eat, to stay and work late, to easily and comfortably transact the business of your business.

It is a very important aspect, and one you need to consider most thoughtfully before you launch. You had better be comfortable because you are going to be there a lot.

Here are the things you need to ask yourself:

Just where is this magic going to happen?

If you have an office planned, where is it located?

What is in the surrounding location?

Is it secure?

Will your employees feel safe?

Is it conducive for business development?

Will customers come to visit?

Is parking available?

Can you rely upon public transportation?

Do you have written lease terms, appropriate for a new business startup?

Have you accounted for initial costs like furniture, equipment, technology infrastructure?

Do you have the ability to expand?

Do you have an escape plan if you need to put the business on pause, or even bail out?

Finally, does the office cost figure into your overhead expenses in your operating projections?

It is all about the process.

Ok, you have waited long enough. Here is the meat of the operation. I gave you the skeleton up above in your outline. Now we put the meat on the bones. You cannot adequately plan your business venture without a careful in depth consideration of the following.

In business plan jargon, you are going to hear the term SWOT a lot, and I do not mean the highly trained first responders who jump out of a van with their high tech laser guided rifles aimed at your business startup, even though this is definitely a hostage situation.

In order to appropriately steer your planning process in the right direction, you should plan to spend most of your business plan focus and development time specifically on your SWOT.

Opportunities

And if I failed to mention it earlier, remember to be realistic.

This is where you include why your business will succeed. How are you different? What distinguishes you from Acme Products down the street? Why are you so special? Why are you better?

How do you compare next to all of your competition, in all aspects of consideration, including cost, location, price, value, management, resources, marketing?

Here is where you explain why you are better, cheaper, faster, and how you intend to break into this specific market at this specific time. Be modest, but be firm. Be genuine and be convincing. But most of all, be able to back it up.

You remember when I spoke about honesty and reality above? Well, this is where it shines.

This section alone will make you focus on things you have perhaps never thought about.

More importantly, it is almost imperative for the reader of your business plan, that is your investor, it is important for her to know that you have carefully considered each of these items and realistically in your process. They will normally and naturally have follow up questions of your business plan, but they will remember that you have carefully considered these important elements and that you took them on.

In the cross examination of your business plan, you never want to be in a position where you have to say “Good question” or “I don’t know” or “I will have to get back to you on that one”. The finished business plan is where the process is much more important than the product.

Investors want to know, what were you thinking when you wrote that?

Your business plan will continue to be a work in process. It will need continuing care and attention, updating, fine tuning, and tweaking. Overall, it will be evolutionary in nature. Today’s finished business plan will most likely not be your last business plan.

Basically, the business plan is you, on paper, or in a power point presentation. Don’t be defensive in your pride of authorship. Accept constructive criticism gracefully. Your next pitch may depend on it.

Just going through this process may change the focus of your business based upon the discoveries you make and the facts you uncover in your research.

You will need to remain flexible and open to this change. You need to recognize that you have to put the original plan on pause while you go off in a new and different direction, based upon your thorough research.

Do not allow for surprises in your presentation, yours or the investor’s.

Nobody likes surprises. Bankers and investors hate surprises. They are quick to judge when they are caught off guard. Either you withheld information, or you should have known. There is nothing in between. Harsh but true.

In your business plan, take equal time to explain what you believe to be your weaknesses. Everybody has them. If you don’t think you have one, well that’s the one. Go beyond explaining what you feel your particular weakness may be. But, and this is important, do not forget to add that even though this is a perceived weakness, you have a plan to overcome that. You have a team, you have a partner, you have resources, most importantly you have a plan. You are aware, you are working on it and it can easily be overcome. Here’s how.

If your weakness is marketing, as is often the case, don’t be afraid to mention it. Simply explain how you expect to overcome your weakness.

Explain why you feel that there is a market for you. Just how do you perceive those opportunities? Why isn’t somebody already doing this? Who is doing this? Just what are you bringing to the party? Why will it work at this time?

So lastly, acknowledge your competition. That could be your largest perceived threat. Explain how you intend to drive market share. How do you intend to exploit the weaknesses of your competition and drive them out of the market?

How will developing technology affect your goals and strategies?

You may be forced to change your business model. Based upon recent research, you may need to adapt to change based simply on new technology, new developments, recent legislation, new management.

These are the most common threats. You have to face them.

You may even be forced to abandon your model if your research proves that the competition is too well positioned in the market, or that your resources are not deep enough to weather the competition or a sudden downturn in the economic climate.

Here’s a good one to consider: Where will you draw from to assemble your labor pool? Qualified labor is a growing threat in today’s economy.

Or, what do you have to pay to attract the kind of employees that you will need? What will you have to offer prospective employees in terms of salary and benefits and working atmosphere in order to attract them to your shop. What training will you need to offer? What investments in their abilities will be required in order to have them work efficiently and to represent your company?

This is why you have to go through this process. This is why the process is so valuable.

You certainly do not want your banker or your investor asking these questions. It has to be considered by you and it has to be incorporated into your business plan document. Take off the rose colored glasses for a while and look at your market realistically.

6 Key Elements of a Business Plan

As an entrepreneur starting a business, or even planning a scale-up, a business plan is a very important part of the process. This strategic tool helps define your short and long-term goals while providing a blueprint for your next steps.

Most business plans are developed during the first stages of a start-up, but that’s not to say that they aren’t important when you enter the growing phase of your business.

Your business plan is not a 'set it & forget it' document. As your venture develops and grows, revisiting your plan will be crucial to measuring your success and to continue supporting your journey during a new set of challenges.

What is a business plan?

A business plan is a document that defines the goals of your business and how they will be achieved. It is an essential resource that provides strategic direction for your business.

When putting your business plan together you should ensure that you address these 6 key areas:

• Your executive summary
• The vision statement and goal overview of your business
• Target audience and competitor research
• Your products and services
• Business structure and operations
• Your financial plan

#1 The Executive Summary

Your executive summary briefly outlines the main points of your business plan and provides a glimpse of what your company does and how it operates.

It should include your mission statement which is a short description (1-2 sentences) describing your company, its purpose, and its values.

Remembering to keep your executive summary clear and concise, think about:

• Why you’re in business
• What services and products you offer
• Who your customers are
• How you’re different from your competitors
• What role you and your team will have
• What your goals are and how you’ll reach them
• Key relationships and how they will be maintained

Don’t be afraid to brainstorm with others connected to your business. This could be individuals directly involved such as employees, investors, or business partners.

Another option is discussing your executive summary and mission statement with those who play an external support role in your business such as your advisor or accountant.

Not only will they have knowledge of your venture, but they also have strategic planning experience. This will help reveal the strengths and weaknesses in your statement, as well as identify things you may have missed.

#2 Vision Statement and Goal Overview

You should have a section of your business plan dedicated to the future aspirations of your business. Your vision statement will articulate what you want to achieve and in turn provide a common direction for the entire team.

It’s important to keep your goals S.M.A.R.T (specific, measurable, attainable, relevant, time-based).

Five questions to ask about your goals:

• Are they clear and specific?
• How will the goals be evaluated?
• Is the goal 100% achievable?
• How will the goal improve the business?
• Do your goals have due dates? 

#3 Target Audience and Competitor Research

In order to sell your product or service, you need to define your target audience. A target audience is a group of people you have identified as potential customers.

To help determine your target audience you will generally look at demographic traits such as:

You’ll then look at your product or service and the specific problem it solves. This, combined with the demographic data will help you fine tune the details surrounding your defined audience.

Defining your target audience will help you plan and execute your marketing strategy in the most efficient and effective way.

Once you've identified who you're selling to, research your market and identify your competitors. Evaluate how they promote their product or service as this will give you a better understanding of the overall market, allow you to identify any gaps, and help you develop or improve your business's strategy.

SWOT Analysis

As an additional project, it would be a good idea to perform and SWOT analysis and include this in your business plan. This detailed list of your strengths, weaknesses, opportunities and threats will give you further perspective of both your business and your competitors.

#4 Products and Services

This section of your business plan will describe what your business offers to its consumers.

Although descriptions of each product or service is needed, don’t over complicate it. Keep wording easy to understand and ensure you’re including how your product or service differs from the competition. 

If you own or have applied for any of the following, you should also include these in this section:

#5  business structure and operations.

The business structure you choose will have significant implications on the tax you pay and your liability.

There are four main types of business structures in the UK:

• Sole Trader - business is run and owned by one individual
• Partnership - business is owned and managed by two or more parties
• Limited Liability Partnership - business structure where liabilities are limited to the amount each individual has invested in the business
• Limited Company - business is separate from the individual and run as its own legal entity

Operations include the physical necessities required to run your business, businesses typically engage in these activities on a daily basis and they are essential to providing the highest quality product or service.

Four key areas of business operations you should address:

• Process - systems and procedures you will have in place
• Location - where you will do business (bricks and mortar/online)
• Team - who will be doing the work
• Equipment - the tools you will use

#6  Financial plan

A financial plan is not just where all the numbers come in, it’s the moment where you start turning your ideas into a reality.

In your financial plan, you’ll want to consider:

• Start-up or expansion costs
• Various business expenses
• Funding requirements
• Financial projections

A good plan of action would be to sit down and create a list that outlines what costs will be associated with your business. 

For those revisiting their business plan and making adjustments during a phase of growth, these may be familiar things like lease fees, but at a higher amount. It could also be completely new costs or funding needs that are required to expand the business.

If you’re in the start-up stage, you will have to build your list from scratch as you won’t have the same historical financial information as an established business.

This is a list of some of the common businesses expenses to help you get started: 

• Marketing, sales and advertising costs
• Office supplies
• Lease payments
• Licenses and permits
• Staff and employment
• Professional fees

The importance of the expert second opinion

Whether you’re in the start-up or growth stage, a business plan will play an important role in the success of your venture.

Bringing an expert on board will help build a solid foundation and uncover challenges you may face moving forward.

Working with your accountant will:

• Provide a second opinion backed by experience
• Offer constructive feedback on the key areas of your business plan
• Give you advice on the legal structure of your business and the financial implications of each
• Help make important decisions and offer other beneficial elements you may want to consider

Working with DSA Prospect

The DSA team have worked with clients across all industries, helping them get their business off the ground and prepare for the challenges ahead.

We have a wealth of knowledge that can help you develop a business plan that will guide you through your business journey, as well as a dedicated team here to support your individual needs and vision.

Title: How to write a business plan: 6 key components to a good plan

Disclaimer: The information shared on the DSA Prospect website and social media accounts (inclusive of all content, blogs, communications, graphics, guides and resources) is meant to provide helpful insight and discussion on various business and accounting related topics. It contains only general information that is subject to legal and regulatory change and is not to be used as an alternative to legal or professional advice. DSA Prospect Limited accepts no responsibility for any actions you take, or do not take, based on the information we provide and we always recommend that you speak with qualified professionals where necessary before making any decisions.

Finding Investors

How Funding Works

Idea Validation Bootcamp

Pitch Deck Bootcamp

Pitching Investors

Product MVP

Product/MVP

Idea Validation

Customer Acquisition

Emotional Support

13 Key Business Plan Components

The Startups Team

As is the case with most big projects, crafting a business plan is one of those things that takes an incredible amount of diligence and no shortage of courage. After all, your business idea is probably more than just some passionless money-making ploy — it’s your dream that you’re getting ready to lay bare for the world to scrutinize!

Never fear!

We have 4 sample business plans here to make it all less scary.

If you approach this with a firm understanding of what key information to include in each section of your business plan and know how each section works together to form a cohesive, compelling, and — above all — persuasive whole, it will make the writing process a whole lot less daunting.

We’re about to help you do exactly that by deconstructing each of the core components of your business plan one at a time and showing you exactly what information you should present to your readers so when all is said you done, you can walk away confidently knowing you’ve penned the most effective business plan possible.

As we learned in the “ What is a Business Plan? ” article, a business plan generally consists of the following sections:

Executive Summary

Company Synopsis

Market Analysis / Overview

Product (How it Works)

Revenue Model

Operating Model

Competitive Analysis

Customer Definition

Management Team

Financial Statements

Let’s dive in, shall we?

1. Executive Summary

In the same way that a great movie trailer gives you a basic understanding of what the film is about while also enticing you to go check out the full-length feature, your Executive Summary serves as an overview of the main aspects of your company and business plan that you will discuss in greater length in the rest of your plan.

In other words, your Executive Summary is the highlight reel of your business plan.

Remember, you’re not giving away every last little detail about your company and business opportunity right up front. Just enough of the “good parts” to both inform and intrigue your reader to dig in further.

You do this by presenting a concise, 1-sentence outline of the following information:

Mission Statement

A “big idea” statement that introduces why your company exists, what it does for your customers, and why it matters.

Product/Service Summary

A brief description of your company’s products or services, with a special emphasis on what makes them unique.

Market Opportunity Summary

A quick explanation of the one or two key problems and/or trends your product/service addresses, and how it translates to a big opportunity for your company (and investors ).

Traction Summary

Highlight a few of the biggest accomplishments that you have achieved and describe how those accomplishments lay the groundwork for what’s to come.

Outline the next objectives or milestones that you hope to meet and what it means for the growth of your company.

Vision Statement

What is the scope or “big picture vision” of the business you are trying to build? If you’re in tech, are you trying to build the next Nest? If you’re in food and beverage, are you aiming to be the next Chipotle? In other words, how big is this company going to get, and why should an investor/partner/hire be excited to be a part of it?

A word of advice:

While your Executive Summary is the first piece of content people will read in your business plan, it’s usually a good idea to write this section last so you can take a step back after you’ve written everything and have a better sense of which high-level information you want to pull from the rest of your plan to focus on here.

First impressions are everything!

2. Company Synopsis

The Company Synopsis section is where you provide readers with a more in-depth look at your company and what you have to offer.

Before your readers will ever bother caring about things like your marketing strategy or your financial assumptions, they’ll want to know two absolutely fundamental details that will set up the rest of the plan that follows:

What painful PROBLEM are you solving for your customers?

What is your elegant SOLUTION to that problem?

You might have the most revolutionary product the world has ever seen, but if you don’t take the time to carefully articulate why your product exists in the first place and how it helps your customers solve a pain point better than anything else out there, nothing else in your business plan really matters from the reader’s perspective.

If you spend the majority of your time on any one part of your business plan, take the time to really nail this part. If you can build an engaging story around the problem that your audience can relate to, it makes the payoff of your solution statement all the more powerful.

When considering how to position your problem in the context of your business plan, think to yourself: what is the single greatest problem my customers face? How do other solutions in the market fail to alleviate that problem, thus creating a major need for my product?

Once you’ve thoroughly explained the problem you’re setting out to solve, it’s time to tell investors how your product/service solves that problem beautifully.

The goal here is less about describing how your product or service actually works (you’ll get to that in the “How It Works” section later) than it is about communicating how your solution connects back directly to the problem that you just described.

Key questions to consider:

What is the product/service you’re offering?

In what way does it solve my customers’ most painful problem?

What impact does my solution have on my customers’ lives?

How does my product/service effectively address the biggest shortcomings of other solutions currently in the market?

3. Market Overview

While your problem and solution statements help set the stage and provide readers with insight into why you’re starting this company in the first place, clearly defining your market will allow you to call attention to the trends and industry conditions that demonstrate why now is the time for your company to succeed.

You’re going to want to supplement your own expertise with plenty of evidence in the form of market statistics and research to show readers that you’re not only an expert when it comes to your product, but your industry as well. Your goal here is to help illustrate:

The SIZE of the market opportunity your company is positioned to address

The amount of GROWTH occurring in your market

The TRENDS driving the demand for your solution

The SUCCESS STORIES happening with similar companies in your industry

Market Size & Growth

Indicating to your readers that your problem addresses a big enough market will play a huge role in how excited they’ll be about getting involved in helping your company. This is where you’ll want to put your research cap on and start uncovering some numbers that help your reader better understand:

How big the market is (locally/nationally/internationally)

Approximately how much revenue it generates every year

If it’s growing

How much it’s expected to grow over the next 5-10 years

What recent emerging trends have you developed your product/service in response to?

Are there any new technologies that have emerged recently that make your product/solution possible? Are there any specific brands or products you can point to that illustrate the demand for products/services like (but not too like) yours?

Examples of Trends

An increasing number of consumers are “cutting the cord,” replacing traditional cable subscriptions with subscriptions to services like Netflix, Amazon Prime and HBO NOW.

As the Baby Boomer generation continues to age, there is a growing demand for products that empower them to stay safe and maintain their independence for longer.

Consumers are increasingly seeking food options that feature locally-sourced ingredients.

The emergence of image recognition technology for smartphones.

Industry Success Stories

Are there any examples of similar companies that investors have supported that you could point to? Are there any recent acquisitions (examples of larger companies buying up companies similar to yours) that could bolster the case for your own exit strategy ? Are there any similar companies that have recently IPO’d (gone public)?

4. Product (How it Works)

You used your Company Synopsis section to cover why your new product delivers crazy value to your customers by breaking down the ways that it benefits your customers and meets a highly specific need for them.

Now it’s time to use your Product or How it Works section to get into the finer details around the mechanics of how it does so.

This might sound like they’re one and the same. Not exactly. And here’s a good way to distinguish this.

Let’s say you were building a subscription box service for pet flea treatment. In your Company Synopsis section, you’d probably spend your time talking about how your solution conveniently spares pet owners the hassle of remembering to make a vet appointment, traveling to the clinic, and waiting to talk with the vet just to pick up Scrambles’ medication.

In your How it Works section, on the other hand, you’d shift your focus to describing how your customers have the ability to choose from a variety of brand name medications, set their own delivery schedule, enjoy 2-day delivery, and gain real-time support 24/7 from a team of industry experts.

What are some of your product’s key features ?

How will customers actually use your product or service?

Is there any technology underlying your solution you will need to explain in order for readers to fully understand what your company does and how it works?

If your product or service has some sort of proprietary element or patent at the core of what makes it work, you might be a bit hesitant to show your hand for fear that someone might run off with your idea. While this is a completely understandable concern, know that this pretty much never happens.

That being said, you can still give your readers a clear idea of how your product or service works by explaining it through the lens of how it relates to the problems that your customers face without giving up your secret sauce.

Put another way, you don’t have to explicitly tell your readers the precise source code to your new app, but you will want to call attention to all of the great things it makes possible for your customers.

5. Revenue Model

It’s the age-old question that every business owner has had to answer: how will your company make money?

If you’re just starting out , clearly defining your framework for generating revenue might seem like somewhat of a shot in the dark. But showing investors you have even a cursory idea of how you will convert your product or service into sales is absolutely fundamental in lending credibility to your business plan.

You’ll want to determine the following:

Revenue Channels

Are you leveraging transaction-based revenue by collecting one-time payments from your customers? Are you generating service revenue based on the time spent providing service to your customers? Are you following a recurring revenue model selling advertising and monthly subscriptions for your mobile app?

What are your price points and why have you set them that way? How does your pricing compare with similar products or services in the market?

Cost of goods sold, otherwise known as COGS, refers to the business expenses associated with selling your product or service, including any materials and labor costs that went into producing your product.

Your margin refers to the profit percentage you end up with after you subtract out the costs for the goods or services being sold. If you purchase your inventory for $8 per item from a supplier and sell them for $10, for example, your margin on sales is 20%.

Why is this revenue model the right fit for this product/market/stage of development?

Are there any additional revenue sources that you expect to add down the line?

Have you generated any revenue to date? If so, how much?

What have you learned from your early revenue efforts?

If you haven’t started generating revenue, when will you “flip the switch”?

6. Operating Model

Where your Revenue Model refers to how you’re going to make money, your Operating Model is about how you’re going to manage the costs and efficiencies to earn it.

Basically, it’s how your business will actually run. For this component, you’ll want to focus on the following:

Critical Costs

Your Critical Costs are the costs that make or break your business if you can’t manage them appropriately. These essentially determine your ability to grow the business or achieve profitability.

Cost Maturation & Milestones

Often your Critical Costs mature over time, growing or shrinking. For example, it might only cost you $10 to acquire your first 1,000 users, but $20 to acquire the next 10,000. It’s important to show investors exactly where costs might improve or worsen over time.

Investment Costs

Investment costs are strategic uses of capital that will have a big Return on Investment (ROI) later. The first step is to isolate what those investment costs are.  The second step is to explain how you expect those investments to pay off.

Operating Efficiencies

What can you do from an efficiency standpoint that no one else can? It could be the way you recruit new talent, how you manage customer support costs, or the increasing value your product provides as more users sign up.

7. Competitive Analysis

Now that you’ve introduced readers to your industry and your product, it’s time to give them a glimpse into the other companies that are working in your same space and how your company stacks up.

It’s important to research both your direct competitors (businesses that offer products or services that are virtually the same as yours) and your indirect competitors (businesses that offer slightly different products or services but that could satisfy the same consumer need).

A skimpy Competitor Analysis section doesn’t tell investors that your solution is unrivaled. It tells them that you’re not looking hard enough.

Pro tip: avoid saying that you have “no competitors” at all costs.

Why? Because while there may not be anyone exactly like you out there, if you say this, the investor is more than likely thinking one of two things: Either, “They don’t know what they’re talking about,” or, “If there’s truly no competition, is there even a market worth pursuing here at all?”

When you set out to identify your fiercest competitors, ask yourself this:

What products/services are my target customers using to solve this problem now?

What products/services could they potentially use to solve this problem now?

Identify at least three sources of competition and answer the following questions about each one:

Basic Information

Where is your competitor based? When was the company founded? What stage of growth is your competitor in? Are they a startup? A more established company?

How much revenue does your competitor generate each year? Approximately how many users/customers do they have? Have they received venture funding? How much? From whom?

Similarities & Differences

What are the points of similarity between your competitor and you in terms of the offering, price point, branding, etc?  What are the points of difference, both for the better and for the worse?

Strengths & Weaknesses

What are your competitors’ biggest strengths? What do you plan to do to neutralize those strengths? What are your competitors’ biggest weaknesses? How do they translate into an advantage for your company?

8. Customer Definition

The name of the game here is to know your audience !

This is where you show readers that you know who your audience is (who’s most likely to buy and use your product), where they are, and what’s most important to them. Are they price-conscious? Do they value convenience? Are they concerned about environmental impact? Do they tend to be early adopters of new technologies?

Once you have a good idea of your customer personas and demographics, you’ll want to explain how you’re designing your products/services, branding, customer service, etc. to appeal to your target audience and meet their needs.

Who are the people that your product/service is designed to appeal to?

What do you know about customers in this demographic?

Does your target audience skew more male or more female?

What age range do your target customers fall in?

Around how many people are there in this target demographic?

Where do your target customers live? Are they mostly city dwellers? Suburbanites?

How much money do they make?

Do they have any particular priorities or concerns when it comes to the products/services they buy?

9. Customer Acquisition

Now that we know who your customers are, the next question is — how do you plan on getting them ? This essentially refers to your marketing plan where you’ll go into detail about how you intend on raising awareness for your brand to expand your customer base .

Which channels will you use to acquire your customers? Direct sales? Online acquisition (paid ads, organic SEO, social, email)? Offline acquisition (newspaper, TV, radio, direct mail)? Channel partners (retailers, resellers)? Word-of-mouth? Affiliates?

Channel Cost Assumptions

There are hard costs associated with every customer acquisition channel. Yes, even social media. It’s your job here to forecast and compile all of the associated costs with a particular channel so that you can arrive at a preliminary budget for what it would cost to use this channel.

Are there specific subcategories of customers that you plan to target first?

Will you introduce your product in certain key geographic locations?

Are there specific components of your product offering that you will introduce to the market first?

Are there any existing brands that you are planning to partner with to increase brand awareness / expedite market penetration?

10. Traction

Many investors see hundreds of deals every year.

If you want to stand a chance of making any sort of meaningful impression, it’s important to show them that your business is more than just an idea and that you’ve already got some irons in the fire.

Traction is a huge part of making that case.

When investors see that Founders are already making things happen, they think to themselves, “Wow, look at everything they’ve already accomplished! If they can do that much by themselves, just think what they can do with my money behind them!”

Here are some common categories of traction that can help emphasize your business is gaining momentum:

Product Development

Where are you in the product development process? Do you have a working prototype? Is your product already in the market and gaining customers?

Manufacturing/Distribution

Do you already have an established partner for production/manufacturing? How about distribution? Tell us about your relationships and what they can handle.

Early Customers & Revenue

Do you have any existing customers? If so, how many, and how fast is your customer base growing? Have you started generating revenue? If so, how much?

Testimonials & Social Proof

Do you have any client reviews or comments that can illustrate positive customer responses to your product/service? Has your product/service been reviewed/endorsed by any industry experts? Do you have any high-profile customers (celebrities or industry experts if it’s a B2C product, well-known brands if it’s a B2B product)

Partnerships

Have you secured partnerships with any established or notable companies or brands?

Intellectual Property

Do you have any patents for the technology or ideas behind your company?

Is your company name trademarked?

Press Mentions

Has your company been featured by any media outlets? Which ones?

11. Management Team

Your Management Team section is where you introduce your team and, if possible, explain how each team member’s background is highly relevant to the success of your company.

You may have gotten a Ph.D. in Chemical Engineering from Carnegie Mellon, but if you’re building the next hot dating app, that doesn’t really lend much credence to why you’re uniquely qualified for this particular product.

An ideal Management Team section shows investors that your team’s combination of skills, experience, relationships, and expertise make you the best group of people on the planet to drive the success of your company.

Each team bio should cover:

The team member’s name

Their title and position at the company

Their professional background

Any special skills they’ve developed as a result of their past experience

Their role and responsibilities at your company

It’s important to keep team bios focused and to the point: readers don’t need to know where you were born or what your favorite hobbies were growing up. They don’t even necessarily need to know what you studied in undergrad (unless what you studied in undergrad is super-relevant to what they’re doing at your company.)

Aim for around 3-5 sentences of good information on each team member.

12. Funding

Chances are you’re shopping your business plan around to secure capital for your project. If that’s the case , don’t forget to actually ask for the one thing you set out to achieve!

In fact, you’ll want to devote an entire section to your request for funding. This is your opportunity to tell investors:

What your funding goals are

How they can help you achieve those goals

What they have to gain from getting involved in your company

Funding Goal

How much funding do you need to move forward with your goals? How did you arrive at this figure?

What will investors get in exchange for their investment in your company?

Use of Funds

How will you use the funding that you secure from investors? Provide a very basic breakdown, either by amounts or by percentages, of how you plan to allocate the funds you receive. For example:

25%: R&D

25%: Marketing

25%: Product Development

25%: Key Hires

What key milestones will you and your company be able to achieve with the help of this funding?

Why Invest? / Conclusion

Wrap up your Funding section with by driving home why investors should get involved with your company. Is it the experience of your team? The originality of your product? The size of the market? Identify a few key factors that make your company a great opportunity from an investment perspective.

13. Financials

At last, we’ve arrived at everybody’s least favorite section of the business plan: Financials !

Your Financials section comes last after what we’ll call the more “narrative”-driven content that makes up the vast majority of your business plan.

It’s here where you’ll present your various spreadsheets, charts, tables, and graphs that communicate to investors your projections for the company in dollars and cents over the next few years. And while this is a numbers-dominant section, you’ll still want to back-up all of your figures with either a quick intro or summary explaining how you got there.

Because despite the fact that some people underplay financials as merely a guessing game, it’s crucial to remember that investors are looking for estimates, not guesses.

Simply put, you want to build your financial forecasts on a series of assumptions that incorporate as many known parameters as possible. Indicate how you arrived at these assumptions (maybe you compared them against similar products in the market, for example).

Some common elements included in your Financials section are:

Income Statement

A financial statement that showcases your revenues, expenses, and profit for a particular period and whether or not your business is profitable at that point in time.

Balance Sheet

A summary of your business’s net worth at a particular point, breaking it into assets, liabilities, and capital.

Cash Flow Projection

An estimate of the amount of cash that is expected to flow in and out of your business. Your cash flow projection will give you a good idea of how much capital investment you need to secure.

Break-Even Analysis

Just like it sounds, your break-even analysis helps you determine when your total revenue equals your total expenses. In other words, your break-even point. The total profit here equals 0.

If this sounds intimidating, it’s because it kind of is. On the plus side, there are some great online tools available designed to help you create super sleek financials and still maintain your sanity.

We’ve spent time picking apart each core component of a business plan, and as it has probably become abundantly clear, each section is essentially its own in-depth presentation within the overarching plan itself.

While no two business plans will ever be exactly the same, the key takeaway here is that every great plan incorporates the same basic elements that give investors the information they need when determining whether your business idea has legs or not.

Now that you’re ready to roll up your sleeves and finally launch into the writing process , you can refer back to this as you start tailoring these elements to your specific business. If you find yourself getting hung up along the way, check out one of our many other resources on business planning to help you tackle this project head-on!

Karlina Popwell

This article was immensely helpful. Thank you for writing in such a thorough manner. Very grateful!!

Upgrade to join the discussion.

Strategic Business Planning

Overview of factors affecting business strategic plans, strategic plans vs. strategic architecture, strategic planning for incremental growth, strategic planning for disruptive growth, matching asset planning to industry segment, what stakeholders expect in business strategic plans – boards and vc’s, sources, references and selected bibliographic information.

————————————————————————-  

In the next chapters we’re going to address strategic planning from a number of viewpoints. The first chapter in this series relates to business strategic planning.

Shona Browning and Kathleen Eisenhardt compared various ways to create business strategy. They came up with the observations shown in the “Four Models of Strategy” figure. The first three methods are tried-and-true so they will be discussed further below. For the Competing-on-the-Edge model, Shona and kathleen’s viewpoint was that competing-on-the-edge provided a competitive strategic advantage because it is unpredictable and based upon surprise. It’s also an advantaged approach because it is uncontrolled. It is not about command and precision planning by senior executives. It’s about strategic planning centered at the business unit, not a corporate headquarters. It’s also not about efficiency. It’s about trying things, failing and learning from them. It’s not about planning once and hoping to get it right and not changing your mind. It also has the advantages of being proactive, continuous, and diverse by involving many people from all parts of the organization and at all levels of management to participate. In short this approach was the predecessor to Agile approaches.

From a process standpoint the competing-on-the-edge approach to strategic business planning is managed to be just at the edge of chaos. It has very little structure, plans are developed just in time and consistent with industry trends and the pace of competitive offerings, as well as the rhythm of product extinctions and substitutions within your own firm. If done right the result is a continuous flow of competitive advantages from a continuous series of business strategies.

The above notwithstanding, oftentimes business strategic plans turn out to be a waste of an organization’s time and effort. Many experienced operations managers look at strategic planning with an appropriately jaundiced eye. The best way to circumvent this viewpoint is to put together strategic plans just as you would a good sales call.

In basic sales training the sales process is often outlined in six steps as exemplified by the following: (1) people need a reason to change. (2) people buy from people. (3) the product or strategic plan is in the mind of the buyer. (4) people make emotional buying decisions for logical reasons. (5) the correct use of power during the strategic planning process is key. (6) you can’t sell to someone who can’t buy. Many strategic planning cycles do not meet the basic sales selling criteria. When these guidelines are not followed, strategic plans are put together and then put on the shelf, never to see the light of day. In contrast, meeting these six criteria is a good way to ensure business strategic plans provide organization’s real guidance.

The first element when putting together a strategic plan is to remember that people need a reason to change. People involved strategic planning typically work in one of four “interest” environments: (a) The first environment is when business results are the same as what is in the strategic plan and operating plans put forward. In this case there’s very little tension with an organization and so a strategic plan may be nice but not necessary for success. As a result planning in such environments is usually not productive. (b) The second environment is when a company is in trouble and people hope for steady growth or improvement in what they’re experiencing. For example when there is a large downturn, there is interest in a plan, but too often it’s not a strategic plan but rather an operating or fix-a-crisis plan. Here again it’s often difficult to get a management team’s appropriate attention. (c) The third environment is when improvements are desired that are in excess of existing solid business performance. This is the best type of an environment in which to do business strategic planning. (d) The last category is one in which the management team is overconfident and asks for results greatly exceeding any that employees view as remotely realistic. In this case people very often create a strategic plan that is fiction and not implementable.

In summary, before putting together a strategic plan it is imported to step back and look at the kind of environment in which a management team is immersed in. Looking critically at this environment can forecast whether or not strategic planning is really going to end up being a true value-added activity or not. If not, it’s often better to put together appropriate functional strategic plans, i.e. technical, intellectual property, human resources, operations, etc. and leaving an integrated plan open.

The second element to think about before jumping into business strategic planning is to remember that people buy from people. It’s about the relationship and rapport between the individuals putting together the strategic plan and top management. If senior management does not value and trust the insight and wisdom of the individuals putting a plan together, a plan is likely to be met with skepticism and not implemented rapidly. It goes without saying that having senior individuals as part of the planning team are critical to its success at being adopted.

The third element to remember is that a strategic plan really has to be put together in a way that it matches what a “strategic plan” is in the mind of the senior management team. You really need a “vision match” between the strategic plan that’s being developed and the capabilities needed to solve the company’s problems and set the stage for growth. A good strategic plan absolutely incorporates senior management’s vision or viewpoint of what the company’s world is going to be like after the planning process is complete. As a note of caution, be careful when senior management team members transfer in and out of an organization. When they do, the expectations of what a strategic plan is may change.

The fourth element is that people make emotional buying decisions for logical reasons. The logical basis most frequently used to justify investment in new business development is growth in revenues and profits. When the outcome of a plan is a foregone conclusion to support a senior manager’s emotional needs, many times it is waste of time to go to the trouble to put together a plan. To do so is simply a waste of business resources.

The next element is to remember that the correct use of power is key. Drawing many individuals into the strategic planning process when the return is likely to be modest, can be met with criticism. It’s always wise to remember that B+ is good enough, that the 80/20 rule is alive and well, and that a little bit wisdom goes a long way. Since many of the assumptions that go into strategic planning are what drive the ultimate outcome, it’s important to remember that the amount of work required to develop a plan’s assumptions should be consistent with the certainty that the plan is going to inherently possess when it’s completed. Far too often planning assumptions that are deeply researched mixed with others that are top-of-the-head assumptions. A strategic plan is only as good as its weakest assumption. Spending money to create just a few strong links doesn’t make a good plan.

The last element when selling strategic planning is that you can’t sell to someone who can’t buy. This means getting access to someone senior enough in an organization to carry the plan out. A good plan needs somebody who can “sign the check” and is emotionally invested in its outcome. The latter requires creating a vision and a compelling reason to change. Therefore strategic plans need to go together in a way that management can see. Plans need to be actionable and implementable.

For the business plan itself, in his seminal work on business strategy (“Competitive Advantage”), Michael Porter lists a number of generic competitive business strategies. They were cost leadership, differentiation, focus, and stuck in the middle. As a way to understand competitive advantage, Porter describes how competitive advantage can come from carefully defining the value chain surrounding a product. He advocates various competitive strategies based on the vertical linkages up-and-down the value chain from your position, the value chain product scope, the value chain geographic scope, the industry scope and coalitions. Porter also advocates that cost can be a business strategy, but to really succeed you have to have a good understanding of the relevant costs competitors’ products and a means by which you can gain a superior sustainable cost advantage. Differentiation is a business strategy that typically brings the biggest return, especially when it’s coupled with a technological change that affects the value offered to customers.

Of note is that each generic strategy employs different skills and requirements for success. Which commonly translates into differences in organizational structure and culture cost leadership implies tight control systems, overhead minimization, pursuit of scale economies, and dedication to the learning curve. The same competencies and cultural aspects could be counterproductive to a firm attempting to differentiate itself through constant stream of creative new products.

The advantage large multi divisional corporations have over smaller ones is the opportunity to leverage resources. With respect to how multiple products from a single corporation can benefit multiple divisions, the “Possible Sources of Interrelationships” figure shows how advantaged positions can been be established. Note that although this is with respect to several divisions in the same Corporation cooperating, it could equally be true for companies that establish similar relationships with external partners or service providers.

So how can leaders translate the complexity of strategy into guidelines that are simple and flexible enough to execute? Rather than trying to boil the strategy down to a pithy statement, it’s typically better to develop a small set of priorities that everyone gets behind to produce results. This observation comes from the fact that a series of strategy experts have argued that managers should distill their strategy to a concise statement (less than 35 words) summarizing a few core choices. The strategy distillation approach hinges on a few fundamental strategic categories — such as the choice of target customer or core competencies — that can summarize the heart of any company’s strategy. However, that this approach only works best with companies that have relatively straightforward strategies to begin with. Simple strategies don’t work for companies that compete in multiple businesses, serve multiple customers, or are in the midst of a strategic transition.

Instead of trying to summarize their strategy in a pithy statement, managers should translate it into a handful of actions the company must take to execute that strategy over the medium term. Strategic priorities should be forward-looking and action-oriented and should focus attention on the handful of choices that matter most to the organization’s success over the next few years.

Many executives report that they use strategic priorities but say that the approach isn’t working as well as they had hoped. To set the strategic agenda and drive implementation effectively, it has been found that strategic priorities need to balance guidance with flexibility, counterbalance the inertia of business as usual, and unify disparate parts of the business. Crafting strategic priorities that do all of these things — and do them well — is a tall order. The “Seven Characteristics of Effective Strategic Priorities” figure, can help managers set better objectives.

Most of the characteristics are self-evident. A few comments however are worth making. First, the number of priorities should be between 3-5. Second, strategic priorities must provide concrete guidance to the troops. American Airlines five imperatives for 2014 were so vague that they could’ve applied to any industry. By contrast, Southwest Airline strategic initiatives were concrete enough to provide action and investments. This is shown in the “Vague Versus Concrete Strategic Priorities” figure. Third, executives rightly focus on how to craft a great strategy, but often pay less attention to how their strategy can be implemented throughout a complex organization. To steer activity in the right direction, strategy should be translated into a handful of guardrails that provide a threshold level of guidance while leaving scope for adaptation as circumstances change.

A final comment on business strategy is from by Robert Burgelman’s analysis of Intel Corporation. In that book he contrasts strategy versus destiny. Destiny is an archaic idea of a fixed and inevitable future. Strategy, in contrast, is a modern idea, of an open-ended future to be determined by it. In reality the two ideas exist in perpetual tension. Successful and unsuccessful strategies shape a company’s destiny. But if the strategy shapes destiny, destiny has ways of asserting itself in constraining strategy. New sources of strategy create the possibility of future destiny, and help the company evolve. Strategy is a means to gain and maintain control of a company’s present and future destiny, and successful strategic planning efforts are ones that impact destiny.

There are many strategic planning consultants, each having their own model for how to best use strategic planning. Each of these planning methodologies has similarities and the differences. Those differences usually relate to the industry segments of the businesses and the company’s position as either that of a market leader or a new entrant. Remembering that this book is focused on innovation management, the types of business strategic planning that we’re talking about here is for companies where business growth is critical to success.

Traditional strategic planning is shown in “Contrasting Strategic Planning Methods” figure. This graphic contrasts traditional strategic planning with that of the seven “S” methodology which is focused on creating a strategic architecture for a corporation. Examining these two models, it is seen that the vision and mission are fully explored in the strategic architecture framework. As in the traditional strategic planning framework, the strategic architecture framework loos at leadership, culture and values, structural systems, and core competencies. Additionally, in the strategic architecture model one also thinks about (1) the quality of the intellectual leadership of the corporation (which we will discuss later in our human resources section), (2) the management of the migration path between what is today and the future, and finally (3) competition for market share.

A more detailed distinction between strategic planning and strategic architecture is provided by Hamel and Prahalad as shown in the “Strategy as Patient Money” figure. Although more detailed, the key differences between the two is that crafting a strategic architecture requires utilizing a much more expansive view of industry, technology, customers, and corporate staff.

Consulting companies have variants on these two approaches. They all involve thinking about a very high-level vision and mission which can include the intellectual capabilities that really identifies the potential of the corporation. This is often expressed as a unique point of view. As was seen in the previous sections on mission, vision, and values these can also incorporate a behavioral agenda. Almost all consulting entities’ work focuses on making new values and behaviors tangible. Some strategic plans also have a skills agenda which really is about building the core competency and leveraging capabilities. Others put this into the visions and strategy framework. Likewise there is usually an administrative strategy to provide the infrastructure to achieve the products and services that the company hopes to build. The strategy also oftentimes involves incrementally improving the core administrative processes.

Being pragmatic, the “Project Selection Criteria vs. Business Needs” figure shows how large companies go about developing a strategic plan once the core mission, vision, values, core competencies, and strategic intent have been defined. this process usually starts at the senior executive level. One knows the current market capitalization of the company from the shares outstanding and the stock price. From stock market analyst expectations the expected stock price over years to come can be derived. Assuming that the overall corporate returns will be at the same return on sales as today, one can calculate from the analyst expectations the revenues required per year over the next decade. This would be the uppermost line of the graph embedded in the “Project Selection Criteria vs. Business Needs” figure.

Analysis of this graphic allows the senior management team to look at the upper line of revenues over years (according to what the analysts are expecting) and compare that viewpoint to their own internal viewpoint, and see whether those expectations are going to be met or not. It is no surprise that analysts’ expectations usually exceed what a company can reasonably expect to obtain. Large companies then look at the operating strategic plans of the existing business units. These plans are the ones shown in green box and in the lower triangle of the graph. This organic sustaining, incremental, or Horizon one work (depending on industry jargon), can be predicted with a high degree of certainty. Growth that comes from initiatives such as new products, services, geographic expansion, management changes, and operational improvements causes the green shaded area to increase over time. The result of such efforts usually fills in the gap, making the “miss” to analysts’ expectations smaller.

However, this often still leaves a significant amount of revenue growth yet unaccounted for, particularly in the out-years. The next step for senior management team is to then look at how one can fill the remaining gap with next-generation, Horizon 2, or translational and transforming new products and services. This growth is often forecast by new business development groups, long-range R& D groups, venture groups and specified corporate initiatives. This work is shown by the blue box and blue shaded area in the Figure. What typically happens is again the gap has narrowed. But as we see in the “Project Selection Criteria vs. Business Needs” figure there is unfortunately still a small gap yet to be filled.

The last gap is in the Figure is usually assigned to a breakthrough, Horizon 3, scope-change or step-out business development or venture group work.

Planning in this manner is extremely helpful for those involved in innovation management. Looking at the business needs according to what is required to meet analyst expectations sets the stage for purposeful strategic planning. The reason these three time horizons helps so much in strategic planning is shown in the “Project Selection Characteristics” figures.

These tables show how the organic sustaining work is really focused on improving the company’s next quarter’s earnings and results. The translational or transforming work really allows the CEO to deliver performance consistent with analysts’ expectations over a 3-5 year time horizon. The final scope changing work provides highly valued breakthrough businesses that will really change the market capitalization of the corporation in the many years to come. These Figures show the typical source of project ideas for each of these three areas, the project selection criteria, the projects’ likely time horizon, project management methods, project staffing quantity and type, and the projects’ measurement of success.

Knowing that strategic planning from an innovation management standpoint can be broken up into these three broad categories allows one to use the appropriate strategic planning methodology for each of these three areas. Many times this distinction is not made clear to a management team and a single methodology is used to solve both the need for a grant organic translational and scope changing growth. This results in a strategic plan that is unfocused and unlikely to yield optimal results.

The most critical component of incremental business strategy is to understand customer’s needs. In the “Learning Customers’ Needs” figure the common forms of gathering needs are shown. In contrast to this list are the “Needs of Potential Customers” shown in the following figure. Note that in-person interactions at trade shows jump the top of the list when looking for new business. That said, looking at the form of discussions with customers most companies focus heavily on current customers’ problem areas as shown in the “Discussion Points” and “Customer Development Process” figures. The critical importance here is that the relative effectiveness of these approaches with respect to long-term success is poor as shown in the “Relative Effectiveness” Figure. Thus it is critical to utilize processes outside of customer engagement if good next-generation or breakthrough strategic direction is desired. But for incremental strategic direction is desired, the next step is to prioritize what is heard from different customers.

The best way to prioritize what direction a strategic plan for incremental growth takes is rank order a customer list by those that usually have the highest volume or highest profitability for a corporation. The problem comes when customers low on the list ask for an increase in the product line items to meet their needs. An important distinction to make is to understand that these customers make two types of requests. The first type is when the request reflects a true market need. Helping these customers service their needs builds growth for everybody. The other type of request comes from a customer that has misjudged their customer’s true need. Servicing a customer request for such a misguided a new feature creates more product line items with limited volume and profitability.

These concepts came to light in the late 1980s and early 1990s when reengineering efforts throughout corporations became prevalent. The work was made more popular in the early 2000’s with a book, Angel Customers & Demon Customers, written by Larry Selden and Geoffrey Colvin. The “Economic Profit per Customer Example” figure shows the distribution of wealth that the good and bad customers create for corporations. They used a form of EVA (economic value added) to assess each customer’s contribution, that is a spread (or return) on invested capital minus the cost of capital.

Important in the “Differences in Shareholder Return Between Companies” figure is to note that it is a normal distribution pattern that is typical of many companies’ customers. Another way to look at the same data as shown in the “Economic Profit per Customer Example” figure. Here the ETA per customer is shown and the normal distribution now shows us the positive and negative EVA being contributed by each decile of customers.

Diving still further into the EVA per customer, the “Customer Segmentation Matrix” figure shows that for any customer there are product lines that are profitable and those that are not. When customers request unique and distinctive features in a product one drifts away from the sweet spot of this graph into unprofitable areas.

From an innovation management standpoint a company will have many ideas from customers. The way to go about strategic planning in the incremental area is to quickly put customer requests on a chart which shows the contribution by customer by product line. One can quickly determine which are going to generate profits for a company and which ones should be sent back to the salesperson declining the opportunity. This is hard to do, but good methods are described by Larry and Geoffrey in their book on ways to deal with customers appropriately. From an innovation management standpoint and business planning it’s a matter of taking the top 20% of the needs described by “A” list customers, focusing on those with a “just do it” attitude and discard the rest pending a review by the sales organization.

The “Factor and Sub-Factor Ratings for New Product Strategies” figure provides many of the relevant considerations for screening of new product strategies. This is one of three often used screening tools. The other two are Breakeven Analysis and Preliminary Financial Return Analysis. The one illustrated in the figure is a Product Profile Analysis conducted by knowledgeable managers and experts. When scores between competing strategies vary widely this provides a quick assessment of which strategy to choose. When the numerical scores are close however, in-person discussion and deliberation among the experts is necessary.

Before moving on from the segmentation matrix of the “Customer Segmentation Matrix” figure, notice that there is a box for high profitability where the homogeneity of the need is low. Ideas in this box represent excellent business opportunities requiring further review. Looking at organic or incremental growth in this box, as well as perhaps a little and translational or next-generation growth is the specialty of long-established industry specific consulting firms. Strategic planning for growth in this box is usually done by segmenting according to the elements of a business model. Often they involve six typical steps. These relate to the value chain, business segmentation, business scope, technology, competitive advantages, and value proposition. These are shown in the “Elements of a Business Model” figure.

In “Jump Start Your Business Brain: Win More, Lose Less, and Make More Money” Doug Hall describes the way to look at business strategies in simple terms. He focuses on three drivers. They are the “Overt Benefit”, the “Reason to Believe”, and the “Distinctive Difference” of one company to another, as shown in the “The Laws of Marketing Physics” figure. When setting business strategy, these elements of your company’s business model need very careful consideration. Contrasting the “Customer Segmentation Matrix” figure with the “The Laws of Marketing Physics” figure, Doug’s Overt Benefit is hidden in elements 1 and 3, the Reason To Believe in elements 2 and 4, and the Distinctive Difference is in elements 5 and 6.

Understanding a company through these perspectives enables creation of business strategic plans for incremental and some next-generation growth. The purpose of each element in the Business Plan follows (in outline form):

Define all key elements of the business including:

• How value is delivered to its customer base.
• Sources of competitive advantage to be built or sustained.
• The product or service bundle and how it will vary by customer segment.
• The role of technology in value creation and resourcing levels.
• The overall scope of the business — the value chain position.
• The drivers of business value and overall economics.

Key elements of the model should include:

• Value chain positioning.
• Business scope (products and services).
• Technology position.
• Customer and market segmentation.
• Business value drivers and Company’s competitive position.
• Customer value proposition.

Getting a little bit more specific the “Example of a Business Model for Surfactants Industry” figure shows the examples of a business model for a company in the surfactants industry. This picture is laid out along a value chain of raw materials, intermediates, surfactants, and end users and customers. It answers the questions of what are typical products, the size of the market, the market’s growth rate, the concentration of industry players, value drivers, the typical margins, and where specific companies are working along the value chain.

In the example shown, the typical margins along the value chain are relatively equal, although one can see that the intermediates market and the end-use consumer portions of the value chain are generating much higher returns than for instance those parts of the chain dealing with the surfactants themselves. One can also see at a glance which companies are participating in the high-growth areas and to some insight what the value drivers might be that a company would have to take advantage of when innovating new products and services in order to take share in these portions of the value chain. It is again worth reiterating that this planning methodology works best in established industries were market size, growth rates, participants and margins are known.

Stepping back a moment and looking at this Chapter’s contents, from a business strategic planning standpoint we are making progress, but we are still not to the point of understanding what our strategy should be. Oftentimes the next step is to segment the industry in a particular manner to look where leverage exists. This is exemplified in the “Segmenting an Industry to Look for Where the Leverage Is” figure.

In this representation we see that it’s important to consider segmenting the market along the products and services offered, the markets and applications that are served, type of customers, and the geographic region in the world to focus on. Notice that the table is a matrix so that the markets, customers, and competitors show up as columns as well. This forces us to think about how the product variability changes as a function of market, customers, and competitors. It also highlights show how markets and applications vary by customers and competitors, and finally how geography affects markets, customers, and competition. Filling in this table allows us to determine where the sweet spot might be. It covers segments that have the largest size and growth rates and within those segments, the market, customer, or competitors that we should focus our business strategy on to gain maximum leverage.

The “Example of Segmentation by Markets” figure shows for the different business segments the sales, growth rate and most importantly the descriptors. It gives us a sense for which segments are the ones that are likely to be the most profitable and subject to our application of strategic resources.

Taken from this picture we see in the “Example of Value Propositions That Will Drive Business Strategy” figure an example of value propositions that are going to be able to drive our business strategy. In this listing is a column titled nature of the value proposition. It is in fact the attributes that we’re going to use for driving innovation in specific areas. Another good column to add (not shown), is one that addresses Doug Hall’s Overt Benefit, Real Reason to Believe, and Distinctive Difference.

Solid innovation management in areas where incremental and some next-generation growth is needed is best done by a very clear understanding of the value proposition. Targeting innovation appropriately to take head-on the value proposition in a way that attracts customers away from competition is key to success. It also lays the groundwork for our intellectual property strategy because it outlines the nature of the claims that we wish to achieve when our innovation efforts are successful. As we’ll see later in the innovation strategy area it’s not enough to claim how you do it but one that also claims intellectual property around the “choke point” or value proposition description. Understanding this concept at the outset is key to productive integration of business strategy with intellectual property management.

Remembering that we’re focused on incremental innovation for known markets allows us to utilize market research that is readily available. The “Services Example of Business Scope Where Further Segmentation Shows Areas of Most Value” figure shows there are four service offerings placed in a hierarchy.

These service offerings range from low value services up through to the ultimate selling of a customer on a solution. Because of the incremental nature of the new product or service to be created, the future costs and the revenues can be relatively reliably forecast when innovating along this hierarchy. Again it’s important to remember that for incremental innovation the selection criteria for which project to do is going to be done on an ROI or customer class priority listing. Projects with the lowest risks and the highest organizational capability to deliver are the ones that are going to be selected by such a selection strategy. Thus, understanding completely the elements of cost incurred and returns received from incremental innovation isn’t as critical as for next-generation projects.

When strategies are put together in the manner of the “Services Example of Business Scope Where Further Segmentation Shows Areas of Most Value” figure it is easy to see which of the four types of innovation might be best employed to deliver value to a corporation. It could be the first type of innovation that is product or service innovation involving a physical product or service or enhancement. Alternatively the second type of innovation involving a process for improving efficiency or effectiveness might be appropriate. The third kind of innovation which involves a new marketing concept or action can be determined from such segmentation matrices. Lastly, and sometimes overlooked, is a management innovation, the fourth type. This innovation talks about a new way of managing or constructing a completely different business model. It was the dot-com boom of the late 1990s that showed this type of innovation could lead to very high investor returns. Specific forms of differentiation are:

• Differentiate products using unique features.
• Differentiate products based on increased customer benefits.
• Differentiate products based on improved productivity.
• Differentiate products based on protecting the customers’ investment.
• Differentiate products by lowering the cost of product failure.
• Differentiate products with high performance.
• Differentiate products based on unique fundamental capabilities.
• Differentiate products through design.
• Differentiate products as total solutions.
• Differentiate products based on total cost of ownership to the customer.
• Differentiate products based on brand-name or service.

William Hall and Michael Porter studied carefully such business level strategies. Their research showed that strategies at the business level can often times be reduced to a two-dimensional figure. This is shown in the “Survival Strategies in a Hostile Environment” figure.

This figure is a variation of the standard relative cost versus relative performance graph used in the 1970s and 1980s by Bain consulting firm. The distinction is on the vertical axis one looks at relative differentiation as the element of segmentation, versus relative performance as done earlier. In either matrix it is high relative differentiation or higher relative performance at low relative delivered cost that generates all the value. The converse of low differentiation and high costs “the valley of death” is unfortunately where some innovation projects get funded. In the book “Innovate or Evaporate” by James M. Higgins, the product innovation strategies associated with various well-known companies are positioned on this matrix. He has talks about product innovation at three levels. The first level being kaizen or continuous improvement. The second level is what he calls leaping or what I call next-generation new product development. And finally the third level of innovation Higgins calls Big Bang innovation (equivalent to Breakthrough or Horizon 3).

From a business strategy standpoint it’s important to know where a project is placed on this graph as well as on the more traditional graphic developed by Bain Corporation as shown in “Value Map” figure. It is this graph which does the best job of showing integrated business, technical and intellectual property management.

If one is conducting innovation at the upper left-hand quadrant of the graph one wants to protect the technical innovation with every form of intellectual property possible. If one is operating as a corporation in the upper right quadrant one wants to protect those new products with intellectual property, but judiciously thinking about in which countries of the world should IP be obtained to best thwart competition. Also, for a corporation operating in the upper right quadrant a new product or technology located in the lower left quadrant should not be resourced but if it is created within the company, hopefully by accident, would be put out for licensing. That is because it would be incongruent with the company’s ability to market, sell and distribute such products. A business ROI would best be gained by licensing to competitions who were branded and known for working in that lower left area of the market. Historically companies well known for working in the upper right hand quadrant were Hewlett-Packard, Intel, and 3M. Historically companies known for working in the lower left quadrant are companies like Wal-Mart and Hyundai.

In order to get a sense of how fast dots (products) will migrate across the “Value Map” figure, experience curves can be created which represent the cost per unit as a function of the total accumulated volume or units. This is shown is the “Example Experience Curve” figure. This log-log linear relationship has been found to be generally applicable across almost all industries. Note that although time increases with experience, the curve is plotted against units produced and may be quite irregular with respect to time. That said, the rate of migration across the value map can be estimated and used for strategic planning purposes. The rate of migration for performance on the y-axis is much more irregular and not as easily ascertained for planning purposes.

In a large Corporation there is always the question as to which business units should receive the bulk of the corporation’s innovation resources’ attention. To answer this question two financial measures of divisional performance are helpful. These are the Economic Value Added (EVA) of Divisions in a Large Corporation and the Cash Flow Internal Rate of Return (CFIRR) of Divisions in a Large Corporation. Both are shown in the respective figures. For business strategic planning, offensive next-generation innovation should be applied to those divisions with a high EVA and high CFIRR. Incremental customer focused innovation can be applied to those divisions in the upper half of the EVA spectrum and who have an adequate return above the real cost of capital. For those divisions that do not meet this threshold and have inadequate or negative returns the only option from a strategic standpoint is to invest in radical or breakthrough business models or technical innovation if the underlying marketplace trends warrant such an effort. This is not often the case and thus innovation resources should be withheld from such divisions. From a business strategy standpoint sale of such divisions to a competitor, or acquisition of a start-up company with a breakthrough business model are two acceptable strategies.

For incremental business strategies, several other generic forms are available. These include price-based strategies (either offense or defensive), time-based product strategies (based on superior product development process cycle times), product family strategies (“Patterns of Product-Model Evolution” figure), global product strategies (by leveraging a regional product into new regions or develop customized global products by region, i.e. Flavored beverages) and cannibalization strategies.

In deciding between incremental and disruptive business strategies, teams need to take into account the amount of change both ongoing in the environment and that the Company’s strategy itself will unleash. In today’s environment of Moore’s law, with its relentless journey into the realm of the smaller, cheaper, and faster, acceleration of new technology introductions will increase. As it does that Metcalfe’s network effects law is to spread them around. In “Unleashing the Killer App” it was argued that combination of Moore’s Law and Metcalfe’s law becomes the Law of Disruption. This law can simply be stated as follows: social, political and economic systems change incrementally, whereas technology changes exponentially as shown in the “Relative Rates of Disruption” figure. This is particularly true with respect to cyberspace. It is not about computers anymore, it’s about living.

Business strategies also have to take into account this increased rate of technology change. To create new products and services in this environment, the range of partnerships that must be considered is shown in the “Partnership Options” figure. The high technology environment moves to options to the far right of the curve. As covered in the “When and How to Access External Technology” chapter, good partnerships make for an excellent business strategy, or on the other hand, poor partnership management can just as easily be an organization’s undoing.

The classic book on disruptive business strategy is “The Innovator’s Dilemma”. Christiansen makes a distinction between which technologies are sustaining and which are disruptive. He also points out that disruption can occur when the pace of technological progress outstrips what markets need. He also assets that customers and financial structures of successful companies color the heavily the sorts of investments that appear to be attractive to them, vis-a-vis certain types of entering firms. The “Impact of Sustaining and Disruptive Technology Change” figure shows concisely the issue. Disruptive technological innovation is a step change gap in the relative performance vs. cost that two different technologies offer. The impact of performances demanded at the high and low end of the markets is also a gap to be exploited.

The reason why disruptive business strategies are not undertaken by existing companies is because for them, investing aggressively in disruptive technologies is not a rational financial decision for them on three accounts. First, disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits. Second, disruptive technologies typically are first commercialized in emerging or insignificant markets. And third, leading firms’ most profitable customers generally don’t want, and initially can’t use, products based on disruptive technologies. It is not until emerging technologies capabilities increase of the point where they intersect the low-end of another market that disruption occurs as shown in the ”Intersecting Trajectories Of Capacity Demanded Versus Capacity Supplied In Rigid Disk Drives” figure. Disruption occurs because the increase in technology’s ability to deliver performance outstrips the market’s capacity to absorb that increased performance.

Another way to look at this graphically is to look at the “Disruptive Technology S-Curve” figure. Note that graphing disruptive innovation is a bit tricky because by definition the vertical axis of product performance must measure different attributes of performance than those relevant in the established value network. Because a disruptive technology gets its commercial start in an emerging value network before invading establish networks, the S-curve framework is needed to describe it. Disruptive technologies emerge and progress on their own uniquely defined trajectories, in a home value network. If and when they progress the point where they can satisfy the level of performance demanded in another value network, the disruptive technology can then invade it, knocking out the established technology and its established practitioners with stunning speed. Although this is being described as technical innovation, disruptive business models have the same effect.

One of the best stories about conducting strategic planning for transformational and breakthrough growth comes from Hamel and Prahalad who shared one of President Reagan’s favorite stories. Waking up on her 10th birthday, a young farm girl rises before the sun and runs out of the barn, hoping her parents have bought her a pony. She flings open the barn door, but the in the dim light can see no pony, just mounds of manure. Being an optimist she declares, “With all his manure around there must be a pony in here somewhere”. Similarly, companies that create the future say to themselves, “With all his potential customer benefit, there must be a way to make some money in here somewhere”. A company that cannot commit to emotionally and intellectually creating the future, even in the absence of a financially indisputable business case, almost certainly will end up as a follower. The important point is that the commitment to be a pioneer precedes an exact calculation of financial gain. A company that waits around for the numbers to add up will be left flat-footed in the race to the future. A laggard is a company were senior management has failed to write off its depreciating intellectual capital fast enough, and is underinvested in creating new intellectual capital. A Laggard is a company where senior managers believe they know more about how the industry works than the actually do, and where what they do know is out of date.

Creating a future is about finding the limits of current economic engines. It’s about understanding four things. 1. What customers and needs aren’t we serving? 2. Can profits be extracted at a different point in the value chain? 3. Might customers’ needs be better served by an alternate configuration of skills and assets? 4. What is our vulnerability to new rules of the game?

Strategic planning for transformational and breakthrough growth requires changing the lens through which the corporation is viewed (core competencies versus strategic business units), only by changing the lens through which the markets are viewed (functionalities versus products), only by broadening the angle of the lens (becoming more inquisitive), only by cleaning off the accumulated grime on the lens (seeing with a child’s eyes), only by peering through multiple lenses (eclecticism), and only by occasionally disbelieving what one actually sees (challenging price-performance conventions, thinking like a contrarian) can the future be anticipated. The strategic plan is about both seeing the transformation that needs to take place and establishing the core competencies internal to the organization and available through partnering to make the transition happen.

When looking at strategic planning for Disruptive Breakthrough innovation and growth, the process is somewhat different because of several additional unknowns. In “The Innovator’s Guide to Growth” planning is divided into three parts. These are Step 1. Identifying Opportunities. This consists of identifying non-consumers, identifying overshot customers, and identifying jobs to be done. The next Step 2 of the planning process is to Formulate and Shape Ideas. This consists of developing disruptive ideas and assessing a strategy’s fit with a pattern. The last part of the integrated business technology strategy for disruptive innovation is to “Build the Business”. This step 3 consists of mastering emergent strategies, and assembling and managing project teams.

An error people often make is to assume that a great leap forward in performance is synonymous with disruption. Do not confuse breakthrough with disruption. Disruptive innovations are all about making a different set of trade-offs: offering lesser performance along one dimension in exchange for new benefits related to simplicity, convenience, and low prices. Companies that think they can successfully crack into a market by leapfrogging existing competitors and selling to the most sophisticated market tiers often end up sorely disappointed.

To test various disruptive business strategies the key is to identify what is desirable (what you want), what is discussable (up for consideration), and unthinkable (out of bounds). Making these parameters very clear at the outset and being willing to consider changing them as new information comes in can help ensure that teams focus on the right strategies and activities. The “Goals and Boundaries” figure uses a simple visual method to capture the corporation’s goals and boundaries with respect to alternative disruptive strategies.

When looking at hundreds of historical disruptions it has been found that the most successful growth businesses share a few key elements. The “Conditions for Success” figure describes the 12 key items Christiansen’s research and Innosight’s field experience suggest are critical components of successful new growth strategies. The first nine elements are universally applicable; the last three are specific to established companies seeking to create new growth businesses. The table lists the item and the rationale for why they are important.

Assessing a disruptive business strategy fit with a pattern of success the checklist supplied in the “Disruption Analysis” figure is helpful. It’s a self-assessment questionnaire that asks whether the assessor strongly agrees or not with the questions. Adding up the different points that come from each answer, the total gives a quick assessment of how well a strategy adheres to the successful “Conditions for Success” listed above. This allows a high level comparison of various proposed disruptive business strategies.

Another way of looking at Disruptive Business Strategy is to look for Opportunities versus Ideas. This concept by Pam Henderson focuses on “Six Sources of Opportunity” as shown in the figure. Each of these six areas is undergoing constant change and finding opportunity within them requires looking at each of these six areas carefully. Understanding the Opportunity Dimensions in each of the six areas helps in knowing where to strategically grow. As examples, Dimensions might be extensions in the age of consumers served, the wealth of consumers served, the health of consumers served, etc. By following up looking at trends within dimensions provides clues for business strategy. Note however that switching from business strategies based on new ideas to those based on new opportunities typically requires skilled facilitators’ help. But when an organization is really strapped for performance, getting such help is well worth the time and expense of doing so.

In summary, planning for breakthrough or disruptive growth is often more about setting the environment for good ideas and then adopting solid creative thinking at the Level 6 and Level 7 Thought discussed in the previous chapters. The trick for senior management team is to (1) identify that the gap exists, (2) to own the fact that the gap will need to be filled by a something that will be very different from what the company has been doing in the past, (3) with creative teams bring forward solid solutions, and (4) have the guts to fund them. The latter step is one where many companies fail. The senior management team has a hard time distinguishing how one builds on their core competence versus when the new ideas are outside the core competence that they can build. Many times it is the expertise of the senior managers that needs to change. It is a senior management that needs to be replaced, not the lower levels of the organization. Having senior managers remove themselves from a company is something that’s rarely ever done until it is far too late for the company to succeed. More often than not it’s a merger or acquisition that takes the appropriate action. Such appropriate actions rarely come from within.

When it comes to building successful businesses there are number key strategic areas that need to be considered. They are: 1. Your intellectual property protection, 2. Your overall business model, 3. Your rapid global rollout, and 4. A uniform approach to licensing and criteria for selecting country distributors.

From a strategic planning standpoint the five pillars for building a company are 1. A platform of superb products that are building on a current marketplace trend, 2. Intellectual property protection and proprietary know-how that competitors cannot access, 3. Focus on low-cost manufacturing right from product launch as if you are successful, competitors will soon follow, 4. Build your own brand in every relevant category because as product and patents mature you need to sustain your advantaged position, 5. Have great human capital systems that help people be great at what they do.

To incorporate into strategic business plans a better utilization of the business’ complementary assets, intellectual assets or intellectual capital a useful model developed by a group called the Gathering is hepful. In the “Tangible-Intangible Model of a Company” figure we see a model of a company as viewed from an intellectual property viewpoint.

Models and corporations come in many sizes and shapes. Sometimes we think that a corporation is its corporate headquarters and buildings that it owns around the world. Other times we look at a company in view of its organization chart with the CEO at the top of a tree. Other times we look at corporation through an accountant’s eyes and look at the corporation from a cash flow and balance sheet standpoint. The model of “Tangible-Intangible Model of a Company” figure is no different. It is just one other view of a corporation.

In this model we see that the structural capital comprises the generic assets of the company which are non-distinctive compared to other competitor companies. These are typically plants, property, and equipment, and access to investment that any and all companies have. It is not something that makes one company different from another. Resting on the base of structural capital we see to the right there are complementary business assets. These are the differentiated assets that make one company and industry different from one another. It might be the quality of the sales force. It might be how the sales force was trained and the type of relationships they build. Differentiation can also be based on the distribution capabilities of a company. One company may be using direct sales, another company internet sales, and a third going through large wholesalers. Factory facilities are another common point of differentiation. One company may be opening its own plant and putting together its own processes in a unique way to deliver value to customers. Another company may be outsourcing its manufacturing entirely. Another form of differentiation has to do with the type of standards that exist within an industry. To the extent a company can influence government or industry standards, i.e. the FAA in the case U.S. airplane regulations or Underwriters Laboratories in the case of electrical components, these standards and having the standards closely aligned to a company’s product design becomes another source of differentiation and competitiveness.

The third asset class of a company, and the one that is most unique and hardest to copy, is intellectual capital. A sub-class of Intellectual Capital is Human Capital. This is comprised of the individuals who are part of a company. Each person brings his or her own unique background to work and this is a point of leverage for corporation that other companies can’t acquire. Other things that are difficult for other companies to acquire are the heritage capital and artifacts that lie around the company. These can be the stories of how the company was built, the passion with which people pursue customers, the importance of quality to success, the importance of innovation to everybody. These stories are a way of doing things. They are not easily transferable from one company to the next.

Another sub-class of intellectual capital is intellectual assets. These assets are comprised of patents, copyrights, trade secrets, trademarks, and know-how (which although is not legally protected as an asset itself, an intellectual asset that is nonetheless unique and very difficult to transfer from one corporation to another). What’s important is that when a company is successful, it has taken the unique intellectual capital assets that it has and created a business model, or way of doing business, that takes maximum advantage of the differentiated business assets it possesses. For example, the way it employs its human capital matches the way in which the sales force is trained and operates. The patents that it has supports the way in which manufacturing is done. Trademarks support the branding that the sales force is known for. With this model as a backdrop will now look at how strategic planning might be done in four kinds of corporations.

The first example is shown in the “Tangible-Intangible Model of a Beverage Company” figure. This business model is typical of Coca-Cola or Pepsi-Cola in the early 1990s. The line running through the chart shows where value is added and created for a corporation. We know the big jumps are for trademarks, trade secrets, distribution capabilities and the sales force. This makes sense when you think of the traditional Coca-Cola’s formula being a trade secret and its method for going to market is selling concentrated syrups to distributors around the world who bottle that secret formula by adding water and then distributed it into the local market. What was essential for success were trademarks and trade secrets. Coca-Cola’s trademark is one of the most valuable in the world and the value of its trade secrets formula is also well-known.

What’s important for strategic planning is how to utilize this model of a company to plan better. Insight from this model and example suggests that incremental work can be done on improving business methods for selling and distribution and then next-generation or breakthrough work could be done on the manufacturing facility of the syrup itself or in government or industry standards around soft drinks in general. Likewise, innovation from a strategic planning standpoint could switch from the emphasis on trade secrets and trademarks to that of patents and copyrights. Indeed if one looks at large beverage companies today, one notices they have changed their business strategy. Instead of having few patents they have built portfolios of many, and they are focused on dispensing equipment in both large and small facilities. Pictures such as this one provide an important way to understand a company’s strengths and how these strengths must shift together to make up a new way of successfully doing business.

In contrast to a beverage company, the model for a capital-intensive paper products company is shown in the “Tangible-Intangible Model of a Paper Company” figure. Here the line running through the chart showing where value is created has a much different shape. For large paper companies creating communications paper or towel and tissue, much of the distinctiveness is created by how the market perceives equality and price point of their product. The salesforce’s ability to leverage the branding that marketing has created is a key element in creating value in this environment. Intellectual property to protect this distinctiveness lies in trademarks, as seen in the figure. Notice that the amount of intellectual property protecting the manufacturing facilities is modest. Most of the protection of the manufacturing facilities from competition lies in the fact that these facilities cost hundreds of millions of dollars to put in place. Upgrades the equipment have modest intellectual property in the form of patenting of the head box design (which lays the paper fibers down) or though the felting which carries those fibers through the drying process. Even though these machines are automate, significant operator know how is still required (especially when one knows that storm fronts are approaching which will change the pressure, temperature and humidity in the plant significantly). Such operator know how is required to keep a plant running smoothly through such upsets. It is critically important to sustain profitability and low waste in an industry that has typically low margins. Strategic planning in this area would give emphasis to improving the branding and improving small elements of design of the paper machine.

A contrasting example of where to plan for business growth is shown for a software company in the “Tangible-Intangible Model of a Software Company” figure. Distinctiveness for software often comes from capturing government or more importantly industry standards, along with forms of distribution by either Internet or an ASP model. The most important form of Intellectual Capital is trademarks and copyrights along with know-how.

Name recognition in selling is also important. From a strategic planning standpoint resources therefore should be on building the trademark, having copyrighted protection of the software itself, as well as hiring a skilled pool of software programmers. We see in this example, by segmenting a business by its intellectual capital, complementary business assets, and structural capital gives us insight as to how to go about strategic planning for new software companies who are just starting to build up their product line or service line offerings. The last example we’re going to look at for business strategic planning is a traditional pharmaceutical company. Their distribution of assets is shown in the “Tangible-Intangible Model of a Pharmaceutical Company” figure.

Pharmaceutical companies are built on the creativity of scientists in chemistry and biology. The need for creative human capital is shown on the left side of the “Tangible-Intangible Model of a Pharmaceutical Company” figure. These companies protect that work through patents and increasingly by their trademarks as they create and promote in television and on-line advertising. There is also some know-how associated with the management of a pharmaceutical pipeline. Clearly complementary business assets include understanding of the government standards associated with delivering pharmaceutical products to the market, as well as having a sales force and marketing organization capable of promoting the product to physicians and end-use customers alike. Again looking at incremental innovation projects in this area one knows that the returns coming from inventing new drug entities is going to be much higher than that associated with improving manufacturing or distribution capabilities.

For breakthrough innovation planning, focus is on the opportunity existing in the flat areas of curves, i.e. like in the “Tangible-Intangible Model of a Pharmaceutical Company” figure for manufacturing and distribution capabilities. Disruptive work in these areas started in the early 2000’s by the outsourcing of pharmaceutical products to India and by distributing products not only to pharmacists but to go about marketing the products directly to end-users and working hard to get the products available on-line.

Strategic business planning to fill in the biggest gap is actually less about business planning and more about just being aware that the gap exists. Planning projects at this level is usually not productive. If any planning is to be done is usually associated with the perspective that the senior team possesses: the values of the company, the way in which people are motivated, and the way people are given the freedom to work on new ideas. Attempts to try and quantify this have met with limited success. The book “Built to last, successful habits of visionary companies”, by Jim Collins, HarperCollins publishers,2002, is one example. James follow-on book “Good to great”, HarperCollins publishers, 2001, talks about the Level 5 leadership required to make the transition. These elements of managing people and a growth environment are discussed in the human resources section later. Another good book on this topic is “The Innovator’s Dilemma: The Revolutionary Book that Will Change the Way You Do Business” (Collins Business Essentials) by Clayton M. Christensen (Paperback – Jul 25, 2006). It discusses how to go about planning for breakthrough growth.

When talking about strategy it’s important to understand what the company Boards and the CEO are looking for. Both the Board and CEO are responsible for assessing and approving the strategic direction of the company. Understanding the 20 questions that the Board should ask about strategy is also good guidance for those creating the strategy. The 20 Questions are:

Question 1. How is strategy defined at this organization? Answer 1. Formulating and articulating a strategy involves: 1. The determination of those long-term goals i.e. mission vision and values and objectives which reflect an organization’s sources of competitive advantage and which address important stakeholder needs; and 2. The identification of scope or domain of business activities within which those goals and objectives are to be achieved. .

Question 2. What are we ultimately trying to accomplish and where do we eventually want to get to? Answer 2. The vision goal .

Question 3. What is our purpose or why do we exist? Answer 3. The mission goals. Who are key stakeholders, and what specific needs do we try to satisfy better than our competitors for these key stakeholders.

Question 4. What are the internal ethical and cultural priorities that attract stakeholders to us? Answer 4. The value goals.

Question 5. What are the specific measures and targets we use to judge our progress in achieving our macro level vision, mission and values goals? Answer 5. The objectives.

Question 6. What specific business arenas have we chosen to operate in for the purposes of achieving our objectives? Answer 6. The product market scope and domain sections. Who and where our customers are and what products and/or services we provide to them.

Question 7. Is this organization’s strategy shared by all directors and management? Answer 7. Everyone needs to know the strategy because “if you don’t know where you’re going, you’re probably going to wind up somewhere else.” anonymous.

Question 8. What are the major business strategies making up the overall corporate strategy? Answer 8. As a company diversifies there may be multiple business strategies at play. It is at this point that the corporate strategy becomes something separate and distinct from the individual business strategies.

Question 9. Do circumstances warrant the Board’s involvement in the organization’s operating plan? Answer 9. The Board should generally not get involved with operating plans because this is what management is hired and paid to do. Three exceptions to this general rule are: A. When an organization is faced with a crisis and requires whatever benefit the Board’s collective wisdom has to offer; B. When very small companies are involved and the Board is been recruited specifically to advise at the operational level; or C. When there is agreement with senior management concerning the Board’s involvement in this area.

Question 10. Does the organization have the right strategy and, if not, what should it be? Answer 10. As a first step in assessing an organization’s strategy, it is imperative that it be formally written down and communicated explicitly to all Board members to give them an adequate opportunity to reflect upon and ponder the choice of goals, objectives and product market scope embedded within it.

Question 11. Was a process followed by this organization to formulate the strategy contained in the strategic plan and does the plan’s documentation contain all of the proper information? Answer 11. One of the initial ways in which Board members can determine the quality of an organization strategy is knowing whether it was developed through a systematic and rigorous assessment process or more through a gut feel and back of the envelope approach. That said it’s important to remember “it’s not the plan that is important, it’s the planning” by Dr. Graeme Edwards.

Question 12. Does this strategy have the right vision? Answer 12. As a general rule, visions are concerned with achieving organizational greatness in one or more dimensions be it, market share, quality, revenues, profits or admiration,. One of the most famous vision statements ever created was that of General Electric under the leadership of CEO Jack Welch who stated the corporate vision was “to become the most competitive enterprise in the world by being number one or number two in every business in which we compete” .

Question 13. Does this strategy have the right mission? Answer 13. The Mission statement is a written document that is intended to capture the organization’s unique and enduring purpose of practices. It is responsibility of the Board to ensure that the organization’s mission statement acknowledges the importance of multiple stakeholder groups to the organization’s long-term survival and a balance of competing interests is achieved. Mission statements must also be grounded in reality.

Question 14. Does this strategy have a proper statement of values? Answer 14. For an organization it is important that the actions and behaviors of its employees can with stand the test of public scrutiny. Directors need to make sure that their organization strategy contains a statement of values which they consider important for the successful, harmonious and ethical running of their business operations.

Question 15. Does strategy contain objectives which are well formulated and well stated? Answer 15. As a general rule objectives should be established for each of the goals contained within the mission, vision and values. Objectives should be specific to avoid ambiguity as to what the organization is trying to accomplish; measurable (to allow for the determination of the objectives achievement or not); acceptable (to ensure that the method for measuring progress against the mission, vision and values is perceived as fair); and timely (organizational objectives are best stated for a time period of 1 to 3 years and revised at the end of each year as new information becomes available) .

Question 16. Are the business arenas specified in the organization’s strategy the right ones? Answer 16. An organization should strive to identify and focus its resources on those business arenas (existing or new) where (a) the potential market opportunity exists for the enterprise to achieve its stated goals and objectives, and (b) the organization has the internal resources, either on hand or quickly available, to pursue and capture the opportunity.

Question 17. Have the proper organizational units been selected, designated and aligned to reflect, reinforce and support the strategy? Answer 17. The method by which organization executes its strategy is when it aligns its staff, structures, reward and control systems to focus on, support and reinforce the organization’s strategic goals and objectives. This is called strategic organizational alignment and directors must make sure that employees’ jobs are redefined or re-specified to take into account requirements of strategy.

Question 18. Have all the significant internal and external strategic risks been identified, quantified and addressed in the plan? Answer 18. Directors must understand the risks associated with a particular strategy, their probability or likelihood of occurrence, and their potential impact on the organization. These risks should be spelled out in the strategic plan.

Question 19. Are appropriate mechanisms in place to provide the Board with timely feedback on the organization’s progress against its strategy, the underlying causes of any performance variance and any changes in the internal or external environments or risk factors which would cause the Board to consider altering the organization strategy? Answer 19. Directors must monitor the organization’s progress against its strategic objectives and related risks factors. This must be done at each meeting of the full Board.

Question 20. Are the Board and its Directors constructively involved in the organization strategy? Answer 20. The Board needs to openly and candidly discuss with the CEO and other members of senior management all elements of the strategic plan.

A special case of business strategy deals with startups. For high-tech startups the critical issues that have to be addressed by the business strategy are: 1. People in management and can they can get the job done. 2. A brilliant technology that can be commercialized. 3. A large, rapidly expanding market addressed by the new technology’s features. 4. Strategy for an unfair advantage that can be sustained. 5. An attractive price per share. When asked which is more important of the five, the resounding answer is “the right people” is number one. You want a team that has the experience and the track record to get the job done.

In the “Business Plan” figure a generic outline of the eight sections it should include is shown. As to what should be covered in each section the following is provided:

Executive Summary.

• Business opportunity, technology, product, market, management
• Proposed financing (Amount, Use of proceeds)
• Summary of five-year income statement and capital requirements

It should be brief, and it must be great. This is all about what most readers will ever scan, let alone read. It must catch their attention and answer their key questions. It should be a concise and clear description of the problem resolve, how you solve it, your business model, and the underlying magic to your product or service. It should be approximately 4 paragraphs in length. It has to entice people to read further. It should be treated as a comprehensive mini plan. Your unfair advantage for stand out clearly.

Consumer Need and Business Opportunity.

• Product and technology description

What is a startup going to build and how? Why would a customer want it? How well will it perform? Include your product and technology here. The Marketing strategy discussion starts in this section. Start building your unfair advantage in detail.

Business Strategy and Key Milestones.

• Include one page showing cumulative cash need and head count at each milestone

This chapter summarizes the startups strategy. It includes a one-page chart showing the sequential cumulative head count and cash flow at each significant milestone.

Marketing Plan.

• Customer need
• Market segmentation
• Channels of distribution
• Sales strategy and plans
• Five-year sales forecast
• Competition and positioning

A great deal of time should be spent on this section. When the VC or other investor finishes reading it, he or she should be confident of how the startup will position its first products and why customers will value them relative to the competition.

Operations Plan.

• Engineering Plan
• Manufacturing Plan
• Facilities and Administration Plan

The section should contain enough detail to show how the startup will design and manufacturer its first products. VCs or other investors will grill founders on the realism of the schedule to get to the first customer shipment. Show total headcounts and facility requirements.

Management and Key Personnel.

• Incentive Compensation Program
• Detailed Resumes
• Organization
• Staffing Plan and Headcount Projections

It should be short and as focused as possible. The emphasis should be on directly related experience, especially track records as managers. All irrelevant experience can be omitted.

Financial Projections.

• Assumptions
• Five-Year Pro Forma Forecasts
• Income Statement
• Balance Sheet
• Cash Flow Statements

Use a simple spreadsheet model to project the startups financial success and need for capital. Include forecast by month or quarter for years one and two with annual summaries for years 3 to 5. Build in conservative assumptions. Details of revenue by product line, average selling prices, and so on, should be kept in backup files in case they are called for.

Appendices.

These are not often used. They contain photographs or copies of market research projections. Appendices should not be filled with bulky backup data.

Presentation.

Text totaling 30 to 50 pages is typical of what is written. Try to cut it to 12 pages for the presentation. The shorter the presentation the better, although short ones are hardest to write. A good slide deck has 10 slides, using 30 point font, containing the following 1. Title slide. 2. Problem. 3. Solution. 4. Business model. 5. Underlying magic. 6. Marketing and sales. 7. Competition. 8. Management team. 9. Financial projection and key metrics. 10. Current status, accomplishments to date, time line, and use of funds. Plan on getting through these 10 slides in 20 minutes.

When it comes to getting help for the startup always focus on the function you need, not the form it takes. For example, proper accounting does not mean retaining a big name firm (form) and then assuming the job will get done (function). What’s important is a function, not the form.

What can be seen from the above example is that when it comes to business strategy it’s important to be very specific with respect to the product’s or service’s differentiation. What really counts for success is the ability to provide a product or service that has a unique set of features that are very highly valued by the customer. Most business plans fail to research or articulate carefully enough how the new product or service is differentiated from others. From a value standpoint, customers need a “compelling reason to buy”, as stated by Doug Hall. “Compelling” is the operative word here.

To get a new business, or a new business line, started you have to start in a small niche, establish a beachhead, and move out from there. A beachhead in this context means a market that is small enough so that larger competitors are not already going after it, and big enough so that if you’re successful, you can reach critical mass and profitability with it. The “Differentiation Versus Value” figures show how this is best done. In the upper left quadrant are stupid companies. They are producing products or services that no one cares about, but are unique. In the upper right quadrant you find the area that you want your new product or service to occupy. It’s where consumers most appreciate you and margins are good because you can provide something unique that they strongly desire. The lower left quadrant is a corner that many .com losers occupy. They provided goods and services nobody cared about, and many companies were doing the same thing. In the lower right quadrant companies find that life is a continuous price war. Sure people want to buy when you make, but lots of other companies have similar offerings. You can be successful here but life is a grind and there’s no margin for error for a new entrant.

1. “Built to Last”, by Jim Collins and Jerry Porras, HarperCollins, 1994. 2. “Angel Customers & Demon Customers”, by Larry Selden and Geoffrey Colvin, Penguinn Books, 2003. 3. “The Innovator’s Guide to Growth”, by Scott Anthony et al, Harvard Business Press, 2008 4. “Corporate Strategy and Product Innovation”, by Robert Rothberg, The Free Press, 1976. 5. “Profit from the learning curve”, W. Hirschman, Harvard Business Review, January 1964. 6. “The learning curve as a production tool”, F. Andress, Harvard Business Review, February 1954. 7. “Selecting Profitable Products”, by J. O’Meara, Harvard Business Review, February 1961. 8. “Turning Strategy Into Results”, by Donald Sull, Stefano Turconi, Charles Sull, and James Yoder, MIT Sloan Management Review, Spring 2018 9. “How do you consolidate customer needs?”, by IRI CommunityForum, Feb 2018. 10. “Interview with Martin chimes CEO, Unistraw International Limited”, by Doug Berger,The Innovators, Dec 2006. 11. “Attract, Retain, Grow”, by Maia Strategy Group, Customer Barometer, Mar. 2017 12. “20 Questions Management Should Ask About Strategy”, by Chris Bard, Canadian Institute of Chartered Accountants, 2003. 13. “Maximizing Economic Value”, presentation by Avery Dennison Strategic Planning Team, Dec. 1992. 14. “Competing for the Future”, by Gary Hamel and C.K. Prahalad, Harvard Business School Press, 1994. 15. “Product Strategy for High-Technology Companies”, by Michael McGrath, Irwin Professional Publishing, 1995. 16. “Strategy is Destiny”, by Robert Burgelman, The Free Press, 2002. 17. “Managing Product Families”, by Susan Sanderson and Mustafa Uzumeri, Irvin Press, 1977. 18. “The Innovator’s Dilemma”, by Clay Christensen, Harvard Business School Press, 1997. 19. “You can kill an idea, but you can’t kill an opportunity”, by Pam Henderson, Wiley, 2014. 20. “Unleashing the Killer App”, by Larry Downes and Chunkja Mui, Harvard Business School Press, 1998. 21. “The High Tech Start-Up”, by John Nesheim, self-published, 1997. 22. “The Art of the Start”, by Guy Kawasaki, Penguin Group, 2004. 23. “Competitive Advantage”, by Michael Porter, The Free Press, 1985. 24. “Competing on the Edge”, by Shona Brown and Kathleen Eisenhardt, Harvard Business School Press, 1998. 25. “Contrasting Strategic Plan Methods”, adapted from Strategos 1996 promotional materials. 26. “ROI –Cost of Capital Differences Between Companies” Angel Customers and Demon Customers, Larry Seldoen and Geoffrey Colvin, Penguin, 2003, p.6. 27. “Economic Profit per Customer Example”, Angel Customers and Demon Customers, Larry Seldoen and Geoffrey Colvin, Penguin, 2003, p.57. 28. “Customer Segmentation Matrix”, Angel Customers and Demon Customers, Larry Seldoen and Geoffrey Colvin, Penguin, 2003, p.121. 29. “Jump Start Your Business Brain”, by Doug Hall, Clerisy Press, 2007. 30. “Purpose of a Business Model”, adapted from Strategos 1996 promotional materials. 31. “Survival Strategies in a Hostile Environment”, by Hall and Porter, HBR, Sept-Oct 1990. 32. “Value Map”, adapted from Bain & Company presentation materials, circa 1988. 33. “Tangible-Intangible Model of a Company”, adapted from work of the Gathering I, circa 1995 34. “Tangible-Intangible Model of a Pharmaceutical Company”, adapted from work of the Gathering I, circa 1995 35. “Good to great”, by Jim Collins, HarperCollins publishers, 2001.

Copyright 2010-2021

You must be logged in to post a comment.