Whether you want to secure funding for launching your business or a new product, or if you just want to make sure you're successful, there are many reasons why you should create a business plan.
What is a business plan and what are the components of a business plan? Think of a business plan as a roadmap for your business. It should cover the who, what, when, where, why and how. In order for your business plan to be effective, it needs to include specific components.
There are numerous resources available that provide templates and examples of business plan documents. While there are many approaches to structuring the document (we lay out our own structure that's proven successful in raising money from investors), every plan should include the following components across the document as a whole. Read on to learn about everything you need to include in an effective business plan.
1. Summary of Your Business Plan
Better known as the Executive Summary, this component of your business plan basically outlines everything that you'll cover in detail throughout the plan. It's always the last part of the plan to be written as it should summarize the plan as a whole.
Think of this as the quintessential "elevator pitch." You'll want to start by identifying the problem your product or service solves and your mission statement. Then, hit all the major points of your business plan, but leave the more tedious details (charts, numbers, etc.) for their individual sections.
Ideally, the executive summary should be no longer than two or three pages in length; more complex plans may require a bit more "meat" to your Executive Summary, but keep the text to no more than 5 pages if at all possible. You want to include just enough to encourage the reader to keep reading.
2. About Your Business
Tell the story of your business and its structure. You'll need to include all the dry details, such as the form of organization (corporation, partnership, LLC, sole proprietorship etc.) and any pertinent organizational details (type of stock issued, stock / option grants, ownership etc.). But aside from the technical details, it's important to establish an emotional connection to your business and establish the "why" (i.e. why you're in business).
That emotional connection is communicated by two key components vital to success: passion and tenacity.
Every business has an "origin story" so talk about what led to the founding of the business; perhaps it was frustration over some problem, or your love for some particular activity. The idea is to demonstrate you have an emotional connection with your business, providing the reader with an important cue as to your passion.
Your tenacity can be demonstrated with some talke about your business's history. Even a startup has a history—you may have been involved with other ventures that ultimately led to this one, or you have a story to tell about the startup road so far—but of course if you've been in business for some time, be sure to lay out the trajectory of your business growth. Regardless, showing you've been engaged with the concept for some time demonstrates your tenacity and commitment.
3. Describe Your Products or Services
Talking about your products or services should tie the "why" and the "what" aspects of your business. Not only should you describe the problem your product / service solve ("why" and an extension of the reason why you started your company in the first place), but here's your opportunity to provide some detail as to the "what" as well (the product / service).
When describing the "why" of your product or service, you need to demonstrate how your concept improves on existing solutions and solves a real problem or pain point. Even the most revolutionary idea ever imagined is, in some way or another, an improvement on some more rudimentary concept. For example, email is an extension of postal mail; television is an extension of radio. Why is your product / service better than other solutions?
Building a "better mousetrap" is even more compelling when it's not easy for bigger, better-funded competitors to duplicate. What intellectual property do you maintain (trademarks, patents, copyrights)? What strategic partnerships have you built? You don't need to reveal the exact details of your secret sauce—you can save that for the due-dilligence phase with an interested investor—but it's important to identify the unique details of your product or service—the "what" of your business plan—and whatever "barriers to entry" you control that will keep competitors at bay, at least until you get your business established in the market.
Also important is showing some level of social validation for your product or service. Have you conducted a market test or survey? Have you garnered any pre-orders of your product? Do you have any influential people endorsing your concept?
4. Market Analysis
As part of a comprehensive Marketing Plan, your market analysis as the the "where", i.e. where is the market you're serving to be found?
As vitally important as it is, this is probably the weakest area in most business plans. In fact, failure to investigate the market is one of the top reasons why businesses fail.
Start by demonstrating an understanding of your industry with an industry analysis. Here, you'll want to show the size and growth trajectory of your industry (it is growing, right?). You also need to show how your product or service niches within that industry—your areas of opportunity.
Next, define your target market. What is the particular demographic or "psychographic" profile of your ideal customer, and what is the size of this market?
5. Competitive Analysis
Every business has competitors, even if they are indirect. A good business plan isn't complete unless you demonstrate that you know exactly where you stand in the market. Bring up all your direct and indirect competitors—what products or services do they provide? What do they do well?
Don't forget to include information about your competitors' market share and whether there are any barriers to entry. Explain why customers would choose your product or service over your competitors. A comparison chart often works well.
It's often helpful to include a SWOT analysis of your business. Take inventory of your Strengths and Weaknesses, and identify the Opportunities and Threats in the marketplace. By being as honest as possible, you'll be better equipped to shape how you position your initial product or service offering in the market and show the reader you're thinking about your business as an evolving, living thing.
6. Marketing Strategy
Having identified the areas of opportunity in your industry, your competitors and your target market, it's time to connect the "where" (where is the market you are serving) with the "how" of your business—how you're going to reach your target market.
Start by laying out your unique selling proposition. Next, show the reader some of the messages you'll use to communicate it, and identify the channels you'll use to reach your target market. Back-up your reasons why those channels are the most effective way to reach your target market and your target metrics for success.
Also, consider the timing associated with your overall product / service roll-out—the "when" of your plan. A solid marketing strategy is usually multi-sided, but not every element of the strategy needs to be firing at once. You might start your efforts with a focus on one particular channel, then expand from there with particular tactics. Hand-in-hand with this marketing timeline is a breakdown of your marketing budget for at least the next year, giving the reader the sense that your marketing plan is well thought-out and not a "shotgun" approach that rarely succeeds.
A good marketing plan is often the difference between a product's success and its failure. If you're completely in the dark about how to create and implement a marketing strategy, consider hiring a consulting firm to help you. This is a good idea, too, if your recent marketing plans haven't been delivering as you anticipated. Don't be afraid to get some fresh eyes on your plans!
7. Sales Strategy
People often get Marketing and Sales confused. Yes, they go hand-in-hand and must be coordinated, but as far as your business plan is concerned, your Sales Strategy needs to stand on its own and outline how you will sell your products or services.
Think about what goes into managing a sales team. What are your sales goals and the timeline associated with those goals? How many sales reps will you have and what particular skills are you looking for in an ideal sales rep? How will they work? How will their success be evaluated?
8. Your Team
One of the most important aspects of your business plan to an investor is the "who"—the team behind the venture. This includes not only the key people you've assembled to get your venture off the ground, but also the external support disciplines critical to your success, such as legal and finance professionals, as well as board members.
At the end of the day, investors—and your customers—put their money behind people. That's why the Team is such a crucial part of a great business plan.
It's ok if you haven't assembled your full team yet. It's understood that attracting some of the best executive talent may not happen until you have some funding behind you, or until you've reached a certain degree of stability. Regardless, you need to show how your existing team—small as it may be—is capable of handling the foreseeable demands of your growing business, at least until such time as you can attract the "next level" of executive talent. Just include short but impactful bios of the key team members you have now, and brief descriptions of the skills and functions you expect from key executives you have yet to bring onboard.
You can supplement your team with external resources. Typically, you'll have legal representation and probably an accountant behind you. You might also supplement your team with an Advisory Board; these advisors are other professionals who you can call on for advice. They're different from Board Members in that they don't have any direct connection with the business.
Board Members, on the other hand, have a duty of care with the business. Your board may be limited to the founder(s), but consider leaving a board position open for a lead investor. You won't be giving up control, but you will be gaining a new participant with a vested interest in your success.
9. Financial Plan
Time to get out your calculator and crack open that how-to book on Microsoft Excel! Your financial plan should start with any historical financial information you may have. Of course, it's all about financial projections from this point forward. For your business plan, summarized P&L, Cash Flow and Balance sheet projections for the next three to (max) five years will be sufficient, but they should be built on detailed monthly numbers. (You can save those detailed spreadsheets for your Appendix, available for investors in the course of their due dilligence.)
In addition to your financial projections, your financial plan should include a breakeven analysis—at what level of revenue do you achieve breakeven? More sophisticated business plans will also include a sensitivity analysis, showing how the breakeven changes when the cost to make your product increases by a certain percentage (or in the case of a service, when the overhead increases by a certain percentage), or when your product / service price drops (you may need to lower your prices at some point in time).
You'll also want to include a breakdown of your production costs (for a product) and a calculation of your profit margins, as well as any equipment costs and the associated depreciation on that equipment.
Finally, provide the reader with a comprehensive assessment of the risks you may face as you move forward, including the possible impact to your financial projections and the ways you might mitigate those risks.
10. Funding Needs
If the purpose of your business plan is to obtain funding, then this is where you make your request. Explain exactly how much money you need and how you plan on using it to achieve your goals. Include a timeline that discusses when you'll need the money.
Now That You Know the Components of a Business Plan, Get Started!
If you want to launch a successful business or new product, it's essential that you write a great business plan. Just make sure to hit on all the components of a business plan, and you'll already be well on your way to success!
Still struggling with writing a comprehensive and effective business plan even after reading about it? You're not alone! Brass Ring Consulting Group has business plan experts who can help you create yours. Contact us today for a free consultation!