Importance of a business plan
A start-up begins with the vision of its founders: a vision of a new product or service that solves a specific customer problem or need with a unique value proposition in the market. However, highly knowledgeable entrepreneurs also struggle to address vital questions.
Founders prepare a business plan and make assumptions about customers, their problems, and their product offerings. Other presumptions relate to sales channels, partnerships, revenue model streams, and marketing expenses. All these assumptions add up to a set of financial forecasts, and management feels that the company will be printing money soon.
Before launching a product in the market, it is mainly to study product gaps and challenges in the market and design product offerings accordingly. The customer discovery process lowers the odds of spending zillions of funds and getting zeros in return, as 90% of start-ups fail to address the pain point of customers and largely focus on mining money. First mover advantage can give an edge to the business, however, without market research and understanding of customer needs, any business can go bankrupt and face a decline in growth.
Before designing a business plan, founders should address the below questions to minimize the probability of getting failure
- Have we identified the pain points a customer wants to see addressed?
- Does our product solve the right customer problem?
- If so, do we have a viable and profitable business model?
- Have we learned enough to go out and offer our products and services?
Why is a business plan essential?
Having the right business plan helps an entrepreneur keep track of important KPIs. It enables them to fine-tune the company mission and vision and give a true picture to the imagination of founders. A written vision helps a company focus on the vital tasks that need to be addressed first. The business plan shows all the stakeholders what the company expected from them and brings everyone on the same page. Creating a business plan helps in formulating the right business strategy that will propel business at per stage of the business cycle. It gives a fair idea of competition in the market and helps in melding strategy as per customers’ preferences.
A business plan acts as a magnet to attract angel investors, VCs, and a skilled talent pool. It is important to retain quality employees and a management pool. It acts as a business blueprint for the company’s long-term business strategy and once everyone starts believing in the vision of the founders then things get streamlined and less extrinsic motivation is required.
What information do you need in drafting a business plan?
In and out knowledge of industry and nature of business is a vital ingredient in writing a business plan. Industry analysis, market analysis, competition analysis, product analysis, and customer analysis beforehand can give you an edge in the target market. Company internal strengths and weaknesses, external threats, and opportunities give a clearer picture of the present and future market dynamics. Many founders make assumptions without validating hypotheses and proof of concepts and enter the market. Market entering without preparation could be a recipe for disaster. A business plan helps in better understanding of competition, the market you are entering, customer trends and preferences, and possible roadblocks you need to fix before entering the market.
What are all topics that need to be covered in a Business Plan?
Value Proposition: a Value Proposition is a statement that positions a product or service in the customer’s mind. And set the company apart from the competition. A hook line gives a clear understanding of the company’s vision in just one or two lines. VP Statement explains how the company is planning to solve customers’ pain points and what all benefits customers can expect.
Customer segmentation: Classification of potential customers into discrete groups based on common characteristics age, city, country, homogenous needs, preferences, and behavior).
Distribution channel: The distribution channel contains all the touchpoints through which the product reaches the target customers. There can be more than one intermediary in the supply chain. The distribution channel can be physical stores or virtual stores.
Revenue streams: The revenue model comprises all tools by which your company generates cash from each customer segment. This model includes the estimation of customer lifetime value, pricing strategy of each product and service based on the customer perceived value, and how customers would prefer to pay.
Resources: Starting a business could be a daunting and hectic activity. If founders know the exact recipe ingredients, then building a business takes the right decision at the right place and at the right time. That ultimately increases the probability of success. In the initial stage, every business requires initial funding support, plant and machinery, skilled talent, industry know-how, training, and networking opportunities.
Customer relationship strategy: Customer relationship involves maintaining healthy interaction with prospective customers at every touchpoint. Along with this, influencing them through inbound marketing and outbound marketing strategy to convert them into paid or repeat customers. Every touch point level requires a different marketing and communication strategy. CRM strategy takes care of organic leads, prospective leads, and repeat customers through promotional campaigns, customer support services, content creation, and review loop.
Key partners: Key partners are the building blocks of any business. A network of suppliers and partners that make the business model work. Key partners can be collaborators, suppliers, retailers, and channel partners. Partnership relationships give an edge in upward and downward integration and reduce the risk of competition among each other. Such relationships can be motivated by the need to acquire knowledge, licenses, or access to the target audience.
Key activities: comprise all activities required to bring a business vision to life through the integration of other business model elements. Prioritization of activities into a chunk of tasks needs to be performed by the marketing department, strategy department, IT department, and finance department.
Remember to review your plan and not stick to a static business plan
As the business scale, it is pivotal to document all the nitty-gritty of business activities, follow-up on business strategy, task delegation, and project delegation. Regular feedback from different teams and markets helps a business in decision-making. Periodic review of top-level management strategy and middle-level strategy is essential for the success of a business, and it also keeps everyone in the loop on how work is getting done.