Business planning often gets a bad rap. The problem, critics say, is that few believe they really need a business plan that is grounded in reality. And oftentimes, when the business tries to start selling its products, it becomes clear that the business plan is problematic.
A business plan is a document that lays out the specifics of how a business will operate and make profit. It’s essentially a road map for the business owner to follow in the months and years to come. It can be a very helpful tool, but there are risks to building your business plan too early in the planning process.
“If the business plan is the first big step taken along the entrepreneurial path, the prospective entrepreneur or business owner is faced with a mountain of questions that cannot be answered just yet,” writes Heidi Neck in Forbes, an entrepreneurship professor at Babson College in Wellesley, Massachusetts. “What happens when we can’t answer all the questions? We get frustrated. We give up.”
In reality, a business plan is only as valuable as the groundwork laid before it is created, Neck says. You can’t hash out an effective plan without knowing that your ideas will fly in the real world—and aren’t some day-dreamy illusion of what you want your business to be.
Here are key steps to take before you sit down to write your plan:
Do real-world market research
You probably know that you need to do market research, but are you doing enough and the right kind? There are two main types:
- Primary research, which includes interviews and surveys with your target audience
- Secondary research, which includes analyzing information that’s already out there, whether it’s industry research, competitor profiles or government data.
Talking to real people—and not just your friends and family—about your business concept is extremely important to do before you write your plan. Talk with your target customers, prospective suppliers and industry insiders and ask for honest feedback about your concept. Ask questions that get them to open up and provide details about how they would receive a business like yours, such as:
- What are your biggest complaints about current products or services in this industry?
- What are the top things you look for when buying a product or service like mine.
Sean O’Connor, founder and CEO of Status Prep, a law, business and graduate school test preparation and admissions counseling company, says he conducted focus groups with prospective customers before launching his company. The focus groups helped him figure out what factors people were looking for most in a company like his and how his company could stand out from its competitors. He realized, for example, that weekend availability and offering an open space where students could study were big unmet needs in the market and he was able to incorporate those offerings into his business plan.
O’Connor cautions, though, that it’s important to be ready to embrace market research and adapt your concept to whatever you discover. “Do not scrap your idea, but do consider adjustments to accommodate your customers’ demands,” he writes on Forbes. “Remember that you are just one consumer and likely a slightly idiosyncratic one at that. You want your business to have relatively broad appeal.”
Keep in mind that the market research you conduct could potentially change your business direction altogether—which is why it’s essential to do it before writing your plan.
Develop a ‘pitch’
A formal written plan may help you flesh out the nitty gritty details of your idea and could be required in certain situations, such as when you’re applying for your business loan or soliciting investors. But most of the time, prospective customers and even investors want something easier to digest—a high-level overview that convinces them you’ve got a great concept.
If you can’t write an effective pitch, you certainly can’t write an effective business plan.
It should take no longer than 20 minutes to write your pitch, writes Noah Parsons, chief operating officer of Palo Alto Software, which makes business-planning software. The pitch can just be bullet points or a few sentences listed under some key topics:
- Your “identity” (what sets you apart from other businesses)
- The problem you are solving; your solution to the problem; your ideal customer
- Who your competitors are
- The sales channels you will use to reach target customers
- The marketing activities you will take to reach those customers
- Your team
- How will your venture make money
- Critical first steps to starting your business
- Partners and resources
It sounds like you’re covering a lot—and you are—but forcing yourself to quickly review all of these topics helps ensure your idea is solid enough to proceed to the business-plan-writing stage. “A pitch forces you to distill your ideas for your business into the core of your strategy,” Parsons writes, adding: “And, once you have nailed down your business strategy, you can expand on it with a longer business plan document that fleshes out the details of your pitch.”
Launch your business
Believe it or not, you will write a far more realistic and helpful plan after you launch your venture and try to start selling your product or your service. You’ll understand the challenges and the opportunities and have real-world experiences you can address.
Logan Chierotti, co-founder of InternetReputation.com, said he and his business partners discovered the dangers of writing a business plan too early. “Two months into the business, we realized that everything we’d planned for just wasn’t working,” he wrote on Inc.com. “We were going to have to change our prices. We were going to have to adjust our target market. In fact, we pretty much had to change everything there was to change about the business as we’d planned it.”
Whatever you do, realize that a business plan is a living and breathing document and always subject to change depending on your experiences in the market. Don’t spend too much time writing a plan that very well could get tossed out of the window or rewritten within six months.
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