Planning Your Startup
Planning Your Startup: In all probability, without planning your startup, no startup will happen. For people who have never tackled writing a business plan before, I suggest that you put it off for five minutes and read the Startup Owl’s 500-word article, “Before Your Startup – 5 “A”s to Be More Successful.” Then go back to the task in hand.
Should you or should you not write a business plan?
You may think that they are only for those people who are in the high-tech game and want to raise money from a venture capitalist. Wrong.
Even if you’re building a kitchen-table or lifestyle business, you’ll be likely to fail without writing a business plan of some sort. It’s interesting to know though, that only 53% of the Inc. 500 CEOs surveyed (in 2004) created formal written business plans before launching their companies, but I bet the others did do some planning. They just did not call it a business plan.
Business planning is a difficult art. However good you think you are as a business planner, there is a vital step that should be taken before starting to write the business plan. When you have drafted your plan, it will be important to get someone competent to do a business plan review. Why? Because you will have been diving deep and been so close to the details that you may not have enough detachment to see the wood for the trees. Having the insight of someone else who has ‘been there, done that’, will be invaluable.
Your Own Standards Planned into the Business
You need to be clear with yourself about your business standards when you tackle planning your startup. Defining them, though, is not a simple task either. But if you do take the trouble to define them, you will create your own good fortune.
The point is to:
- know what really matters to you in setting up and running your new business;
- be able to articulate your values to yourself and others;
- consider these values against the environment in which your business will be operating;
- have a way to guide your actions and responses to the unexpected;
- decide and act with conviction as you follow opportunities;
- communicate your standards to attract the future you seek;
- establish benchmarks for evaluating performance;
- give yourself a stake in the ground against which you can remain open to change.
How to write business plan is a tough question to answer, especially since it can take many forms.
The Purpose of the Business Plan
Business plans come in all shapes and sizes and planning your startup is a process. Business plans can be anything–from
- a back-of-the-envelope kind of a thing for you to get clear focus (you’ll be surprised how helpful this is);
- a here’s-an-opportunity-for-you appeal to friends and family (you want their support, but they will be risking their money, too);
- a give-us-a-loan request to your bank (who want above all to judge whether you will be able to repay and what security you’re offering);
- an I-need-a-loan-guarantee evidence for the SBA or a Government body (they have to avoid being profligate with public money);
- a surely-this-venture-qualifies application for a grant or sponsorship (these state/foundation guys want to see if you can meet their objectives as well as your own);
- a can-you-help-with-money-and-experience pitch to an angel investor (who will need to see an opportunity and like the proposition as well, since they are doing it for money and enjoyment);
- an all-bells-and-whistles-formal-plan seeking serious funding from a venture capitalist (they will be after high growth and an exit strategy + few invest in startups or what may be called Series A funding).
It is possible that you’ll need more than one of these at some time and you may need to move from one to the other, but in any case the underlying principles for any kind of business plan will remain constant.
The Easiest Way to Business Planning
In the past I have tended to wary of business planning software. But I have lost that skepticism, since finding LivePlan. I have written business plans from scratch for my own businesses and help countless other people with theirs. That’s because the product works like a charm and is perfectly structured and perfectly adaptable to your own needs. It takes away all the tedious chores and using the software will educate you on many aspects that you thought you had covered.
LivePlan makes the process excellent when working in teams, through the ability to share. You can also work easily with me, because you can have the software create a unique and secret URL, so that I can review your plan on line. I heartily recommend that you take a look and take advantage of the 60-day money-back guarantee. Click the link below, and if you want to talk directly to me about LivePlan, feel free to email me.
Oh, and there’s another bonus—LivePlan connects with Quickbooks, which is the bookkeeping software I have used and recommend to startups. You can start your free 30-day trial of QuickBooks online now. Well worth it, if you are not already using QuickBooks.
15 Keys To Success in Planning Your Startup
Here are the Startup Owl’s 15 keys to writing a successful business plan, or undertaking any business planning exercise.
- start with yourself—know who you are and what you want;
- remember that your habits can speed or delay success;
- be clear about purpose and execution;
- answer the question, “why do it?”
- define the problem and your solution—the value proposition;
- ensure a workable business model—how will revenue come and where from;
- create a clear vision—to steer by and make course corrections when needed;
- search for what and/or who is missing—evaluate necessary resources;
- know the market opportunities for your product and who your customers are;
- set achievable strategies—far too many business plans are overly optimistic and fool no one, even you;
- establish quantified goals—you need some idea of scale;
- state realistic numbers and timelines—it’s vital to have something to aim for;
- be honest on risks—do a SWOT analysis;
- share drafts with valid reviewers—don’t be shy, nor worry about confidentiality (most VCs won’t sign an NDA);
- polish the plan to perfection and set firm milestones (and use the Milestones Tool).
Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers by Alexander Osterwalder and Yves Pigneur, who claim it is a book for visionaries, game changers, and challengers who want to design tomorrow’s enterprises. My own view is that you should not look at it until you are pretty sure about what you want your new business to do. Why?
Because you would be tempted to use the visual tools it includes–they are such fun to play with–that you might start off down the wrong track. But once your idea is more than a scribble or dream, buy this book and use it like a fiend with your team or others who can lend a hand.
The Business Model Canvas at the core of Business Model Generation is a fantastic tool that you can use on your own or with groups. My MBA strategy students have been using it in projects and one who is doing a startup has it as the jumping off point for her business.
5 Caveats To Bear in Mind
- When to write the plan: not at the very beginning. That’s when you need to ‘know’ what your thing is, why the world needs your thing, who it’s for and how they’re going to buy your thing. You need to start selling as well as figuring out how you’re going to make money. Plan when to plan, though.
- Use the plan as a reality check: since so few businesses actually get to pitch a VC firm, I suggest you stick with the nuts and bolts. I prepared a small business plan for Venture Founders, even though I needed no external funding. Why? Because it helped me to get clear about what I was going to do and see where I had no answers. A business plan provides a benchmark for the life of the business. It also provides a discipline and a reality check on yourself.
- Make the plan dynamic: bear in mind that your business plan will be little use unless it is dynamic, you update it and change it as your thinking and data evolve. According to a survey of Inc. 500 founders, of those who had prepared business plans, 65% said they had strayed significantly from their original conception, adapting their plans as they went along. My experience of business plan writing tells me that a plan will get significantly rewritten several times, even if the purpose of the business remains constant. If you are not learning from those who give you feedback, you will probably not make it in business anyway .
- Measure against fixed forecasts: do not change the financial forecasts in mid-period, once the business has started. If you do, you’ll confuse yourself and anyone else who reads them. A ‘financial person’ I monitored (as a board member of a VC company) changed his forecasts every couple of months. At the six-month stage, the management of the company had no idea where they were and I had no way of understanding anything anymore. At the year-end, the company was in trouble and he departed.
- Write the plan yourself: no one can tell you how to write a business plan! You need to write or mastermind the writing of the business plan yourself. Of course you can, and probably should, get help (including from the Startup Owl). Be succinct. Keep the document to 30 pages maximum. If you can’t cover the ground in less, it may mean that you are not yet clear enough to press the button. Put the detail in appendices.
Do It On Your Own or With the Team?
If you are building the business as a team, then the team needs to work on it, or planning your startup will end up in the mud. The lead entrepreneur should be the author and will naturally take the lead. Like any good leader, the entrepreneur will draw up a timetable (weeks/months) and the responsibilities of team members will be clearly identified; critical path analysis is useful. This technique (or the project management tool GANNT charts) need not be daunting. It’s just a way to show when things are due and what depends on other things have been done.
Planning the plan will involve knowing when you need what data/numbers. Chances are that by now you are working with an outside accountant and he/she will have things to say about the numbers, but do not be tempted to sub-contract the business plan to the accountant or any one else.
There is a huge amount of advice on writing business plans (in addition to the services of the Startup Owl). One is my own article, “Guide to Creating Your Own Good Fortune: Setting Standards for Business Success“. Another is to use business plan software. You will find strong proponents as well as strong opponents of using software. Either way, it is vital that you chose software that is highly adaptable and you should never simply ‘fill in the blanks’. If you do, it will be obvious to the reader that you have not really considered things carefully enough.
I believe the best book specifically written about business plans is Business Plans that Work: a Guide for Small Business by Jeffry Timmons, Andrew Zacharakis and Stephen Spinelli. The (late) Jeffry Timmons said, “We are in the midst of a silent revolution–a triumph of the creative and entrepreneurial spirit of humankind throughout the world.” Using practical examples, the authors take you through a really thought-provoking process that will result in a very effective plan. I am lucky enough to have done a series of workshops with Jeffry back in the 80s and I still make use of the learning from way back then.
What the Business Plan Is and Is Not
The business plan is
- a way of testing yourself and your ideas as much as writing a sales pitch for the bank or investors;
- about finding out what you don’t know—you’ll see the gaps and probably will know how to fill them;
- the means by which realism can be injected into the vision;
- an opportunity to describe and assess all the functions of the business;
- a disciplined way of avoiding self-deception—disclosing bad news to yourself;
- a document you can share with others, get useful feedback and reinforce your resolve;
- a matter of writing things down to encourage your own commitment;
- the basic tool for codifying how the end results are to be achieved.
The business plan is not
- cast in stone and is likely to go through many iterations;
- going to gloss over missing material and human resources, since the writer almost certainly hasn’t got them all;
- a way to avoid the evidence staring you in the face;
- about making over-optimistic claims— your forecasts will probably not turn out to have been right.
The business plan is unlikely to
- work out to the letter;
- achieve capital funding (probably fewer than 0.006% of all US business plans do);
- be convincing through the use of adjectives and especially not superlatives.
John Mullins, head of the Entrepreneurship Faculty at the London Business School and author of the The new business road test: What entrepreneurs and executives should do before writing a business plan has some excellent advice about words to avoid in any business plan–since they give the game away and are telltale signs that you have not done your homework.
For any attempt at planning your startup, the book, the only book, to guide you in the business planning process is Business Plans that Work by Jeffry Timmons, Andrew Zacharakis and Stephen Spinelli. Get the new 2011 edition.