What aspect of a formal business plan can still be helpful to first-time founders and why?
The following answers are provided by members of Young Entrepreneur Council (YEC), an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.
1. Detailed Profit and Loss Projections for Five Years
Creating detailed financial projections forces you to lay out all of your assumptions. Which hires are the most critical? Which sales channels will grow fastest? What are your unit economics? When you see the numbers – and vet them with good advisors – you’ll be able to prioritize your time and monetary investment. Great entrepreneurs lay out and test their hypotheses, and the P&L statement is your first one!
2. Customer Acquisition
Anyone who has built a company knows that “build it and they will come” could not be more false. You need a clear plan of action on how you’ll reach potential buyers and educate them about your solution. My company, MeetEdgar, reached a $100,000 monthly recurring revenue in under a year by putting a strong focus on customer acquisition right from day one.
3. Go-To-Market Strategy
I am a believer in the power of business plans. Even informally, business planning is a sure way to cultivate a rigorous dialogue with your team about how the company will grow. One critical part of the plan is the go-to-market strategy where you’ll articulate the channels you’ll use to start selling your solution. These decisions have huge impact on expenses, runway and operational activities.
4. SWOT Analysis
SWOT stands for strengths, weaknesses, opportunities and threats. The idea is to evaluate these elements as they pertain to your business. Not only when starting out, but from time to time as you grow. Have you been able to curb your weaknesses? Are you facing new threats? Are you still maximizing your strengths? What are your best current opportunities? These are important to know well.
5. Executive Summary
On one page, can you clearly and concisely communicate the reasons why your business will be successful? First-time founders can get really excited about their business for a variety of reasons. Fifteen-second pitches can have a tendency to turn into 15-minute pitches. An executive summary forces founders to focus on what matters most.
Scope creep is when you waste time giving clients work that was out-of-scope because nothing was well-defined. The dangers of ill-defined goals come into play in businesses when you don’t have set timelines. Your entire team should know when certain deliverables/goals are expected and when to avoid missed deadlines. Having a business plan ensures everyone knows how every piece fits together.
7. Revisable Plan
There’s a myth that successful startups use business plans that are successful from day one. Even the biggest businesses out there have had to scrap or revise their plans multiple times before attaining success. Keeping this in mind as a startup will allow you to be nimble with your business and pivot when something doesn’t work.
8. Business Description
Your business description, which will appear after your executive summary, is key for first-time founders. That’s where you’ll define what you’re offering, the history of your industry, and your objectives. This section is the backbone of your business plan and will set the stage for everything that follows.
9. Forget the Formal Business Plan
If you’re bootstrapping it, a single-page plan that defines your goals and forces you to think two or three steps ahead is really all you need. Be adaptive. Go where the food is. Spend your time doing instead of planning and conjecturing. There is one exception: if you’re seeking business investment. In that case, a formal business plan lays out your goals and defines your purpose.
10. Use a TOWS Analysis
Similar to the traditional SWOT (strengths, weaknesses, opportunities and threats), the TOWS analysis is simply a re-arrangement that encourages the founder to think first about the external (threats and opportunities) factors before identifying how the internal (weaknesses and strengths) characteristics can be used. Entrepreneurs are often enamored with their ideas and need reminders to take an outside perspective.
11. The Legal Structure
The way your company is legally structured plays a giant role in your business plan, strategy, and operations. The type of entity you ultimately select will rely on three fundamental factors: liability, taxation and record-keeping. It’s vital to not only officially register your company, but to also establish that you own the naming rights before you form your business plan.
12. Strategy and Competitive Analysis
The strategy and competitive analysis are both very important because they provide a way to determine if the business idea actually is sustainable and if there is a viable market for what the founder is trying to accomplish.