What is a Business Plan?
A business plan is your business roadmap for how to create, develop, structure, and operate your business. As the SBA explains, “your business plan is the foundation of your business.” The SBA also defines two types of business plans: (1) the traditional plan, and (2) the lean startup plan (also known as the business model canvas).
Why do you need a business plan?
A business plan allows you to plan for success and anticipate challenges, proves your business concept, clarifies your strategy, and provides structure.
#1 Plan for Success & Anticipate Challenges
To create a business plan, you need to take the time, sit down, and think about the details. This is a crucial step to creating a successful startup by enabling you to identify potential challenges, evaluate the viability of the idea, and avoid costly mistakes.
#2 Prove Your Business Concept
If you are seeking investors or a bank loan, you need to have a business plan that demonstrates your business is a good investment. A business plan helps others understand and evaluate the feasibility of your business before investing in it.
#3 Clarify Your Strategy
You may have a great idea, but a business plan can help you identify the best way to execute that idea. A business plan allows you to research, learn, analyze, and evaluate your market, resources, products/services, etc.
#4 Provide Structure
Entrepreneurs are often so busy with the day-to-day of getting their business started that planning and structure are often overlooked. A business plan provides you with an opportunity to structure your business and serves as a communication tool when onboarding new employees to your startup.
What are the key sections in a traditional business plan?
A traditional business plan is more detailed, comprehensive, and wordy. It is something you would create with Live Plan or in a word document. Investors and lenders will ask for a business plan.
If a lender or investor were to read only one page of your plan, what do you want them to know? The executive summary includes your mission, description of products and/or services, target market, marketing strategy, the current financials, the ask, and the team. The Executive Summary should provide a high-level overview and persuade the reader to continue reviewing the business plan. With it being a summary, you should write this section last. It should only be one-page.
The company description details what you do and why you are in business. In this section, consider including the business legal structure, mission or vision, values, what problems your business solves, and competitive advantages.
For the market analysis, you need to research your industry and competition, identify your target market, evaluate the market potential, and make informed estimates on adoption. This section usually includes an industry analysis, a competitive analysis, and SWOT analysis to tie it all together. As you work through the industry and competitive analysis, look for ways to learn from your competition and differentiate your business.
The worst thing you can say is there is no competition. There is always competition from either direct or indirect competitors. Direct competitors offer the same thing as you, while indirect competitors offer a substitute that could be used in place of yours.
Organization & Management
The organization and management section explains how the business will be structured, who will run it, and the logistics. Detail your business legal structure and your team. When it comes to the team, you could include an organizational chart to explain the chain of command. You will also want to highlight the individual’s unique qualifications or experiences that will contribute to the business and its likelihood of success. Also, consider including any advisors, board of directors, or support resources that will increase the odds of business success.
Service or Products
The services & products section explains what you offer, the benefits, and the problems you solve. Also, make sure to detail your value proposition and what sets you apart from the competition. If available, you can share any patent filings, success stories, or customer feedback.
Make sure to define the 4P’s of marketing (ex: product, price, promotion, and place). In the marketing section you can identify your customer segments and how you solve their problems, how you differentiate your products/services through your positioning strategy, how you will reach the various segments through your promotional strategy, how your products or services will be distributed to your customers, and how your products will be priced.
For the financial section, include current financials and pro forma financial projections. The goal is to illustrate that the business is stable and will be profitable. For existing businesses, you can include income statements, balance sheets, and cash flow statements for the last 3-5 years. Also, for loans, include any collateral. For a new business, you can create a pro forma income statement, balance sheet, and cash flow statement to forecast the next 1-5 years.
If you are seeking funding, define what type of funding and how it will be used. You can specify whether you want debt or equity, the terms, a description of how the funds will be used, etc.
The appendix can include supplemental information that builds your case such as resumes, letters of reference, licenses, permits, patents, contracts, etc.
What are the key sections of the business model canvas?
The business model canvas, also known as the lean startup plan, provides a high-level overview of the business in more of a visual format. You can use online tools such as Strategyzer or Canvanizer to create one. This can be a helpful starting point and serve as a great communication tool for onboarding new employees.
The key partnership section includes your key partners and suppliers. Who are your key partners? Who are your key suppliers?
The key activities section defines distribution channels and key activities to deliver your value proposition. What activities are essential to run this business? How will the product or service be distributed?
The key resources section defines what resources are needed to deliver on your value proposition. What key resources are essential? What physical, intellectual, human, or financial resources are necessary?
The value proposition explains how you solve customer problems and how you deliver that value to the customer. Ask yourself, what problem am I solving? What are the benefits of solving this problem? Why does a customer need this?
The customer relationship section outlines the types of relationships and how you build those relationships. How will you interact with your customers (ex: in-person, through distributors, online, etc.)? How will you build relationships and engage with customers?
The customer segments section defines who you are trying to reach and which customers are most important. Mass market, niche marketed, segmented, and diversified are a few examples. Ask yourself, who is my ideal customer? What are the characteristics or demographics of my target customers? Which markets are most valuable to my business?
The channels section outlines how you will reach your customers, how the channels are integrated, and which ones work best. What channels will you use to reach your customers (ex: website, social media, ads, email, networking, etc.)? How will these channels be integrated? Which do you think will be most effective vs. efficient?
The cost structure outlines the cost of key resources and key activities. What is the cost of the key activities, resources, and partnerships? What are my marketing, legal, insurance, accounting, and administrative costs? What is the employee cost?
The revenue streams section defines how you will make money. Will you charge per product, hourly, fixed rate, or subscription? Will you use a combination of streams? Can you earn referral bonuses or ad revenue?
Both a business plan and business model canvas provide a roadmap for your business. Both can be a valuable tool for your business while each is unique in the level of detail and its application.