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Management
Business Plans: Are They Really
Necessary?
By Ann Estabrooks
It all starts with an idea. That's how new companies are born.
The success of the company depends on the completeness of the
up-front analysis, the correct targeting of the product or
service, the business strategy, a little luck, and a lot of
hard work.
Typically, an entrepreneur is someone who sees a need for a
product or service and has a goal for how the company can
fulfill that need. However, that's just the beginning. In
order to be successful, the entrepreneur prepares a business
plan to assist in achieving that vision. The business plan is
the structure that supports and enhances the idea to improve
the ability to succeed.
Just as in life, involvement in a new business has its share
of highs and lows. During the high times the business plan is
a reminder that the vision set out in the beginning is in
process. The business plan serves as a way to stay on track
during the low times. Mostly, it is a tool to keep the vision
on track by providing the necessary planning to see the
company from infancy to maturity.
To compete in today's marketplace, a plan provides the way to
negotiate the twists and turns associated with growing a
business. Growing a business takes dedication and a commitment
to succeed. A plan provides the direction and overall
strategy.
Anyone who has prepared a business plan will tell you that the
business comes together during the analysis and writing phase.
A lot of information is gathered which makes it possible to
develop an overall strategy. When the plan is finally produced
the CEO will use the results of the analysis in targeting the
product or service. Clarity surfaces as the result of all the
analysis. While the information contained in the plan is
important, it is the information obtained by producing the
plan which is the most valuable because the CEO and management
team have spent enough time to thoroughly research and develop
the idea.
The Marketplace
First, look at the marketplace to research industry trends.
View opinions of industry researchers to determine statistics
that apply to the product or service. Identify the changes in
the market and any market segments that are particular to the
industry. This helps to identify the actual need for the
product or service and will help in the forecasting of market
share and the preparation of financial statements.
Competitive Analysis
Perform an in-depth competitive analysis. Learn everything
possible about the competition. If possible, try to meet them.
In these days of strategic partnerships, a competitor might
very well be a business partner.
It is important to spend a considerable amount of time
analyzing the competition. Go to the competitors' Web sites.
Learn about the companies by researching what they are saying
about their companies. Include any financial information that
the competitor offers in the analysis. This helps a CEO learn
about the marketplace, competitor's successes and failures,
and the ability to position the product or service more
appropriately based on what is learned through this analysis.
Refine Product/Service
At this point, it's a good idea to go back to the original
idea and see if the product or service should be modified
based on what has been learned. Based on everything learned so
far, it will be possible to see niche markets, the uniqueness
of the idea, and how to deliver to the market.
Management Team
Build the management team to achieve the vision. A CEO cannot
be all things at once when forming a business. Not only are
different strengths needed, but also it is impossible to
achieve the goals within a limited amount of time without
sufficient resources.
It takes a diversity of skills to achieve the vision. If there
is a need for funding, the investors will be especially
interested in the management team. Any investor will carefully
look at the management team and past success when determining
whether or not to fund a new business. In this section,
address the history of the business, why the company was
formed, and the organizational structure.
Form a Board of Directors of established experts to help guide
your company. These people have experience and are interested
in helping others learn how to grow. Typically these people
bring advisory skills to help the company mature.
Marketing and Sales
In an ideal world the CEO or the management team writes a
Marketing Plan and includes the summary of this plan in the
Business Plan's Marketing and Sales section. The Marketing
Plan is as comprehensive as the Business Plan but focuses on
how to obtain business through its marketing and sales
efforts. A lot can be learned from how the competition is
getting its name out and obtaining business. Prior to writing
the Marketing Plan, research must be performed.
Marketing research evaluates pricing, positioning, corporate
image, advertising evaluations, and market segmentation
studies. Prepare a forecast model to indicate market share of
the company versus the competitive market share. This will be
valuable information when organizing financial statements.
Prepare the research on customers and how they feel about
current service and satisfaction within the industry. If
appropriate, perform feasibility and usability studies to
determine the level of customer satisfaction with a prototype.
Several methods are used to obtain the necessary research:
focus groups, in-depth interviews, telephone, and mail
surveys. Performing a customer analysis will improve the
likelihood that your product or service meets customer
expectations, which further increases chances of success.
Financial Analysis
Financial statements lay out the expectations of the company
by forecasting income. Monthly profit and loss statements show
income and expenses for an overall picture of the company's
financial health. The Balance Sheet lists assets and
liabilities.
Investors will want to see a healthy return on investment as
well as an exit strategy. They will want to know how they will
be paid back, what their return will be, and what the revenue
requirements are for the business.
This section lists assumptions and comments prepared as part
of the financial statements. It lists pricing, projections,
revenues, assets, and liabilities. Investors will want to see
audited financial statements performed by a reputable firm.
A strategy to pay the CEO and management team as well as
development costs and business expenses are prepared to show
where the company is going and what it will cost in dollars to
get there. Identify the risks associated with the business and
how the company will overcome those risks.
Strategy
Strategy is one of the most crucial aspects of a plan because
it links all of the sections of the business plan together. It
combines an analysis of all the sections to produce tactics
that ensure success. It is this aspect that separates the
successful companies from those that are unsuccessful. The
strategy is a customized solution based on careful analysis of
the marketplace, the need for the product or service,
financial benefits, how to differentiate from the competition,
how the management team will grow the business, and what the
marketing and sales solution is for the product/service.
Executive Summary
The Executive Summary is the last section of the plan to be
written because it summarizes all of the findings and plans at
the highest level. It also contains an overview of cash flow
projections and a summary of the market. In just a few pages,
a summary of the entire plan is prepared.
In Conclusion
When all of the information is compiled, make a few copies and
distribute them to friends and associates for a reality check
and feedback. CEOs become impassioned with their business and
outside resources provide the necessary feedback to make sure
the business is on track.
Once the plan is in place, a lot of the background information
is held within the plan but new information is always learned
during the course of any enterprise. As the business grows, it
makes sense to revisit the plan. In fact, before the product
or service reaches maturity, it will be time to develop
another idea and start the planning process to develop a brand
new idea while revenues are generated from the first product
or service.
Just as a product or service needs a good requirements
definition and design, the business plan is the first step in
clarifying the concepts of what the company will offer. As in
any project, it is important to be clear on the concept. The
upfront analysis on the needs, the vision, and the means to
get there will save time, money, and resources, and ultimately
contribute to implementation of company direction and business
triumphs.
A business plan is the compass used to achieve the goals and
objectives of the business. It starts with the vision and an
unshakable commitment. It is the structure, as well as
adapting to changing conditions, that allows CEOs to achieve
victory in a competitive marketplace.
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