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Everything You Wanted To Know About Business Planning

Posted: 12 Jan 2020 11:00 AM PST

Many enthusiastic entrepreneurs forget to lay the groundwork for their business and head straight to the action. But how can you expect to succeed without a proper business plan?

The extent to which you plan for the growth of your company determines how well you can grow and how well-insulated you'll be from threats and competitive pressures in the future. Companies with a plan are less likely to fall victim to common start-up problems like a lack of cashflow and low employee productivity. The right plan helps ensure you're able to successfully grow your business.

Here you will learn:

  • What business plans really are
  • What to include in your business plan
  • The 4 benefits of creating a business plan
  • Tips to creating a most compelling business plan
  • How to use your business plan to raise funding

What are business plans?

Business plans are documents that outline the scope and strategy of a new or existing business. Essentially, they are blueprints that provide a step-by-step account of your business' goals and how you plan to achieve them.

Elements of a business plan

The 10 key elements of a business plan are as follows:

  1. Executive Summary – This section gives a brief overview of the entire business plan.
     
  2. Company Overview – Here, management explains the genesis of the company with information such as where the company was incorporated and milestones achieved to date.
     
  3. Industry Analysis – In this section, you give an overview of the industry or market in which you compete. In it, answer questions such as the size of the market and trends that are or may affect it in the future.
     
  4. Customer Analysis – The customer analysis section of your plan details your target customers. It identifies how many target customers there are and their psychographic and demographic profiles.
     
  5. Competitor Analysis – This section of your plan identifies your direct and indirect competitors. It explains their strengths and weaknesses and documents the areas in which you have competitive advantage.
     
  6. Marketing Plan – Here, your company's marketing and promotions strategy is laid out. You should also include a list of the key products/services that your company sells or intends to sell.
     
  7. Operations Strategy – Here, you will state your short and long-term goals and your key milestones en route to achieving them.
     
  8. Financials – In the financials, you will provide forecasted Income Statements, Balance Sheets and Cash Flow Statements for your company for the next five years.
     
  9. Management Team – in this section, you will detail the bios of the founder(s) and key employees.
     
  10. Appendix – Finally, in the Appendix you will include any additional information that supports the rest of your business plan such as customer lists, store designs, employee agreements, etc.

Benefits of creating a business plan

There are multiple benefits to creating a business plan. Below are the key ones.

1. Understanding your market

Creating your business plan forces you to really understand your market. In researching your industry, customers and competition, you will fully diagnose your marketplace. Ideally this market research will alert you to trends and opportunities you can target that competitors are ignoring.

2. Attracting funding

A business plan is a vital tool to attract funding from potential investors or lenders. Both investors and lenders want to see a well-reasoned business plan. Such a plan gives your company credibility and allows the investor to gauge if they'll get an appropriate return from their investment.

3. Help track your business' progress

When creating your plan, you'll identify milestones and financial goals and objectives you wish to achieve.

This means that with proper business planning, you gain a guide to help you track the progress of the business. Revisit your business plan monthly, or at least annually, to track your progress and/or modify your plan.

4. Attract others to join your cause

The right business plan can get others, such as employees, partners or advisors, to join your company. If you can document a vision in your plan that is inspiring to others, the sky is the limit with regards to what you can achieve!
 

Tips to create the most compelling business plans

Here are some tips to creating a great business plan:

  • Don't skimp on the research. Conducting your industry, customer and competitor research can make you a true expert on your market. The insight you gain can enable you to become a prominent player in your space.
     
  • Create realistic financials. The right financial model will allow you to test different assumptions. For example, you can see the implications of growing at 10% versus a 20% rate. As much as possible, try to root your assumptions in reality. For example, if no company has ever grown to $1 billion in revenues within one year, don't claim that you'll be the first.
     
  • Spend time documenting your milestones. I prefer setting quarterly milestones for the first year and then annual milestones for the next four years. Milestones can include things like hitting sales goals, launching new products/services or locations, hiring key employees, etc.
     
  • Don't think that you need to answer every imaginable question in your business plan. Your business plan should be 15 to 20 pages in length and answer most questions. But before writing you a check, investors and lenders will want to meet with you. During those meetings you'll have the opportunity to answer any additional questions they have.

How to Use Your Business Plan to Raise Funding

Most entrepreneurs and business owners create plans in order to raise funding. Once your plan is complete, the three most common funding sources are banks, angel investors, and venture capital firms.

Banks provide loans which the entrepreneur must pay back along with interest. Conversely, angel investors and venture capital firms are equity investors. They provide money in return for shares in your company. This has a big cash flow benefit in that you neither need to pay back the interest nor the principal. But, if/when you sell your company, a percentage of the proceeds will go to the investor and not you.

Banks are simple to find. In most cases, you should approach banks based within a few miles of your company. Banks will judge your business plan with an eye on determining whether you will be able to repay the loan's interest and principal.

Angel investors are much harder to identify than banks. While some angel investors work together as part of angel investor networks (which are easy to find), most angels are successful individuals that don't tell the world they are angel investors. Rather they are doctors, lawyers, executives, business owners and others who have the means to invest in private companies and do so occasionally. To find them, network with lawyers, accountants and others. Angel investors typically invest within 50 miles of their homes so once again think local here. Individual angel investors commonly write checks between $25,000 and $100,000. So, if you are looking to raise more funding, you will need to find multiple angel investors.

Venture Capital Firms are easy to find online. But they are the most difficult source of capital. This is because they receive so many business plans and thus are highly selective. In fact, when you read about how selective universities like Stanford or Harvard are, they pale in comparison to venture capital firms who fund well less than 1% of the companies they see. Venture capital firms want to see the potential for your company to earn them up to a ten-time return. That means that if they give you $5 million, they want to see the ability for your company to grow to a $100 million company (and if you sold at that amount, they could receive $50 million and the remaining $50 million would go to you). In most cases, venture capital firms don't write checks for less than $2 million. Also, venture capital firms want to see business traction (customers, etc.). So, in most cases, companies raise angel funding first, achieve traction, and then raise funding from venture capital firms.

Whether you are seeking funding from banks, angel investors or venture capital firms, you will submit your business plan. If the recipient denies your request for funding, solicit their feedback as to why. If you constantly hear the same reply, modify your strategy and/or business plan to better adhere to the wants of these investors.

Creating a compelling business plan can help you raise the growth capital you need and put you on the right track to building a highly successful company. Whether you're a startup or established company, create or revisit your business plan today.

4 Ways to Spearhead Better Disruption

Posted: 12 Jan 2020 07:00 AM PST

The primary goal for startup founders is to find a unique business solution for a problem that exists in the world and then find a way to scale it that orchestrates economic, societal or business change. Innovation like that is difficult, though.

It can be done — creating a new market segment, spinning up a new coding language, designing and patenting a new product that the world has never seen before — but innovation is always an uphill battle.

The key to overcoming the challenge, then? Find distinct opportunities for collaborative innovation rather than outright disruption both in the market and in your own organization. Where incumbents in an industry may not be perfect, they have likely spent many years or decades developing parts of their system that go unnoticed and work almost flawlessly. Creating those systems from scratch can become a huge burden for new players in a space, and those companies won't just lend their expertise there for free.

Deconstructing disruption

Entrepreneurs shouldn't aim for disruption in the traditional "upending an entire system or industry" sense. They should instead think of it, and their business, as finding a formative restructuring to the current model or as a healing approach that fixes flaws in the system. They can then clearly define an approach to fixing it and making the world better for their customers when and where incumbent players in the space are unwilling or unable to improve.

Business collaboration and partnership isn't all kumbaya. If there's a reasonable enough market cap, startups can be both useful to consumers and transformative to established industries. Whether the goal is to streamline a business model or solve operational challenges inherent to an industry, startups can offer solutions by being more nimble than the entrenched current players, but success will require a bit of give and take. 

Look at Uber's approach, for example. It took cues from the pizza delivery industry to build out elements of its own structure, such as pricing transparency and on-demand options. Then, it applied them to the taxi model. Now, the company is hitting $11.27 billion in revenue and climbing.

Uber didn't just create a random idea and market a widget from scratch. Its creators identified an opportunity to innovate and — while imperfect — brought about disruption by aggressively pursuing a better model than what the taxi companies were initially able to provide.

"Disruption" tends to carry a negative connotation because of the speed at which it happens and the challenges it creates. Working within a set system can be expensive and even hinder growth for new companies. But it can also be a positive in industries, such as insurance and finance, where stability and reliability are crucial to long-term success. Disruption doesn't always happen quickly. Sometimes, it can take years or even decades for policy to catch up to the technological innovations that drive change.

It takes outside players, outside perspectives and fluid company policy initiatives to create the perfect conditions for collaborative innovation. Industry disruption is an imperfect process, but it's revolutionary when done the right way and in tandem with others.

The end of "us vs. them"

While market disruption is a common goal in the startup world, most founders don't always approach it with the proper mindset. Rather than adopting a "growth at all costs" mindset, finding a balance between monetization and model innovation is a more measured approach that will ensure reliability and satisfaction for customers and investors alike. And that balance starts from within.

Disruption can rapidly become a contentious and political effort within companies themselves. When workplace culture shifts toward one of tribal politics, it can undermine both company values and business initiatives. When companies are on a mission to take down established players, tensions can arise because of friction introduced within systems that are already in place when those companies are also partners.

It's easy to suggest the solution most often offered up — to cancel the previous program and replace it with something newer and better. But that isn't always practical. Instead, successful workplace disruption requires a regular reevaluation of existing ways of doing in order to keep communication efficient and integrations smooth.

Slash-and-burn approaches to company policies create an "us vs. them" mentality that sews internal distrust between teams and tribalism. When this happens, it can undermine your business's success. The key to sustained innovation is to develop a model and methodology to identify and keep what is working, amend what is just OK or underperforming and let your team organically grow with the programs that make the most sense for the business's needs.

And when growing, find a middle ground. Create new ideas and ways of doing things in a fluid way to meet what the team needs and wants, and foster a culture in which people can feel ownership over their day-to-day work.

According to Gallup's global database, only one in three employees say they trust their own company's leadership. To prevent being categorized this way by the teams or industries you're changing, build a collaborative culture that makes disruption a seamless part of operations instead of a role-oriented mandate from HR that leaves people or partners feeling left out and left behind.

Collaboration creates community

Everyone in a company should be on the same page and working toward common goals. When a team collaborates to be part of building and living out a culture of innovation, it gives everyone the chance to build the workplace and the product solutions of their dreams. Voices get to be heard, and people are empowered to bring their ideas to light. And at the same time, people gain perspective about the challenges other departments are facing.

I hire people who want to build the future — entrepreneurial self-starters who aren't afraid of rolling up their sleeves to get work done if and when they see something that needs to improve. Often, those people don't want to be told what to do, how to work, or when and where to do certain things. It's important to understand that an open dialogue is both a business tool and a flexible model for workplace innovation.

Be wary of burnout, too. At Health IQ, we very recently received feedback from longstanding team members that expressed a willingness to have more fun. When we got to the core of it, we learned that they weren't bringing solutions to the table because they had so much to get through in a day that they didn't want to lean in and create more new solutions. A lean team can only get you so far, and people can only do so much. So we did something about it.

We promoted a member of our team to build a companywide engagement program like those typically only seen at massive corporations. We want to feature and celebrate the best of who we are in the same ways we celebrate our clients. We've appointed culture and fun committees in all of our offices to integrate more of our core values into daily practice.

As a result, we now have movement reminders (much like those regular Apple Health or Garmin push notifications) that go out on Slack every day to get colleagues active together in simple, meaningful ways that don't interrupt the workday — 10 pushups here, 30 jumping jacks there. The team wants to do more group outings, too, so we've added monthly hikes and "happy and healthy hours" for all new employees to get to know the team they've joined.

It is our responsibility as leaders to make great places for our teams to work. A common startup mantra is that it isn't about having beer on tap; it's about hiring people you'd want to grab a beer with. Empower people to build a high-performing and innovative culture, and the results will come.

Building a kind, collaborative disruption

So how can up-and-coming founders strike the necessary balance of getting a seat at the table with a dialed-in team without dismantling that table in the process? Here are four ways to start:

1. Throw your hat into the ring

Start building a better workplace by getting directly involved with the decisions being made, and find solutions when you encounter friction. Newer company leaders with their finger on the pulse of the organization often feel or experience something others are also feeling but haven't yet voiced. Existing leadership may not be aware of or may be in denial about problems, so coming together and proposing a solutions can be a powerful driver for innovation and a good way to garner both team and partner support.

2. Bring solutions without pointing fingers

Don't be negative when you see a problem (with the team, a partner, the product, etc.); instead, build the solution. As an example, if it's easy to see that a manager isn't communicating effectively, guide him or her on how to work better with the team rather than just critiquing performance. If you see a product has a key issue limiting its effectiveness with clients, propose changes so the team can work in partnership to build more effective solutions. Solution- and action-oriented thinking is more effective because it demonstrates the ability to care about things beyond just a job description and the initiative to make teamwork a priority.

3. Focus on collaboration

If there is an existing framework for engagement or feedback, use it. Work with established teams by inviting them to be a part of your vision of an improved operation. Getting the support of team members at all levels, whether they are officially or unofficially given a title that says they should be a leader on the issue, requires a bit of forward thinking but will bolster your efforts in the long run. Get as many people as possible involved in building the culture of a workplace and of industry partnerships, and collaboratively define the expectations of your company to gain consensus about the problem and then explore the avenues to finding a solution together.

4. Build a framework for feedback and change

Let your company values and mission act as pillars for the team. When partners and team members both know what values they're standing for and striving toward, they have an easier and friendlier starting point for flexible change and innovation.

Disruption doesn't require reinventing the whole system in which your company operates or obliterating the one that exists. Instead, forging a new path that's harmonious with the one that came before it will make the journey toward success smoother and one that doesn't leave destruction in its wake.
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