Business Plans: To Plan or Not to Plan

I took a business planning class not long ago; it was a very engaging class that helped me think through all the aspects of running Gig Theory and the structure allowed me to come out on the other end of four months with a business plan and a partner pitch. But even before the class was over parts of the plan were shelved for later use, and this fact is what leads me to ask the question that is the title of this article.

The idea for Gig Theory started in a group of journals, and the information from those journals helped create a four-page word document on a 15 hour plane ride. All the other plans that came about for this organization originated from that document and they all built on each other sequentially from the idea assessment to the pitch. The business model was written based on the value offered and the customer segment that would benefit most from this value; the solution sprung from my personal experience of taking classes and having a professor who distilled relevant knowledge from the multitude out there and the support I got from both him and my classmates; the channel evolved out of my knowledge of the capabilities of web-based platforms and so on.

All the other plans came from using the business model as a guide for writing. Based on this I am tempted to say that one doesn’t need a business plan and one can do it with a business model canvas.

BUT

The business plan forces you to think through the details of the model. The business model is more of a view of the forest while the business plan takes you down to the trees; this metaphor just means that the plan goes into more detail than the model such as the industry environment in which you will be operating and more explicit detail on how to deliver your value proposition, what you will need to deliver it, and the estimated costs and benefits of operating per the plan.

In the beginning of this article I said that even before I started implementation phase, parts of the plan for Gig Theory were put on ice; but this was only because I looked at the plan that I had drawn up and made changes based on my present realities i.e. my full-time work commitments alongside my school workload. Those who say not to plan might be looking at it from the perspective that the business plan is a rigid document, but it isn’t. The plan should evolve with your business. There are some core parts that I believe should stay the same like the values that your company operates on, but outside of this everything else is open for crossing out, adding to, or subtracting from.

Short Answer:

TO PLAN

The Contents of a Business Plan

Every business plan should contain certain key pieces of information that communicates the purpose of the business and its potential viability to the reader. These major sections are discussed below:

Introductory Page

The function of this section is to:

  • introduce yourself (and your partners if you have any).
  • introduce your company i.e. name and location.
  • state how much money you need to finance your business.
  • state that the report is confidential and shouldn’t be reproduced or redistributed without your express permission*.

Executive Summary

The executive summary is just as the title says – an executive summary of the business plan. It doesn’t need to go into as much detail as the plan, but it needs to give a high-level overview of the key sections that will be discussed below. Think of the executive summary as the hook that invites the reader to go deeper and read more. The people who review these plans generally have very busy schedules, and this summary is the sales pitch to help them see that reading the entire plan is worth their time.

Description of Venture

This section of the business plan should cover:

  • The problem your business is solving.
  • Your mission in regards to how to solve the problem.
  • What exactly is the offering** that you would be producing to fulfill this mission.
  • How your offering provides value to the customer.
  • What development has occurred to date on your offering.
  • The resources that are required to deliver your offering.
  • What you have done to acquire these resources.
  • Your background as the individual who would be heading up this venture.

Industry Analysis

The purpose of the industry analysis is to:

  • Give an overview of the major trends in your industry from an international level (as applicable) to a local level (the level at which your business is operating).
  • The competitive environment in which your business will be operating.
  • Discuss how your company compares to the competition. A SWOT Analysis** is an efficient way of doing this.
  • Give a description of your market from where they are to how many people constitute that market.
  • Provide industry and market forecast data where available. This data needs to be presented to show how relevant it is to your business.

Production Plan

The production plan is used to describe:

  • Your manufacturing operations and who is responsible for them.
  • The costs associated with production (you don’t need to include concrete numbers here, you can just include categories that will constitute an expense so that the reader can relate that to your financial statements**).
  • The production process and production estimates.
  • What capital** (plant, property, and equipment) needs are required to ensure that you meet production estimates.
  • What supplies are required as inputs into the process and how they will be acquired.

NOTE: If you are subcontracting manufacturing you still need this information less PPE (except if your contract with the subcontractor requires you to provide some of their capital needs).

Operations Plan

This section of the plan describes the flow of goods and/or services from production to the customer.

For product-based businesses:

  • Inventory control.
  • The ordering process from the customer’s perspective.
  • The shipping process.
  • Customer support.

For service-based businesses:

  • How your services will be delivered to the customer.
  • How you process transactions.
  • Customer support.

For retail businesses:

  • Where your inventory will be sourced from.
  • Inventory control systems to ensure that you have to right balance of inventory so as to avoid stock-outs or over-stock
  • Where will you store your inventory (and associated costs).
  • Where will you operate your retail store (online or physical outlet).
  • Your shipping process (if your business operates online).
  • How you process transactions.
  • Customer support.

With all of these types of businesses you need to highlight the role of technology in your business.

Marketing Plan

The marketing plan is a summary of how you are going to get your products/services in front of the people who will pay for them. This section of the plan should cover:

  • Your marketing goals and objectives and how you intend to reach them.
  • Details of where your key customers are, how you intend to reach them, and your strategy for convincing them that your offering is of a better value to them than the offering of the competition.
  • The 4Ps of marketing – Price, Promotion, Place (distribution), and Product.
  • How you measure if you are achieving your marketing goals.

Organizational Plan

The organizational plan details out the form of ownership** of your business and who are the key shareholders in the business venture. This section also includes a detailed description of the key roles that are required in the organization to execute on your business model. If there are some roles that can be outsourced without sacrificing the core components of your business, this will be the section to detail those out.

Assessment of Risk

Every business has a risk attached to it. The risks from one form of business to the next may vary i.e. some businesses have product risks while others have risks that are primarily related to their channels. Including this section and identifying the key risks that could make or break your business is an indication to your reader that you are not unaware of what goes into running your business. More importantly it helps you keep your critical success factors in focus even before you open your doors.

Financial Plan

The financial plan is one of the most important aspects of your business plan for several reasons:

  • This is the section that you prove that your business qualifies as a business i.e. it can potentially make money.
  • It also allows you to show the reader that you have included all cost producing aspects of your business model in the plan. For instance, if you have specific promotion programs detailed in your marketing plan, these programs will bear a cost that will need to be included in this section of your business plan.
  • The assumptions on which your plan is based are included here and allow you to make a case for the funding that you are asking for; it also allows the investor to determine if you overestimated or underestimated your needs, and can allow him/her to provide feedback to that end. For example if you need to build a production facility of your own to get your products to market, you need to include the source of the estimated cost of building that is built into your financial statements.

There are three major financial statements included in the Financial Plan:

  • Income Statements (Non-Profits: Statement of Financial Activity)**.
  • Cash Flow Statements**.
  • Balance Sheets (Non-Profits: Statement of Financial Position)**.

Other Sections that can be included in the Financial Plan are:

  • Start-up Statements**.
  • Sources and Uses of Funds.
  • Break-even Analysis**.

Appendix

This section of the business plan contains supporting documents and large sections of information that could potentially break up the flow of the reader of the business plan. Examples of such information are:

  • Full form industry and market research data that you feel should be included in the business plan.
  • Resumes/CVs of the people filling out key position in your organizational plan.
  • Potential job postings for unfilled critical positions detailing out the requirements of the position.
  • Any leases** or contracts** that your company has entered into.
  • Price lists from suppliers or distributors that are a key part of the assumptions that are the basis for your financial statements**.

*This is particularly important since this is the blueprint for your business.

**Will be defined in a subsequent business basics post.

This post was prepared using the textbook Entrepreneurship by Robert D. Hisrich, Michael P. Peters, and Dean A Shepherd, the Eight Edition as a reference.

The Business Model Canvas

The Business Model Canvas is a one page storyboard on which your business model can be articulated. It gives you a quick snapshot of your entire business no matter how complex it is. It is a top level document that can be used to generate more detailed plans with which to run your business’s day to day activities. The Canvas was created by Alexander Osterwalder and Yves Pigneur alongside “an amazing crowd of 470 practitioners in 45 countries.”1. Let’s get down to it:

The canvas is made of 9 building blocks:

Customer Segment:

Bottom Line: Who your target customers are.

One definition of a profitable customer segment is one that you can afford to serve well. By afford, I mean that satisfying this customer segment requires skills and resources that you already have or can source without breaking the bank. Satisfied customers are potential repeat buyers (depending on your model) and their positive reviews of your offering can potentially earn you more customers.

Value Proposition (VP):

Bottom Line: The benefit you offer your customers/the reason you are in business.

The value proposition breaks down the job you are doing for your customer segment in a way that the customer can understand and relate to. Crafting a winning value proposition requires that you understand the customer and the problem that you are trying to solve for this customer. In some cases it is the source of competitive advantage. One thing to keep in mind is to understand that a value proposition isn’t just talking about features; it requires that you talk about BENEFITS. A feature is something that your product has or does while a benefit is something that this feature does for the customer. A stellar value proposition is dependent on clearly communicating benefits.

Channels:

Bottom Line: What vehicles (methods) you use to reach your customer

These are the paths that you use to educate your customer about your offering and they are also the paths you use to get the offering to them. Some common channels include:

Distribution:

  • Having your own store where you sell directly to customers
  • Having a sales force that goes out to sell your product to your customer
  • Selling on the web using your website or platforms like Etsy.com
  • Selling through a wholesaler

Promotion

  • Radio and TV advertisements
  • Posters in approved posting areas/partner locations
  • Social Media

Customer Relationships:

Bottom Line: The relationships you have with your customer.

The customer relationships building block “describes the types of relationships a company establishes with specific customer segements.”1. They could be a potential source of competitive advantage i.e. your customers buy from you because the post-sale service that you provide along with the product offering you sell is the best in the industry. The relationships that you have with your customer prior to them committing to buy your product could also be a source of competitive advantage. The type of customer relationships that you have with your customer is dependent on what you are trying to achieve. There are three major goals:

  • Customer acquisition: Getting them to buy from you for the very first time. Pre-sale relationships will fall into this category.
  • Customer retention: Getting them to keep coming back for more (product) or retain your services (service).
  • Boosting Sales: Promoting add-on items/services that go with their initial purchase. For example: If you bought an iPad from an electronics supplier, the supplier might try to sell you on a speaker system to go with it so that you can enjoy the music you upload to it.

Relationships also require that you are well educated on your customer segment and their needs.

Revenue Streams:

Bottom Line: How you make your money.

Looking into your value proposition and customer relationships can give you clues to how your business can make money. The value proposition is directly tied to your offering and answering the question of how value proposition delivery mechanism can be monetized will help you fill out this block. Your customer relationships can also be a potential source of revenue, an example of this is software companies that have trainings that they hold to help customers better use their products. This is a form of support i.e. a customer relationship that can be monetized.

Key Resources:

Bottom Line: These are the resources that you need to deliver on your VP.

These are all the resources you need to execute your business model. They can be “physical, financial, intellectual, or human.”1. The resources you need usually start at the answer to the question: What do I need to deliver on my value proposition? Other questions that can help populate this building block are:

  • What resources do I need to reach my target customer segment? (Channels)
  • What resources do I need to ensure that I maintain my customer relationships? (Customer Relationships)
  • What resources do I need to ensure that my revenue stream collection systems function smoothly? (Revenue Streams?

Key Activities:

Bottom Line: The necessary activities to deliver on your VP.

Key activities are the things you must do to execute your business model. The activities are the most important actions that a company must take to operate successfully. The key activities include those that are needed to ensure that you deliver on the value proposition you make to your customers by operating your channels effectively and meeting/exceeding customer expectations in the relationship department. You also need to include the activities that will help you acquire your customers in the first place and ensure that the experiences that they have from the first interaction till money changes hands is no less than what you promised. Also don’t forget the activities you need to conduct to keep your customers.

As a business, you don’t necessarily have to conduct all the Key Activities yourself. This is especially true if there are companies out there that specialize in activities at are not core activities but are key to keeping your business model running.

Key Partners:

Bottom Line: Partnerships that help you be more efficient at doing business.

You can’t do this business thing all on your own. The Key Partners block helps you understand and articulate:

  • To whom you can divide out activities that can be outsourced
  • Who you help in the process of running your business model that isn’t your customer and that can help you in kind
  • Who helps you

Some of the key activities that you have listed out are things that you might not have the skills to execute. For instance all businesses need to have their books in order, but not all entrepreneurs are accountants so you either have to hire one as an employee (key resource) or have one look over your basic bookkeeping from time to time (key partner).

From another perspective, you might have the skills to do an activity, but your time might be best served focusing on other things e.g. You might be able to put together your own financial statements and analyze your performance, but you might be better served hiring that accountant for a small fee once every six months to look through the basic bookkeeping activities that you have kept up with. This can free up your time to talk to more customers or create your next big offering.

Partners can also be people who are totally unrelated to your day-to-day activities, but can help you achieve your business goals nonetheless. An example of such a partner is a mentor who gives you encouragement when you hit a bumpy patch; he doesn’t make you money, but he can give you priceless advice or set you up with someone who can.

Cost Structure:

Bottom Line: What it costs to run your business model.

These are all the costs that will be incurred operating your business model. Looking through each building block will help you determine what your major costs are and help you determine whether you have a business that is dependent on fixed or variable cost items.

One of the great things about the business model canvas is that you look above the line to determine your costs, and determine how much profit you can potentially make by comparing what you get to the number on the right (Revenue Streams). This gives you visual representation/quick break down of the potential profitability of your business and it helps you determine if something needs to change in the case where the initial model isn’t profitable.

1. Business Model Generation by Alexander Osterwalder and Yves Pigneur

Note: I added a link for the business model canvas download page beneath the picture, it wouldn’t hurt to explore the full page.