Business ideas are the building blocks for the Business world....
Starting to Get New Business Ideas The location and development of viable business ideas is as much an art, or matter of luck, as the use of systematic techniques. Certainly, you can use structured approaches, as described below, but the reality is that having the right background, being in the right place at the right time, and working hard to create lucky breaks are likely to be just as important in coming up with sound business ideas. The concepts presented below represent a series of checklists. They need not be followed systematically and, most certainly, they should not be perceived as a surefire recipe. Instead, view them as a series of menus from which you can pick and choose according as your thoughts develop. Probably, the only issue which everyone searching for new business ideas should review systematically is their own strengths and weaknesses and to use this as their key building block and jumping off point. Need More Assistance? Have a look at: Exl-Plan Multi-year Financial Projections (with Excel) Cashflow Plan Short-term Cashflow Forecasts (with Excel) Plan Write Comprehensive Business Planner Plan Write Marketing Planner Plan Write Expert Business Planner Quick Insight Business Idea Assessor Business Insight Business Strategy Evaluator
2. Before Searching for Business Ideas The starting point for developing new business ideas lies inside the prospective entrepreneur rather than in the marketplace, laboratory, business plan etc. You are the critical component - it is your strengths and weaknesses which should dictate the areas in which to seek ideas and the likely scale & scope of your business. At the end of the day, support for your business by financiers, suppliers, customers etc. will also be a vote of confidence in your abilities to make it successful. You should build on your strengths and surmount or work around your weaknesses, and possibly cut your cloth to meet your main limitations. For example, there is little point in searching for capital-intensive or knowledge-based ideas if you have slim/no prospects of raising the necessary capital or if your educational background is unsuitable. OK, OK, we have all heard stories of garagestarts by school drops-out which attracted venture capital and eventually became mega-businesses, but we don't hear so much about the huge numbers of failures. What angle are you coming from? Are you: • •
An inventor who has a product/service idea? An innovator who has developed a new product/service?
• • •
Out of work and want to create a job for yourself? An entrepreneur who wishes to create a business? A manager who wishes to develop a business?
Be especially aware that inventors and innovators does not necessarily make good business people. Areas where you should make honest assessments of your strengths and weaknesses include the following: Educational background • • •
Any (special) business or technical qualifications? Do you have a knowledge of finance & marketing? Are you up-to-date with business-related issues?
Financial strengths • • •
Have you access to personal or family funds or finance from other sources? How much, how easily, what conditions and when? How long could you survive without any (regular) income while your business develops?
Commitment • • • • •
Why do you really want to start a business? Are you in reasonable health? Have you any/many family commitments? Does the family fully approve of your proposal to set up your own business? Are you willing to relocate/commute in order to pursue a business possibility?
Expertise & interests • • •
Do you have insights into any business sectors or trades? What are you good at or like doing? Do you have a hobby/interest/talent which could become the basis of a business?
Personal qualities • •
Are you a resourceful, energetic and motivated person? Have you a capacity to take lots of knocks and bounce back?
Are you realistic and practical? Are you a hard worker?
What do you dislike doing?
Prior experience • • •
Where have you worked before? Have you done anything special, exceptional or unusual? What work-related skills or expertise do you have?
External contacts, resources etc. • • •
What contacts have you in finance, business etc. Have you or your family access to any under-utilized resources. Do you know people who might help give you a start?
Don't be afraid to ask other people to help assess your strengths and weaknesses. Take a moment to complete or view the results of these surveys:
Survey about Strengths & Weaknesses of Businesses
Survey about Writing a Business Plan
To help surmount weaknesses, consider the idea of forming an entrepreneurial team (or taking on a partner, part-time adviser, non-executive director etc.) but beware of trying to work with people you don't like or respect, and don't involve family unless you are really, really sure that it will work out for the long-term. Write down your assessments and rank your main strengths and weaknesses. Make sure to avoid the trap of showing something as both a strength and weakness. Use the resulting list to help set the criteria and boundaries to your search for business ideas. For example, the scope of your ideas might embrace ideas centered around one of the following: 1. Specific local services; about $XX,000 cash; use of an existing resource etc. 2. Previous work experience; national markets; formation of team etc. Be specific but don't place unnecessary limits on the scope of your ideas or thinking. Some clear ideas may have already started to emerge which could start evaluating straight away.
3. Looking for New Business Ideas When looking around for business ideas, bear in mind that these could be based on any of the following approaches: •
A manufactured product where you buy materials or parts and make up the product(s) yourself.
A distributed product where you buy product from a wholesaler/MLM, retailer, or manufacturer. A service which you provide.
Bear in mind that most good business ideas are not completely original. You may be familiar with the following diagram which shows the possible combinations of existing/new products/markets. Existing Products New Products Existing Markets
The simplest business ideas (existing products in existing markets) will be located Box 1 and the trickiest (new products in new markets) are likely to be in Box 4. If you concentrate on pursuing ideas involving existing products in existing markets, you run the risk of being exposed to severe competition. If you focus on new products in new markets, you might find yourself too far out on a limb. Look most closely at the combinations of products and markets in boxes 2 & 3. You must narrow your search to specific market or product areas as quickly as possible. For example, the "food business" is too broad a search area. Do you mean manufacturing, distribution or retailing, or do you mean fresh, frozen, pre-prepared etc. or do you mean beverages, sauces, confectionery etc.? It is better to pursue several specific ideas (hypotheses) rather than one diffuse concept which lacks specifics and proves impossible to research and evaluate. Generally, you should always aim for quality rather than cheapness. Be very cautious about pursuing ideas which involve any prospect of price wars or are very price sensitive; of getting sucked into short-lived fads; or of having to compete head-tohead with large, entrenched businesses.
Observe consumer behavior: • • • • • • •
What do people/organizations buy ? What do they want and cannot buy ? What do they buy and don't like ? Where do they buy, when and how ? Why do they buy ? What are they buying more of ? What else might they need but cannot get ?
Look at changing existing products or services with a view to: • • • •
Making them larger/smaller, lighter/heavier, faster/slower Changing their color, material or shape Altering their quality or quantity Increasing mobility, access, portability, disposability
• • • • • • •
Simplifying repair, maintenance, replacement, cleaning Introducing automation, simplification, convenience Adding new features, accessories, extensions Changing the delivery method, packaging, unit size/shape Improving usability, performance or safety Broadening or narrowing the range Improving the quality or service.
Be on the look out for: • •
Emerging Trends For example, the population within your area may be getting older and creating demand for new products and services. Expanding Market Niches For example, local industries may be outsourcing more of their services.
Try the following approaches to locating ideas and suggestions: • • • • •
Brainstorm with your friends, associates Ask people for their ideas Use one idea to spark a better one Read relevant trade magazines (local, national and foreign) Skim through trade directories (local, national and foreign)
Above all, open your eyes wide and try to spot the obvious gaps. By all means be inventive, imaginative and original in your thinking but stay market- and consumer-orientated rather than product-obsessed. We all know stories about people inventing a better mousetrap and never getting a nibble from the market!!
4. Assessing the Business Ideas Having built up a moderate list of ideas, these must be evaluated so that a short-list of preferred options with the greatest potential and lowest risk can be assessed in greater depth. One way of evaluating ideas would be to use a simple scoring system using gut-feel with a limited number of criteria as shown below. Factor
Degree of risk
Ease of start-up
Level; of preparation
Before scoring individual ideas, run through the criteria and set what you feel should be minimum desirable scores for each. The resultant total could be used as your overall minimum threshold. If some ideas don't achieve satisfactory scores, drop them and look for better ones. Once your short-list has been developed, you will need to start devoting substantial time to assessment, research, development and planning. For a start, you could pursue the following tasks:
1. Discuss products/services with prospective customers Would they buy from you, at what price, with what frequency etc.? Why would they prefer your products to the competition? Find out what they really think - there is a danger that people will tell you what they think you would like to hear. Listen carefully to what is being said; watch carefully for qualifications, hesitations etc.; and don't brow beat respondents with your ideas - you are looking for their views.
2. Assess the market using desk & field research
How does the market segment (by price, location, quality, channel etc.)? What segments will you be targeting? How large are these segments (in volume terms) and how are they changing? What are the price makeups/structures? What market share might be available to you bearing in mind your likely prices, location, breath of distribution, levels of promotion etc.?
3. Analyze your competition Who are they and how do they operate? Are they successful and why? How would they react to your arrival? What makes you think that you could beat the competition? At whose expense will you gain sales?
4. Consider possible start-up strategies
Will you be able to work from home or part-time? Will you seek a franchise or set up as an in-store concession? Will you start by buying in finished products for resale as a precursor to manufacturing? Will you contract out manufacturing? Will you buy an existing business or form an alliance? Could you lease or hire equipment, premises etc. rather than buy? How will you stimulate sales? Look carefully at the White Papers on Devising Business Strategies and Developing a Strategic Business Plan.
5. Set ball-park targets and prepare first-cut financial projections Estimate possible sales and costs to get a feel for orders of magnitude and key components and to establish a rough break-even point (when our sales might start covering all your costs). Our Exl-Plan (for Excel) can be used to prepare 3/5-year financial projections (P&Ls, cashflows, balance sheets, ratio analyses and graphs). It incorporates a Quik-Plan facility for doing quick and dirty projections. Avoid over-estimating likely sales and under-estimating costs or lead times. Better to be relatively conservative. Don't confuse profits and cash - see the paper entitled Making Cashflow Forecasts for further information - and make sure that you make adequate provision for working capital.
6. Prepare a simple action plan
Cover the first year of operations to highlight the critical tasks and likely funding needed before the business starts generating a positive cashflow. This is critical especially if you have to undertake significant product or market development or need to give credit to customers.
7. Critically examine ideas from all angles Can I raise enough money? Can I get a premises/staff etc. Will the product work? How will I promote and sell?
Think through possible problems. What would happen if sales took twice the expected time to develop while costs escalated? What would happen if ....... Bear in mind that the incubation period for a new business can easily last several months or even years. Don't rush into the first feasible idea without letting it incubate or develop in your mind for a reasonable period. There might be a tendency to get all fired up and enthusiastic such that your heart is starting to rule your head. Instead, stand back and think!! Do not be afraid to seek external assistance from professional advisers or from enterprise support organizations which are virtually everywhere. These include SBDCs in the US, Enterprise Agencies & Business Links in the UK, County Enterprise Boards in Ireland, EC BICs throughout the EU and so on...... Need More Assistance? Have a look at: Plan Write Marketing Planner Plan Write Expert Business Planner Quick Insight Business Idea Assessor
5. From Business Idea to Business Plan Having firmed up on a specific idea and conducted preliminary research, you have several options including the following: • • • •
Undertake more detailed/specific market research. Do further product research, development, testing etc. Review and refine your proposed start-up and developmental strategies. Refer to the papers entitled Devising Business Strategies and Developing a Strategic Business Plan for further insights into strategy development. Draft a detailed or outline business plan. Consult the papers about Writing a Business Plan and Insights into Business Planning as well as the Checklist for Preparing a Business Plan and Free-Plan, free 150-page Business Plan Guide and Template in Word format. Prepare financial projections. See the paper about Preparing Financial Projections and look at our Exl-Plan (for Excel) business financial planner. Start looking around for the key resources - people, money. premises, partners etc.
Most probably, you will start addressing all these tasks in parallel rather than sequentially. Other issues which you may need to start thinking about include the following: • • • • • •
Select a company or business name, logo etc. Decide how you will start trading - limited company, sole trader etc. Enquire into any licenses which might be needed, or regulations to be complied with. Think about where the business will be located. Look for professional advisers (lawyer, accountant) and a bank. Consider likely telephone/communications needs.
Bear in mind that, to develop a successful business, you must: • • • • • •
Define precisely the nature of the business Offer clearly identifiable products or services Tap a real need or generate a demand for your product/service Operate within your expertise and resources Have realistic targets and have reasonable expectations Keep everything as simple and straightforward as possible.
If, at all feasible, there are huge advantages to be gained by embarking on a "soft start" or pilot launch before plunging full tilt into the new business. This approach can be of enormous value in helping to firm up on the scope of the opportunity; gaining more insights into the market; debugging products and getting customer feedback; curtailing costs and personal or financial exposure; acquiring a track record etc. etc. - check Devising Business Strategies for further insights into "soft start" strategies.
Developing a Strategic Plan
1. Introduction to Strategic Planning If you don't know where your business is going, any road will get you there.
What is a Strategic Plan? Entrepeneurs and business managers are often so preoccupied with immediate issues that they lose sight of their ultimate objectives. That's why a business review or preparation of a strategic plan is a virtual necessity. This may not be a recipe for success, but without it a business is much more likely to fail. A sound plan should: • • • • •
Serve as a framework for decisions or for securing support/approval. Provide a basis for more detailed planning. Explain the business to others in order to inform, motivate & involve. Assist benchmarking & performance monitoring. Stimulate change and become building block for next plan.
For inspiration (and a few smiles), have a look at some of the quotations and examples of bad advice included in other pages! A strategic plan should not be confused with a business plan. The former is likely to be a (very) short document whereas a business plan is usually a much more substantial and detailed document. A strategic plan can provide the foundation and frame work for a business plan. For more information about business plans, refer to Writing a Business Plan, Insights into Business Planning and Free-Plan: Business Plan Guide & Template. A strategic plan is not the same thing as an operational plan. The former should be visionary, conceptual and directional in contrast to an operational plan which is likely to be shorter term, tactical, focused, implementable and measurable. As an example, compare the process of planning a vacation (where, when, duration, budget, who goes, how travel are all strategic issues) with the final preparations (tasks, deadlines, funding, weather, packing, transport and so on are all operational matters). A satisfactory strategic plan must be realistic and attainable so as to allow managers and entrepreneurs to think strategically and act operationally - see Devising Business Strategies for further insights.
Basic Approach to Strategic Planning A critical review of past performance by the owners and management of a business and the preparation of a plan beyond normal budgetary horizons require a certain attitude of mind and predisposition. Some essential points which should to be observed during the review and planning process include the following:
• • • • • • • •
Relate to the medium term i.e. 2/4 years Be undertaken by owners/directors Focus on matters of strategic importance Be separated from day-to-day work Be realistic, detached and critical Distinguish between cause and effect Be reviewed periodically Be written down.
As the precursor to developing a strategic plan, it is desirable to clearly identify the current status, objectives and strategies of an existing business or the latest thinking in respect of a new venture. Correctly defined, these can be used as the basis for a critical examination to probe existing or perceived Strengths, Weaknesses, Threats and Opportunities. This then leads to strategy development covering the following issues discussed in more detail below: • • • • • • •
Vision Mission Values Objectives Strategies Goals Programs
2. Key Steps towards a Strategic Plan The preparation of a strategic plan is a multi-step process covering vision, mission, objectives, values, strategies, goals and programs. These are discussed below.
The Vision The first step is to develop a realistic Vision for the business. This should be presented as a pen picture of the business in three or more years time in terms of its likely physical appearance, size, activities etc. Answer the question: "if someone from Mars visited the business, what would they see (or sense)?" Consider its future products, markets, customers, processes, location, staffing etc. Here is a great example of a vision: I will come to America, which is the country for me. Once there, I will become the greatest bodybuilder in history.......... I will go into movies as an actor, producer and eventually director. By the time I am 30 I will have starred in first movie and I will be a millionaire...... I will collect houses, art and automobiles. I will marry a glamorous and intelligent wife. By 32, I will have been invited to the White House. Attributed to Arnold Schwarzenegger who was elected Governor of the State of California in 2003.
The Mission The nature of a business is often expressed in terms of its Mission which indicates the purposes of the business, for example, "to design, develop, manufacture and market specific product lines for sale on the basis of certain features to meet the identified needs of specified customer groups via certain distribution channels in particular geographic areas". A statement along these lines indicates what the business is about and is infinitely clearer than saying, for instance, "we're in electronics" or worse still, "we are in business to make money" (assuming that the business is not a mint !). Also, some people confuse mission statements with value statements (see below) - the former should be very hard-nosed while the latter can deal with 'softer' issues surrounding the business. The following table contrasts hard and soft mission statements.
What business is/does Primary products/services Key processes & technologies Main customer groups Primary markets/segments Principal channels/outlets
Reason for existence Competitive advantages Unique/distinctive features Important philosophical/social issues Image, quality, style, standards Stakeholder concerns
Compare the following statements: Hard Statement X Corp. designs, develops, assembles and markets systems for data base management. These systems integrate its proprietary operating system software with hardware supplied by major manufacturers, and are sold to small, medium and large-sized companies for a range of business applications. Its systems are distinguished by a sophisticated operating system, which permits use without trained dataprocessing personnel.
Soft Statement Our mission is to enhance our customers' business by providing the very highest quality products and services possible. Our customer support strategy is based upon total, no-compromise customer satisfaction and we continually strive to offer a complete package of up-to-date value added solutions to meet our customers' needs. We value above all our long term customer relations.
Intel's original plan, written on the back of a menu (view copy), is an excellent example of a hard statement:
The company will engage in research, development, and manufacture and sales of integrated electronic structures to fulfill the needs of electronic systems manufacturers. This will include thin films, thick films, semiconductor devices, and ......... A variety of processes will be established, both at a laboratory and production level ...... as well as the development and manufacture of special processing and test equipment required to carry out these processes. Products may include dioded transistors ....... Principal customers for these products are expected to be the manufacturers of advanced electronic systems ..... It is anticipated that many of these customers will be located outside California.
The Values The next element is to address the Values governing the operation of the business and its conduct or relationships with society at large, customers, suppliers, employees, local community and other stakeholders.
The Objectives The third key element is to explicitly state the business's Objectives in terms of the results it needs/wants to achieve in the medium/long term. Aside from presumably indicating a necessity to achieve regular profits (expressed as return on shareholders' funds), objectives should relate to the expectations and requirements of all the major stakeholders, including employees, and should reflect the underlying reasons for running the business. These objectives could cover growth, profitability, technology, offerings and markets.
The Strategies Next are the Strategies - the rules and guidelines by which the mission, objectives etc. may be achieved. They can cover the business as a whole including such matters as diversification, organic growth, or acquisition plans, or they can relate to primary matters in key functional areas, for example: o o o
The company's internal cash flow will fund all future growth. New products will progressively replace existing ones over the next 3 years. All assembly work will be contracted out to lower the company's breakeven point.
Use SWOTs to help identify possible strategies by building on strengths, resolving weaknesses, exploiting opportunities and avoiding threats. For further discussion on strategies, refer to the paper on Devising Business Strategies as well as these items below: Use Hindsight when Strategic Planning, Effect not Equal to Cause when Planning Strategy and SWOTs - Keys to Business Strategies.
The Goals Next come the Goals. These are specific interim or ultimate time-based measurements to be achieved by implementing strategies in pursuit of the company's objectives, for example, to achieve sales of $3m in three years time. Goals should be quantifiable, consistent, realistic and achievable. They can relate to factors like market (sizes and shares), products, finances, profitability, utilization, efficiency.
The Programs The final elements are the Programs which set out the implementation plans for the key strategies. These should cover resources, objectives, time-scales, deadlines, budgets and performance targets.
3. Use Hindsight when Strategic Planning Statements on vision, mission, objectives, values, strategies and goals are not just elements of future planning. They also provide benchmarks for a historic review. Most managers will find it exceedingly difficult to develop a future strategy for a business without knowing its current strategies and measuring their success to date.
Assess Current Position The starting point must be to determine a company's existing (implicit or explicit) vision, mission, objectives and strategies. Then judge these against actual performance along the following lines: • •
Is the current vision being realized? How has the company's mission and objectives changed over the past say, three years? Why have the changes occurred or why have no changes occurred? Identify primary reasons and categorize them as either internal or external. Describe the actual strategies followed over the past few years in respect of products/services, operations, finance, marketing, technology, management etc. Critically examine each strategy statement by reference to activities and actions in key functional areas covering such matters as: o How has the company been managed? o How has the company been funded? o How has the company sought to increase sales and market share? o How have productivity/costs moved?
Take each element and quantify by reference to actual performance. Ask of each "why not"?, "why only"?, or "why so"? and locate the reasons for differences between the actual and desired performance.
Drill Down A useful technique for exploring performance shortfalls is to review the business's financial return and to drill down through the components of this return to locate and assess the key determinants of performance. For example, return on shareholders' funds is a key measure of profitability which can be expressed as: Net income -----------Sales
Sales ----------Shareholders' funds
Take each item in this formula, explore its contents and derive performance measures or ratios. For example: Sales break down into sales values, units, prices, discounts, commissions, bad debts and so on. Net income is derived by deducting costs (materials, labor, power etc.), expenses, interest and depreciation from sales revenue. Shareholders' funds are based on the value of fixed assets, current assets, current liabilities, debt etc. Use of cascading ratios is illustrated in this DuPont-type profitability chart (click thumb opposite) which is automatically generated by more powerful versions of Exl-Plan to show the impact of specific changes in key variables and assumptions on overall profitability. Subject the resultant ratios to critical examination and attempt to compare them with industry norms. The paper entitled Managing Working Capital explains key working capital ratios. Note that the Exl-Plan financial planners generate extensive ratios based on projected P&Ls, cashflow forecasts and balance sheets for 1-3-5-7 years ahead.
4. Effect not Equal to Cause when Planning Strategy When reviewing a business it is essential to cut through the symptoms of problems and reach the underlying causes. Questions which can assist in revealing the real causes include the following: • • •
"What stopped the business from?" "What caused the cause of?" "Why didn't the business achieve a 25% return?"
By way of an example consider why this company may be unable to increase its market share:
Because it cannot penetrate major customers because its product range is too narrow because the company doesn't have the capability to produce additional products because of shortcomings in R & D because of a lack of expertise and resource because R & D is not an immediate priority because of a lack of profits because of a high interest burden because the company is over-reliant on borrowings because the shareholders won't/can't raise additional permanent capital. The moral in this case is that there are no major customers due to undercapitalization ! Also have a look at the discussion on causes of business failure in Devising Business Strategies.
. SWOTs - Keys to Business Strategies Having built up a picture of the company's past aims and achievements, the allimportant SWOT (strengths, weaknesses, opportunities and threats) analysis can commence.
Strengths & Weaknesses Strengths and weaknesses are essentially internal to the organization and relate to matters concerning resources, programs and organization in key areas. These include: • • • • • • • •
Sales - marketing - distribution - promotion - support; Management - systems - expertise - resources; Operations - efficiency - capacity - processes; Products - services - quality - pricing - features - range - competitiveness; Finances - resources - performance; R&D - effort - direction - resources; Costs - productivity - purchasing; Systems - organization - structures.
If a startup is being planned, the strengths and weaknesses are related mainly to the promoter(s) - their experience, expertise and management abilities - rather than to the project.
Threats & Opportunities The external threats and opportunities confronting a company, can exist or develop in the following areas: •
The company's own industry where structural changes may be occurring (Size and segmentation; growth patterns and maturity; established patterns and relationships, emergence/contraction of niches; international dimensions; relative attractiveness of segments)
• • •
The marketplace which may be altering due to economic or social factors (Customers; distribution channels; economic factors, social/demographic issues; political & environmental factors) Competition which may be creating new threats or opportunities (Identities, performances, market shares, likely plans, aggressiveness, strengths & weaknesses) New technologies which may be causing fundamental changes in products, processes, etc. (Substitute products, alternative solutions, shifting channels, cost savings etc.)
Against an uncertain and shifting background, the objective must be to identify and prioritize the key SWOTs in a one-handed manner (Don't say "on the one hand ...........but on the other hand.........").
Develop Business Strategies Once the SWOT review is complete, the future strategy may be readily apparent or, as is more likely the case, a series of strategies or combinations of tactics will suggest themselves. Use the SWOTs to help identify possible strategies as follows: • • • •
Build on strengths Resolve weaknesses Exploit opportunities Avoid threats
6. Simple & Short Strategic Plans Notwithstanding that "battles are often lost for want of nails", a company rarely succeeds or fails for minor or trivial reasons. The causes are usually substantial and are often self-evident, at least to an outsider. For example, the business was completely over-borrowed; management was weak; a major new product opportunity was identified; legislation changed; a major competitor went bust or expanded; the company never reinvested. It should be possible in the course of a few pages to set down the main elements of a business's vision, mission, values, objectives, goals, strategies, SWOTs etc. The compilation of a short report along these lines is likely to prove much more difficult than a lengthy dissertation which mixes up details and principles, and confuses the broad picture. See a sample strategic plan - use the back button on your browser to return to this page.
Independent advisers or non-executive directors can play a valuable role in this process because they can readily adopt the role of devil's advocate and also bring external knowledge and expertise to bear. The worksheet presented below may also assist.
For further information on business planning issues, refer to other papers in this series which cover business ideas, business strategies, financial planning, cashflow forecasting and business planning.
7. Using the Strategic Planning Worksheet When using the Strategic Planning Worksheet below, note the following suggestions: 1. Relate the planning exercise to a specific company or, if diversified, to individual strategic business units. 2. Ideally the worksheet should be compiled by a multi-discipline management group, or separately by 2/3 groups and then discussed in plenary session if a large business unit is involved. 3. If working on your own, complete the worksheet and then return to it a few times over the following few days and critically review what you wrote - why, why, why etc. and ask yourself whether you have seen the "wood for trees". 4. A completed worksheet should be edited down into a 1-2 page document and reviewed by the group(s). The final form of the document need not follow the worksheet's layout provided all the matters are covered. 5. All ideas, issues etc. should be internally consistent and realistic. 6. You need a very good understanding of the market, competitors etc. in order to make a clear assessment of your SWOTs. If you haven't got this insight, suspend work on your strategic plan until you have done this basic research. 7. Allow enough time as you may find it much more difficult to write a short plan than a long one !!!!
8. Strategic Planning Worksheet To start using the worksheet below, copy the headings marked in red onto a blank sheet of paper (or page in a word processor) and enter short statements about each item as per the guidelines above. Note: This worksheet is available as a free Online Strategic Planner. See sample strategic plan - you may wish to print it for reference purposes. (Use the back button on your browser to return to this page.)
Contents of the Strategic Plan 1. Assess the business's EXISTING strengths, weaknesses, threats and opportunities: (Strengths & Weaknesses are internal to the business and Opportunities & Threats are external. All SWOTs should be 'one-handed' - something is either a Strength or a Weakness but cannot be both. Enter up to six items under each heading and then rank them in order of importance. If you are planning a new business, consider the project's and its promoters' existing SWOTs): . Vision of business in 3/4 years time: (What will the business look like? If a visitor from Mars dropped in what would be seen and evident. Write in future tense. Maximum of 150 words)
3. Mission/purpose statement for business to cover next 3/4 years: (What will the business really, really be doing? What activities will it perform, where, how etc.? What makes the business special/competitive? Every noun, adjective and verb in the statement is important and must be justified. Maximum of 150 words) 4. Statement of corporate values and beliefs: (Covers employees, customers, environment etc. etc. Maximum of 150 words) 5. Set out key long-term objectives: (These are the primary underlying reasons for being involved in the business, and are not specific targets - these come later) 5a Shareholders 5b Management (If different from shareholders) 5c Business (Relative to competitors etc.) 6. Identify key strategies for business and major functional areas: (Build on strengths, resolve threats, exploit opportunities and avoid threats. Add any new dimensions revealed by Vision and Mission. List and prioritize up to ten or so major strategies. See Devising Business Strategies for further insights.) 7. Assess possible FUTURE strengths, weaknesses, threats and opportunities: (Do the foregoing strategies improve the initial SWOTs? If they don't, then they should have done so) 8. Review your vision, mission, values and objectives: (Refine and revise/restate key strategies to deal with the perceived FUTURE SWOTs) 9. Specify major goals achievable over the next 3/4 years: (Quantify in terms of sales, market shares, finances, operations etc.) 10. Define strategic action programs: (Indicate who, what, where, when, how etc. Set targets and prioritize)
Next Steps in Developing a Strategic Plan If you have prepared a strategic plan along the lines suggested above, you have several possible pathways. These include the preparation of a full-blown business plan, compilation of financial projections, undertaking market research, product development, management team-building etc. etc. You may also wish to refer to some other papers in this series which cover business ideas, business strategies, cashflow forecasting and managing working capital. If preparing a business plan, look at Free-Plan. This is a free Business Plan Template for Word (48 pages) and a complementary Guide (supplied as a 90+ topic Help file and as a 100+ page PDF file for printing. Note that a strategic plan
based on the structure in the Strategic Planning Worksheet (above) is ideal for inclusion in edited form in Section 3. Mission, Strategies etc. of this Template. If you need to produce financial projections as part of a strategic plan or for use on their own, take a look at our extensive range of Excel-based financial planners - ExlPlan - which can be used to prepare 3/5-year financial projections (P&Ls, cashflows, balance sheets, ratio analyses and graphs). It incorporates a Quik-Plan facility for doing quick and dirty projections. If you seek a very simple solution, look at Exl-Plan Basic (US$ 29) which generates comprehensive "high-level" 5-year projections based on annual assumptions (in contrast to the more detailed monthly and quarterly assumptions used by other versions in the Exl-Plan range). Get the details and free trial downloads. If you need to go into more detail with your strategic plan, have a look at the following software-based expert systems: • • •
Plan Write Expert Business Planner: Combined business plan tool and expert system to help evaluate and develop your plan. Quick Insight - Business Idea Assessor: Expert system to help evaluate and improve a new business idea. Business Insight - Strategy Evaluator: Sophisticated expert system for evaluating, developing and comparing business and marketing strategies.
Writing a Business Plan
1. Why Write a Business Plan? The preparation of a written business plan is not the end-result of the planning process. The realization of that plan is the ultimate goal. However, the writing of the plan is an important intermediate stage - fail to plan can mean plan to fail. For an established business it demonstrates that careful consideration has been given to the business's development, and for a startup it shows that the entrepreneur has done his or her homework.
Purpose of the Business Plan A formal business plan is just as important for an established business, irrespective of its size, as it is for a startup. It serves four critical functions as follows: • • • •
Helps management or an entrepreneur to clarify, focus and research their business's or project's development and prospects. Provides a considered and logical framework within which a business can develop and pursue business strategies over the next three to five years. Serves as a basis for discussion with third parties such as shareholders, agencies, banks, investors etc. Offers a benchmark against which actual performance can be measured and reviewed.
Just as no two businesses are alike, so also with business plans. As some issues in a plan will be more relevant to some businesses than to others, it is important to tailor a plan's contents to suit individual circumstances. Nonetheless, most plans follow a well-tried and tested structure and general advice on preparing a plan is universally applicable. A business plan should be a realistic view of the expectations and long-term objectives for an established business or new venture. It provides the framework within which it must operate and, ultimately, succeed or fail. For management or entrepreneurs seeking external support, the plan is the most important sales document that they are ever likely to produce as it could be the key to raising finance etc. Preparation of a comprehensive plan will not guarantee success in raising funds or mobilizing support, but lack of a sound plan will, almost certainly, ensure failure.
Importance of the Business Planning Process Preparing a satisfactory business plan is a painful but essential exercise. The planning process forces managers or entrepreneurs to understand more clearly what they want to achieve, and how and when they can do it. Even if no external support is needed, a business plan can play a vital role in helping to avoid mistakes or recognize hidden opportunities. It is much easier to fold a sheet of paper than a business. For many, many entrepreneurs and planners, the process of planning (thinking, discussing, researching and analyzing) is just as, or even more, useful than the final plan. So, even if you don't need a formal plan, think carefully about going through the planning process. It could be enormously beneficial to your business. Anticipate many weeks of hard work and several drafts of the emerging plan to get the job right. A clearly written and attractively packaged business plan will make it easier to interest possible supporters, investors etc. A well-prepared business plan will demonstrate that the managers or entrepreneurs know the business and that they have thought through its development in terms of products, management, finances, and most importantly, markets and competition. For more guidance on these matters, check the white paper offering Insights into Business Planning, the Checklist for Preparing a Business Plan, Free-Plan (free 150page Business Plan Guide and Template in Word format) and the comprehensive Business Plan Guide. If you are developing, or have invented, a new product or service, it may be beneficial to start the business planning process by reviewing the sections of Getting New Business Ideas covering Assessing Ideas and Next Steps. This will guide you on groundwork to be done before starting to write a comprehensive plan. In the following sections, we discuss the preparation of a strategic plan and present ideas for preparing the outline of a business plan and writing up the detail.
2. Start with a Business Strategy
A short strategic plan (2-3 pages) can provide a very useful foundation on which to base a much more detailed and comprehensive business plan. If you don't have a sensible strategic plan, how can you realistically write a sensible business plan? Use a short strategic plan as the foundation for a more comprehensive business plan. As the prelude to developing a strategic plan, it is desirable to clearly identify the current status, objectives and strategies of an existing business or the latest thinking in respect of a new venture. Correctly defined, these can be used as the basis for a critical examination to probe existing or perceived strengths, weaknesses, threats and opportunities. This then leads to strategy development covering the following issues which are discussed in more detail immediately below: • • • • • • •
Vision Mission Objectives Values Strategies Goals
Vision The first step is to develop a realistic Vision for the business. This should be presented as a pen picture of the business in three or more years time in terms of its likely physical appearance, size, activities etc. Answer the question: "if someone from Mars visited the business, what would they see or sense?"
Mission The nature of a business is often expressed in terms of its Mission which indicates the purposes of the business, for example, "to design, develop, manufacture and market specific product lines for sale on the basis of certain features to meet the identified needs of specified customer groups via certain distribution channels in particular geographic areas". A statement along these lines indicates what the business is about and is infinitely clearer than saying, for instance, "we're in electronics" or worse still, "we are in business to make money" (assuming that the business is not a mint !). Also, some people confuse mission statements with value statements (see below) - the former should be very hard-nosed while the latter can deal with 'softer' issues surrounding the business.
Objectives The third key element is to explicitly state the business's Objectives in terms of the results it needs/wants to achieve in the medium/long term. Aside from presumably indicating a necessity to achieve regular profits (expressed as return on shareholders' funds), objectives should relate to the expectations and requirements of all the major stakeholders, including employees, and should reflect the underlying reasons for running the business.
Values The next element is to address the Values governing the operation of the business and its conduct or relationships with society, customers, employees etc.
Strategies Next are the Strategies - the rules and guidelines by which the mission, objectives etc. may be achieved. They can cover the business as a whole including such matters as diversification, organic growth, or acquisition plans, or they can relate to primary matters in key functional areas, for example: o o o
The company's internal cash flow will fund all future growth. New products will progressively replace existing ones over the next 3 years. All assembly work will be contracted out to lower the company's break-even point.
Goals Next are Goals. These are specific interim or ultimate time-based measurements to be achieved by implementing strategies in pursuit of the company's objectives, for example, to achieve sales of $3m in three years time.
Programs The final elements are the Programs which set out the implementation plans for the key strategies. It goes without saying that the mission, objectives, values, strategies and goals must be inter-linked and consistent with each other. This is much easier said than done because many businesses which are set up with the clear objective of making their owners wealthy often lack strategies, realistic goals or concise missions. For more information on strategic planning, refer to other papers in this series entitled Developing a Strategic Business Plan (and its accompanying worksheet) and Devising Business Strategies, and consider utilizing the free Online Strategic Planner. See also a sample strategic plan - you may wish to print it for reference purposes.
3. Before Writing the Business Plan This section deals with preparatory issues, structure & content, and length & time scale for the preparation of a detailed plan.
Preparatory Business Planning Issues Before any detailed work commences on writing a comprehensive business plan, you should:
• • • • •
Clearly define the target audience Determine its requirements in relation to the contents and levels of detail Map out the plan's structure (contents page) Decide on the likely length of the plan Identify all the main issues to be addressed.
Shortcomings in the concept and gaps in supporting evidence and proposals need to be clearly identified. This will facilitate an assessment of research to be undertaken before any drafting commences. Bear in mind that a business plan should be the end result of a careful and extensive research and development project which must be completed before any serious writing of a plan should be started. Under no circumstances should you start writing a plan before all the key issues have been crystallized and addressed. To get started, use the outline below to prepare the basis for your plan. Bear in mind that if a credible and acceptable outline plan cannot be compiled then it is highly improbable that a more comprehensive plan can be prepared. For further practical guidance on these matters, review the following:
1. 2. 3. 4.
White paper offering Insights into Business Planning. Checklist for Preparing a Business Plan. Free-Plan - business plan template & guidelines (Word format). Comprehensive Business Plan Guide.
Structure & Content of a Business Plan A typical business plan comprises the following main elements:
1. Brief Introduction setting out the background and structure of the plan. 2. Summary of a few pages which highlights the main issues and proposals. 3. Main Body containing chapters broken into numbered sections and 4.
subsections. Appendices containing tables, detailed information, exhibits, etc. referred to in the text.
The outline presented below in conjunction with the comprehensive Business Plan Guide could serve as the basis for a detailed business plan.
Length & Time-scale for Business Planning Whilst the sheer length of a business plan may bear no relation to the underlying prospects of a business, it is likely that a well-developed plan would be at least twenty pages long plus appendices. The elapsed time needed to produce a detailed plan might be between twenty and one hundred days. This would be determined not only by the complexity and scale of the venture, but also by the scale and maturity of the business and relevant experience and skills of the management team. Whilst the task of writing the plan
itself may only take a relatively short time, be sure to allocate enough time to the research, preparatory work and the underlying thinking and discussion. For more guidance on the length of a plan and the time-scale involved, have a look at Insights into Business Planning.
4. Planning the Business Plan Develop an Outline Business Plan Start by defining an outline (i.e. a table of contents) of your plan. This will allow you to to concentrate on the essentials of planning the business rather than becoming too absorbed in the detailed drafting of your plan. It will allow you to see the wood from the trees. Having devised the basic outline for your business plan, the next task is to expand this to include subheadings and appendix titles (see the Business Plan Guide for detailed suggestions). This extended structure should be critically reviewed to ensure that all the salient elements of the plan are included and that it has a logical flow. This approach should also ensure that the plan has an appropriate levels of detail and is correctly targeted at its audience - investors, directors/shareholders, financial institutions etc. For example, a structure which is mainly devoted to detailed technical descriptions of products would be completely unsuited to a plan being used to raise bank finance.
Prepare a Business Planning Work Program Once the plan's structure has been defined, it can be used as a checklist and basis for a work program and timetable to complete the plan. This work program will often entail extensive research and thought prior to the commencement of writing. For example, formal market research may be needed before sales volumes and prices can be determined. Another example: professional advice may be required to assess capital expenditures in relation to the acquisition of premises and so on. The work program could correspond to key sections of the proposed plan and could include timetables, resource allocations and cost estimates as indicated in the following chart:
Section Researched Written of Plan by by
Elapsed time (weeks)
Cost Key Priority ($) Actions
Further Suggestions for Business Planning Some additional tips and suggestions: • • • •
• • •
Be absolutely clear about the primary purpose and audience of the plan from the outset. If the plan has to serve multiple purposes, consider producing tailored versions (or tailored summaries). Allow enough time to produce revised drafts of the plan - three/five drafts would not be unusual. Write the Introduction, Summary and Conclusion of the plan only after the plan's main parts have been finalized. At an early stage, make some high-level sales and financial projections (covering 1-3 years) to explore the general direction and size of the business, likely viability and possible funding amounts and mix. For this purpose, consider using the free Online Financial Planner or the Quik-Plan facility within Exl-Plan, our range of financial planners for use with Excel. If the elapsed time needed to prepare the plan and commence its execution is lengthy, set the start date for financial projection close to the commencement of execution. For example, if you begin preparing a plan in January and hope to raise startup finance by October, the start date for projections might be set to September. Any expenses incurred before this date could be rolled up into the opening balance sheet for the projections. Seek external assistance sooner rather than later. This may take the form of software tools, consultancy assistance in the form of specific assignments, or mentoring and counseling on an as required basis. If planning a significant business, ensure that a management team has been identified (and possibly in place) before the plan is finalized. Identify and cultivate possible key recipients of the plan during the plan's preparation. This will ensure that when the plan is finally presented, these contacts will have some prior knowledge of its contents and the promoters and, where appropriate, the views of contacts may have been taken into account during the preparation process. Start compiling the plan at the sections devoted to market research/analysis and sales forecasts/plans, or with details of the proposed product/service offerings. Leave the detailed financial projections aside until all details in relation to sales, costs, expenses, operations, capital investment and possible sources/types of finance have been resolved
For further help, check out: • • • •
The white paper entitled Insights into Business Planning which has been based on the views of hundreds of people who have prepared business plans Free-Plan, our free Business Plan Guide and Template (for Word) The 30-point Checklist for Preparing a Business Plan. The comprehensive Business Plan Guide.
If you have a problem or query relating to the compilation of a business plan which is not covered in the various white papers, you may wish to use our free and confidential Online Business Plan Advice Service.
5. Outline the Business Plan The next section presents an outline structure for a business plan. Feel free to change this outline to suit your project and its state of development. It can be readily expanded to become a 'full-blown' business plan by extending the level of detail as explained in the Business Plan Guide. Note: A free 150-page Business Plan Guide and Template (Word format) incorporating a similar outline structure and additional detail is available for downloading here. The suggested page lengths for a comprehensive plan are given in parenthesis after each section's heading within the outline. A small, straightforward business should work within the minimum page lengths whereas a large, complex business seeking a substantial external investment might hit the maximum page lengths. Note the importance of marketing and sales in terms of the suggested number of pages for these sections. For more guidance on the length of business plans, have a look at Insights into Business Planning. Avoid going into too much detail within the plan's body by placing detailed or supplementary material in accompanying appendices. Bear in mind that most investors, bankers etc. dislike having to read overlong business plans just as much as entrepreneurs and managers dislike writing the plans in the first instance! Work on the assumption that whoever reads your plan will be completely unfamiliar with your business or project and will be seeking answers to relatively basic questions and key issues, for example, what will the business do, will it make money etc. For further information on business planning issues, refer to other papers in this series which cover insights into business planning, financial planning, cashflow forecasting, strategic planning, devising business strategies and managing working capital. You can use our free Online Financial Planner to produce 'first-cut' five-year projections for your business. Finally, you should review the contents of the Business Plan Guide. Note that a free Business Plan Template for Word (48 pages) and a complementary Guide (supplied as a 90+ topic Help file and as a 100+ page PDF file for printing) incorporating this outline structure and additional detail is available for downloading here.
6. Business Plan Outline Use the outline below as the "road map" for your plan and then write up each section concisely but comprehensively. Only address matters of real substance and major significance within the main sections of the plan.
1. Introduction (1) Introduce the plan. Explain who wrote it, when and for what purpose. Give contact details. See 1. Introduction within the Business Plan Guide for more info.
2. Summary (1-3) Write last. Present the highlights of the plan. See 2. Summary within the Business Plan Guide for more info.
3. Mission, Strategies etc. (1-2) What are the central purposes and activities of the planned business? What are its SWOTs? What are its major objectives, key strategies and prime goals ? See 3. Mission, Strategies etc. within the Business Plan Guide for more info.
. Present Status (1-5) Summarize achievements and performance (financial, sales, technical etc.) to date. Introduce the stakeholders in the business. See 4. Present Status within the Business Plan Guide for more info.
5. Product/Service Offerings (1-3) Keep descriptions short and confine them to broad groups. Explain briefly what makes them special. See 5. Product / Service Offerings within the Business Plan Guide for more info.
6. Profiles of Target Markets (3-6) Size, segments, trends, competition and user/customer profiles. See 6. Profiles of Targets Markets within the Business Plan Guide for more info.
7. Marketing Strategies, Sales Plans & Projections (3-6) How will the business market its products/services and sell to customers? What sales will be achieved in its main markets? How will it deal with competitors ? Indicate costs. See 7. Marketing Strategies, Sales Plans & Projections within the Business Plan Guide for more info.
8. Technology and R&D (0-2) If relevant, explain progress, plans, resources and highlight any technological advances. See 8. Technology and R&D within the Business Plan Guide for more info.
9. Operational/Manufacturing Plans (2-5) Cover distribution & service activities and/or manufacturing. Highlight major elements only. Indicate organization, resources, costings etc. See 9. Operational / Manufacturing Plans within the Business Plan Guide for more info.
10. Management & Administration (2-3) Introduce the proposed management team, structure etc. Indicate administrative arrangements and specify overhead costs. See 10. Management & Administration within the Business Plan Guide for more info.
11. Financial Projections (4-8) Use simple tables to present key financial projections e.g. summary P&L, cashflows, balance sheets and key ratios. Place the detailed analyses in appendices. See 11. Financial Projections within the Business Plan Guide for more info. For more help, download a trial version of our financial planners - Exl-Plan (for Excel) - and review its annual output reports and Textual Summary Report or use our free Online Financial Planner to produce 'first-cut' five-year projections for your business.
12. Funding Requirements & Proposals (0-2) If applicable, summarize funding requirements, possible sources, likely terms, and, for investors, the projected return on their investment. Be realistic!! See 12. Funding Requirements & Proposals within the Business Plan Guide for more info.
13. Implementation (1-3) Explain the major decision points, time scale and actions required by management and others to progress the plan. See 13. Implementation within the Business Plan Guide for more info.
14. Conclusion (1) Indicate why the business will succeed and why it should be supported. See 14. Conclusion within the Business Plan Guide for more info.
Appendices Use appendices at the very back of the plan to present important background data and detailed plans. This will avoid disrupting the flow of the plan or cluttering it with excessive detail. See Appendices within the Business Plan Guide for more info.
7. Writing the Business Plan The following suggestions may be of assistance when drafting the plan:
1. Build the detailed business plan on a carefully considered outline (table of 2. 3.
contents) - see the business plan outline above. The most important and difficult sections to prepare relate to marketing and sales as these can make or break not only the business plan but also the business itself ! Support market and sales projections by market research. Ensure that there is a direct relationship between market analysis, sales forecasts and financial projections. Assess competitors' positions and possible responses realistically. Be realistic about sales expectations, profit margins and funding requirements. Ensure that financial ratios are in line with industry norms. Do not underestimate the cost and time required for product development, market entry, securing external support or raising finance. Consider the possibility of the double-double-half rule - double the cost or time required or halve the sales projections. Restrict the level of detail on product specifications and technical issues. The financial projections are likely to be straightforward but decide on a sensible level of detail as regards the time horizon etc. Consider using a personal computer and a financial modeling package for the projections.
See our range of financial planners - Exl-Plan (for Excel) which can be downloaded from here. For further specific information on financial planning for businesses, refer to the page entitled Preparing Financial Projections accessible from the PlanWare site. You can use our free Online Financial Planner to produce 'firstcut' five-year projections for your business.)
7. If looking for external equity, be realistic about the value of the business,
risks involved and possible returns, and be sure to indicate possible exit mechanisms. Put yourself in the shoes of an investor and remember the golden rule - he who has the gold makes all the rules. 8. The management section of the plan is of crucial - experience, balance, ability and commitment. If a new venture is involved, then management is likely to be its only real asset. Consider formation of a management team or strengthening management as part of the plan. Remember the five ingredients of a successful business are management, management, management, market and product (in that order, and not in the reverse order as some inventors and entrepreneurs might like to think). 9. Be positive but realistic about the business's prospects and explicitly recognize and respond honestly to shortcomings and risks. 10. When writing the plan: o o o o o o o
avoid unnecessary jargon economize on words use short crisp sentences and bullet points check spellings concentrate on relevant and significant issues break the text into numbered paragraphs, sections etc. relegate detail to appendices
provide a contents page and number pages write the summary last.
11. Get a qualified outsider to review your plan in draft form and be prepared to adjust the plan in the light of comments secured and experiences gained. 12. External help and guidance in preparing a business plan can be extremely valuable. If outside help is used, make sure that the resultant plan remains your own and not that of your advisers. 13. If presenting the plan to outsiders, attach appendices and number pages. Add a contents page and bind it within attractive covers.