Starting a new business comes with headaches. Being prepared for those headaches – and trying to get ahead of them – can greatly decrease the impact they have on your business.
One important step in preparing for the challenges your startup may face is writing a solid business plan. The technicalities and standard information that go into a business plan are easy enough to figure out, but there are other, more abstract things to consider before you put pen to paper.
Make sure you take the following five steps prior to drafting your business plan.
1. Determine your purpose
Having a plan to make a profit is important, but it’s far from the only thing that matters when you start a business, experts say.
“Business plans … encourage entrepreneurs to focus on what they are going to do,” said Alan Williams, co-author of “The 31 Practices” (LID Publishing Inc., 2014). “This overlooks two more important questions: ‘why’ – why it exists and why employees would want to get out of bed in the morning, and ‘how’ – the values of the business, what it stands for, how people representing the business will behave.”
Williams noted that entrepreneurs should take time to identify and articulate their business’s core values and purpose, which will serve as your organization’s compass for decision making at all levels. Williams’ co-author, Alison Whybrow, said that this “compass” can be discovered by having an honest, open conversation with your team.
“One thing that a team might want to do is engage in a formal assessment process – looking at habits, beliefs, values and capability – so that they are working from a clear starting point and have a framework for discussion about working styles, strengths, and individual and collective blind spots,” Whybrow said.
2. Build your vision
The key to business success is having a clear vision of what you want to accomplish as a company, experts say. But before you write a business plan, you should come up with three to five key strategies that will enable you to achieve that vision, advised Evan Singer, CEO of SmartBiz, a provider of SBA loans.
“Sometimes, less is more,” Singer said. “It’s far better to do three things very well versus 10 things not so well.”
Tied in with building the vision for your business is also putting together a mission statement. The mission is the “why” you’re doing what you do.
“The first sentence of the mission statement should be why you’re in business. After you fully understand the why, then you need to define ‘what’ you are going to do and ‘how’ you’re going to do it. The third and final part of the mission statement should be the ‘who’ you want as customers and how you are going to treat them,” said Tina Bacon-DeFrece, president of Big Frog Franchise Group.
She added that from the mission statement, it is an easy transition to develop your “value proposition” statement that defines what makes you unique in the marketplace and how you intend to differentiate and position your business.
3. Clarify your business model
Alex Muller, senior vice president and chief product officer of GPShopper at Synchrony Financial said a good financial model should include many of the details you would put in your formal business plan – for example, hiring, pricing, sales, cost of acquisition, expenses and growth. As with a business plan, your model should be revisited and updated as the realities of your business start to unfold.
“Start [answering] ‘what ifs,'” said Muller. “If I sell this product at this price point, and this is the cost of client acquisition, what rates of return can I get? When you’re done building [and testing] the business model, then you can go back [and] write a business plan.”
4. Identify your target market
Identifying a target market can be a tricky obstacle to get through. To help narrow down your market, Grant Leboff, CEO of Sticky Marketing Club, says to answer the question, “Why am I uniquely placed to solve the problem?”
“If you are unable to answer the question, you either have the wrong target market of the wrong offering,” Leboff wrote in a blog post. “In this case, more work will need to be done before you start targeting your potential customers.”
If what you offer isn’t the most attractive to the type of client you want, you may need to change your offering or define your target market differently, Leboff added.
5. Test your business idea
Entrepreneurs should go out and talk to industry experts, potential customers in their target market and other entrepreneurs to determine their business’ viability, said Kara Bubb, principal consultant at Kara Bubb Product Consulting.
“Talk to some real potential future clients [and experts], and ask for some honest feedback,” Bubb told Business News Daily. “What do they think about your business idea? Who, specifically, are you targeting with your business? How big is the market? Will your market buy what you are selling? Who is your competition?”
Simply writing a business plan will not make your organization successful, but it does give you a road map to get there. The forethought put into the plan identifies the milestones by which you can mark your progress.
Additional reporting by Nicole Fallon and Marci Martin. Some source interviews were conducted for a previous version of this article.