This week, following a number of requests from people I have recently met, I am looking at the 5 steps to starting your own business. This is not intended for those experienced entrepreneurs who have ‘been there, done that, got the t-shirt’, but as a guide to those who are thinking about going it alone, or have already made that decision but need a little easy-to-understand practical help on getting going.
We have already covered Step 1: Developing your concept and proposition, and Step 2: Understanding your Opportunity, so now it is time to look at the next step as you start to develop your Business Plan.
Step 3: Developing your Business Plan
When you have thoroughly ‘road-tested’ and researched your idea, you will need to develop a Business Plan. At this stage it doesn’t need to be more than 2 years in scope, unless you are looking for external funding, in which case you may need to show up to 5 years and be in greater detail.
A Business Plan is a formal record of what you intend to do and can be used as a baseline for measuring your progress against certain targets outlined over the period specified. It is a cohesive plan of action that demonstrates how every part of your business will interact with one another, and how you will execute the Plan including where you will spend your money, and the assumptions made in developing the financial plan.
It isn’t something that you should leave to someone else to do, although external advice and guidance is often very helpful in identifying ‘blind spots’ that even the most experienced business people can have. As a business owner you must be intimately aware of every detail in the Plan, be able to explain it clearly, and understand the implications for your chances of success should certain elements fail to achieve their targets.
The one thing to remember is that all plans are going to change as your business develops, so don’t spend too long obsessing about it, and don’t use its development as a reason for not getting started. Having one simply helps you shape your focus and investment of time and money on those areas that will give the fastest return in growing your business once you launch.
Alex Genadinik suggests starting simply using a 3 sentence Business Plan outline (‘How to Write a Business Plan’, 2018) which helps to focus on the core of any business idea, expressed as ‘What is your product/service’, ‘How will you market your business’, and ‘How will you make money’. Building up from that will get you to add in more detail so you eventually have a page of short sentences and bullet points which becomes the basis of an Executive Summary. This will capture all of the key points that you will need to attract investors, or simply engage your team, and should also include your Vision and Mission statements, as well clarifying what stage your business is currently at (i.e. idea/paper project, prototype/beta model completed, started trading).
In order to develop your detailed Business plan, there are a few basic ‘headers’ that you need to think about in more depth.
- Why – A detailed analysis of your market and opportunity gap; your position and role in market targeted; competitors
- Who – customer profile/personas; current product/service usage
- What – An outline of the product/service; the problem solved/need fulfilled; USP (Unique Selling Proposition); price to be charged; cost of goods
- Where – Sales channels; revenue streams; a Marketing plan to make people aware of your business, with some indication of target ROI
- How – the Organisational Model required to achieve your Plan, for same timeframe as your Financial Plan
- When – Financial Plan in the form of a P&L and a Cash Flow analysis, for minimum 2 years, but up to 5 years if you want external funding; Risk Analysis
Let’s take each of these in turn.
You will have done quite a lot of this work in Step 2 when you were ‘understanding your opportunity’, so this part should bring all of that work together into a clearly defined rationale as to why you think there is a need for your product or service in the market. Remember that all businesses start with a dissatisfaction of what is already available. You need to be able to express that succinctly and convincingly.
This section will use a lot of your desk research, including market and competitor size, market mapping, consumer and societal trends analysis (identified through your PESTEL). You will have competitors as all customers have a finite amount of money to spend, so you may be competing for ‘share of wallet’ with some really unexpected and seemingly unrelated products or services, e.g. spend money on going out to eat or have a new pair of shoes. How will you convince your target to buy the shoes? (not difficult in my case!)
Never fall into the trap of thinking that everyone is your target (which is just as bad as saying you have no competitors!). You must be specific. Using the Customer Personas and research developed in Step 2 you will be able to articulate who your target consumer is, what they are currently using to solve the problem you have identified (if a solution currently exists), and have some data-based insights that can demonstrate why your proposition appeals to them.
What are the demographic and psychographic characteristics you have identified that create specific segmentations of your target? This may also help to identify who would be your most profitable customer. You need to prioritise who you want to target first – this might be because they have the highest immediate propensity to purchase or are significant Influencers of others who would be interested in your business. It will help you when making decisions about your marketing and sales channel investment.
Think about what you believe or know to be the most motivating aspects of your offer or communication that will help move your customers from being merely ‘interested’ to being active buyers. The level of ‘pain’ being felt by the customer without your product is in direct relation to the value that they will put on it when it is launched. The lower the ‘pain’ the less they are likely to want to pay, so make sure you are developing something that has real value for your target consumer.
This is the section where you have to be more precise about exactly what it is you are offering. Why is it needed? How does the product/service deliver the promise that it makes to the customer? Is it protected in any way through Intellectual Property (IP) or an exclusive license agreement? What are the features and the benefits?
It might seem self-evident to you but you have to be very clear about what it is you are launching, so that anyone not involved in the business could understand (and appreciate) the proposition. You need to make it sound compelling and interesting. Create the ‘want’ factor that appeals to customers on both rational and emotional levels. Remember people buy with their heart as well as their head.
You also need to be clear about the pricing strategy for your business. How have you determined the price to be charged? What data do you have that shows that your target consumer will be willing to pay this for the product/service? Are there any opportunities to up-sell or cross-sell your products/services to achieve a higher customer value, or even a longer term subscription offer?
The most important element of your business plan is how you are going to sell your product/service. What is your revenue model? What are your revenue streams, and which is the most profitable? How will you access these?
Being realistic about timing is essential for your financial plan. For example, if your idea is product-based and you need to gain access to the larger supermarket or retail outlets, you need to think in terms of 18+ months before you might get on shelf. You might be lucky and it ends up being faster than this, but remember you will have to fit into their buying cycle and range reviews, so make sure you have an alternative route to market, such as online selling, in the meantime. Supplying a small local outlet or farm shop can help prove the consumer appeal which will be vital in securing listings later on, as well as bringing in some revenue more quickly.
If you intend to sell via your website you need to be aware of the regulations and costs involved in taking payments online, as well as the new GDPR rules relating to data capture and retention. If you choose to retail through third parties you will reduce your own overhead costs but the margin that they will take will be a significant chunk of your profits, so plan carefully.
This is the way in which your business will deliver the product or service, working together with clarity on how they will manage their respective areas of responsibility. An Organisation Model will effectively map out the different parts of the business, showing how they will interlink. It is not an Organisation Chart which is a more detailed picture of each individual role in each team or department, and may not be relevant in a start up, especially if you are a ‘one person band’!
An Organisation Model is relevant in any business, even if a large proportion of it is outsourced. I once ran an early stage business that had almost every aspect outsourced – finance, manufacturing, sales, PR, logistics and warehousing – and the Org Model captured each of the linkages between these remote service providers to help smooth the internal processes required to get the product to the customers on time.
This is the part that scares most people as it involved numbers! This is where all of the assumptions, calculations and objectives are crystallised into something tangible. The financial plan gives a clear picture of when revenues are expected to flow in, as well as helping you to manage the overheads that you will be incurring until they do.
Think about your costs and have a plan for how you will manage until you make your first sale. Your personal bank balance is likely to be the sole source of your income so be aware of your outgoings and how you will cover them for at least 6-9 months.
The reason why so many businesses get started at a personal ‘crisis point’ such as redundancy is the cash injection that this often brings. If this isn’t an option, you need to think have you started saving to start your business? If not, cancel that fancy holiday and new car, and get serious about what you will need to achieve your dream.
A critical part of any Business Plan is the Risk assessment. It is so often missed by entrepreneurs in their rose-tinted haste to get launched meaning that they aren’t prepared for the inevitable challenges that will arise as they get going. Be honest and think about all of the risks that might happen, even if they seem extreme or highly unlikely, and then have a plan as to how you would manage that eventuality should it come about. ‘Be Prepared’ is not only a motto for Boy Scouts and Girl Guides!
Planning a business is difficult, especially if you have not had to do so on your own before, and that’s where my ‘Free 3’ support could help you.
This week’s ‘Free 3’ is exclusively available to start up businesses, or those thinking about starting out on their own, and provides up to 3 hours of free consultation with me. So whether you prefer to talk through the key elements of your Business Plan to make sure you have avoided ‘blind spots’, or want some help on a specific aspect such as the Marketing plan, how you use your ‘Free 3’ time is up to you. Available for the first 3 respondents* messaging me by the end of Wednesday Sept 19th.
(*Limited to one ‘Free 3’ consultation per person/company, as offered during the ‘Start Up’ series 10.09.18 – 14.09.18. One consultation session per ‘Free 3’ offered.)
Coming up tomorrow Step 4: ‘Finance and funding’.
Read Step 1 again here
Read Step 2 again here
Have a great day.
Lead Consultant & Founder – Primaverita
Mobile: 07977 493262