How to Develop a Winning Business Plan
Every successful business starts off with the development of a comprehensive business plan.
Without a business plan, business owners are unable to:
- Set goals and determine whether or not these goals are being met
- Create strategies to achieve important milestones
- Persuade potential investors that the business can provide a return on investment (ROI)
It is tempting for new entrepreneurs to begin doing business right away. New entrepreneurs who do this, though, lack important information such as who the target audience of the business is, or how the business will be marketed.
As the famous Benjamin Franklin saying goes: “If you fail to plan, you are planning to fail.”
In this video, we go over:
- What a business plan is
- Why it is important to have a business plan
- How to begin developing a business plan
- How to implement a business plan
- What to do if things are not going according to the business plan
- How the business plan can continuously be improved upon
What a business plan is
There is no single correct format for a business plan. Some business plans are quite detailed, while others are quite simple. Generally, though, a business plan consists of a written document that explains:
- Who is involved in the business
- What the business does
- What goals the business intends to accomplish
- How the business goals will be accomplished
- What the milestones (measures of progress) are
Regardless of the format of the business plan, the ultimate purpose is to guide a business toward growth and profitability.
Why it is important to have a business plan
Taking the time to develop a business plan helps business owners to think through important issues that can affect their business, both positively and negatively.
With a business plan, business owners can anticipate opportunities and threats, and be prepared to take advantage and react to them.
Further, a business plan is almost always necessary for business owners to obtain financing, such as from a bank or investor.
While banks might make loans to individuals based just on credit, this is often not the case with businesses.
Before a bank makes a loan to a business, the bank wants to be able to review a written, detailed business plan, demonstrating how the business will make money to pay back the loan.
From reading a business plan, a potential investor should be able to understand what the business does and why it presents a good investment opportunity.
How to begin developing a business plan
One way to begin developing a business plan is by starting off with a “SWOT” analysis.
SWOT stands for:
The SWOT analysis is completed by thinking about and gathering as much information as possible regarding each of the SWOT factors.
Let us walk through each of the SWOT factors.
Strengths are internal, beneficial characteristics of a business. These characteristics are unique to the business and are not possessed by other businesses.
Examples of strengths are:
- Business partners who are recognized industry leaders
- Methods and designs that are protected by intellectual property (IP) laws
- Exclusive contracts with manufacturers or vendors
Along with strengths are weaknesses, which are internal, detrimental characteristics of a business.
- Limited financial resources
- Difficulty attracting talented workers
- Inefficient processes
Opportunities are similar to strengths, in that they are beneficial to a business. But, unlike strengths, opportunities are external and are also available to competing businesses.
Some examples of opportunities are:
- Increasing consumer demand
- Technological improvements
- Easing of regulatory or legal restrictions
Last, but not least, are threats. Threats are external factors that negatively impact a business. In contrast to weaknesses, businesses must tolerate and deal with threats. Businesses cannot control or eliminate threats.
- Growing government oversight
- Diminishing consumer interest
- Rise of competing businesses
Example use of a SWOT analysis
We can use a fictional company to illustrate how a SWOT analysis can be helpful for developing a business plan. The name of the fictional company is L.A. Social.
L.A. Social is a start-up social media app company. The owner of L.A. Social is in contact with potential investors. The potential investors want to see a business plan before they consider investing in L.A. Social.
To prepare to write the business plan, the owner of L.A. Social starts off with a SWOT analysis.
The SWOT analysis produces these results:
- Patented technology
- Celebrity endorsements
- Global appeal
- Talented developers are hard to find
- Cannot afford leading cloud hosting providers
- Reputation not established
- Consumers want alternatives to competing apps
- Investors are interested in funding competing apps
- Other, non-competing businesses are looking for partnerships
- Government might increase industry regulations
- Dependent on hosting providers and app stores
- Intellectual property might be infringed upon
Still using L.A. Social as an example: the SWOT analysis can be used to start developing the business plan.
The business plan executive summary might look like:
L.A. Social is a start-up social media company looking to provide an alternative to Facebook and Instagram, specifically for residents of Los Angeles.
L.A. Social has developed a smartphone app that uses patented artificial intelligence technology to identify users with highly similar interests and link them together.
Los Angeles Lakers stars LeBron James and Anthony Davis have already started using the L.A. Social app, and have brought with them their millions of fans worldwide.
In order to create a better user experience, L.A. Social is looking for investors and strategic partners, which will enable L.A. Social to:
- Hire talented developers to add features to the app
- Migrate the app to a faster, more robust cloud hosting provider
- Increase awareness of the app and demonstrate why it is better than Facebook and Instagram
Right now is the perfect time to invest in or partner with L.A. Social:
- Current users of Facebook and Instagram are tired of their posts being flagged as inappropriate for no apparent reason
- Top hedge funds and private equity firms are looking for new opportunities in the social media space
- Ridesharing, food delivery, and other companies providing on-demand services want exclusive partnerships with emerging social media platforms
Further, with sufficient funding and the right strategic partnerships, L.A. Social can overcome its largest external threats by:
- Lobbying for more independence from regulatory bodies, such as the Federal Trade Commission (FTC)
- Building its own hosting infrastructure and app distribution platforms
- Increasing enforcement of its intellectual property rights
The finalized business plan for L.A. Social would set out a timeline for milestones to be completed so that progress can be measured.
“1,000,000 daily active users by January 2022” would be an example of an appropriate milestone.
To help new entrepreneurs develop their business plans, the U.S. Small Business Administration (SBA) provides useful information and examples on its website.
SCORE, a U.S.-based nonprofit organization dedicated to helping new business owners, also offers tips and a free template for developing a business plan, as well as other valuable resources.
How to implement a business plan
Once a business plan has been developed, it needs to be implemented. It is not enough to simply develop the business plan.
The business plan is implemented by first establishing milestones, which are used to measure progress, and to keep track of who is taking responsibility for which tasks. Milestones should include deadlines to ensure that tasks are not left unfinished.
If appropriate, milestones should also specify a budget.
Once milestones have been established, it is time to start achieving them according to the business plan.
The person assigned to each milestone should monitor the status of the milestone to make sure it is completed by its deadline. If completion of the milestone is running late, the person assigned to the milestone is responsible for understanding why this is the case. Necessary adjustments must then be made so that the milestone will be completed by its deadline.
Similarly, if the milestone has a specified budget that appears will be exceeded, the person assigned to the milestone will have to understand why this is happening, and what can be done to prevent it from happening.
Successful completion of milestones by their deadlines, and within their budgets, gives business owners and investors confidence that meaningful progress is being made according to the business plan.
Despite best efforts, following a business plan does not always go smoothly. Sometimes, unexpected events force the need to deviate from the business plan.
It is important for business owners to know what to do if things are not going according to the business plan.
What to do if things are not going according to the business plan
Business owners should not panic if things are not going exactly according to plan. Rarely is a business plan perfect. This is normal to seasoned business owners and savvy investors. What matters is how a business owner reacts when reality is not conforming to the business plan..
There are a variety of unplanned events that can force the need for a business owner to change their business plan.
Events that can force the need for a business owner to change their business plan include:
- Key personnel abruptly deciding to leave the business
- Expected funding falling through or being less than anticipated
- Occurence of a natural disaster
The more quickly a business owner is able to recognize and respond to an unplanned event, the better.
Once it becomes apparent that something is not going according to the business plan, the business owner needs to evaluate:
- How impactful is this event?
- Does this event derail the overall business plan?
Events not planned for do not always require immediate or significant response.
In the case of a key person leaving the business, for example, another person might be able to take on the responsibilities of the departing person. It might turn out that the departure of that key person is not as detrimental as it had initially seemed.
The manner in which a business owner should respond to an unexpected event depends on how much the event affects the ability to continue following the business plan.
If the unexpected event does indeed require the business owner to respond, the business owner must understand exactly what happened so that appropriate action can be taken. The appropriate action to take depends on the event.
How the business plan can continuously be improved upon
Business plans are not set in stone. Throughout the lifetime of a business, the business plan should be reviewed and modified. The business plan should always be acting as an appropriate roadmap for the business owner to achieve the established goals and objectives.
It is recommended that business owners review their business plan according to a set schedule, for example, every 3 or 6 months.
As part of the business plan review, the business owner should consider:
- What is happening outside of the business. Is consumer demand changing? Is the price or availability of needed resources changing?
- What is happening inside of the business. Does the business still have the strengths and weaknesses that were identified in the SWOT analysis?
- The effect of prior modifications to the business plan. Did past decisions to modify the plan have positive effects? Or, rather, did they produce negative effects?
Business plans can be modified not only in response to detrimental events, but in response to beneficial events as well:
- If a milestone was achieved under budget, can the remaining budget be diverted to another milestone that needs additional budget?
- If a previous business plan modification proved to be advantageous, can that change be repeated? Or, can it be applied elsewhere?
Despite the fact that business plans are not set in stone, that does not mean they should be modified in response to small, and likely inconsequential, events.
Quoting Dr. Norman Vincent Peale, an American author famous for his ideas on positive thinking: “Plan your work—work your plan.”
Business owners have to balance between strictly adhering to their business plan, and being willing to modify the plan in order to take advantage of opportunities and to avoid threats.
Business owners that are determined to achieve success always start off with developing a comprehensive business plan.
As mentioned earlier in this video: business plans do not need to be complicated. But, they should be detailed enough to provide value:
- Business owners should be able to look to their business plan for guidance on how to achieve their goals and objectives
- Investors should be able to look at the business plan and see a path to profitability
The idea of starting and growing a business is an exciting prospect for every new entrepreneur.
By putting in the serious thought needed to develop a comprehensive plan, business owners learn and process the many internal and external factors that can be advantageous, or prove to be impediments toward progress.
In the end, taking the time to develop a business plan sets the new entrepreneur on a trajectory toward growing a thriving, industry-leading business.