Regardless of what stage a company is in in its corporate life cycle, the market conditions it faces or how successful it is, it can always benefit from creating a strong business plan. In addition to serving as a constant guide for a firm’s entire team, a great business plan can help articulate a firm’s vision and strategy to many different types of external audiences. These are vital for a firm’s success, and include customers, financing parties, potential joint venture partners and counterparties in M&A transactions. This article identifies six steps that entrepreneurs and companies should keep in mind when creating and implementing their business plans.
Step1: Create a Strong Value Statement
The basis of every business is its core values. The principles that guide a company regardless of the business conditions it faces and whether it is succeeding or failing. These principles are not only a firm’s internal compass. They are also the key bridge between a firm and the market it operates in. As Steve Jobs said in a well-known speech on marketing, given that in a noisy world with constant competition for consumers’ attention, consumers will remember very little about a business. Its values are what help consumers internalize an image of a business. Not only a utilitarian set of products and services, but rather as a representation of the way consumers live and want to live.
Step 2: Create a Business Plan That is as Unique as Your Business
Many business plans simply state, in essence, that a business will sell more products and services. Therefore, its revenues will significantly grow. But even if two businesses operate in the same market, sector and segment, there will often be large differences in how they operate. This is because they have different people, different cultures, histories and different ways of operating. Rather than being superfluous to a business plan, these differences are often a business’ heart and soul. They are what make it great.
Accordingly, rather than losing a business’s uniqueness through generic templates, it is better to create a plan highlighting its differences and opportunities. The plan should clearly show how the firm intends to take advantage of these opportunities and achieve its goals. Create a business plan that only your business can create and only your business can implement.
Step 3: Understand Market Force Allies and Adversaries
Businesses do not, and cannot, operate in an economic and financial vacuum. As the Chinese philosopher Sun Tzu said in the strategy class The Art of War, if you want to win in war you have to have a deep understanding of not only yourself but also others. In the business context this means clearly understanding the internal and external forces that work to your advantage and those that work against you. These forces are often different for every firm and can include factors as diverse as:
- Employee morale.
- The nature of a business’ competitors and barriers to competition.
- Financial factors such as the cost of capital.
- Microeconomic and macroeconomic variables.
- Regulatory factors.
To create a strong business plan, it is vital to understand the internal and external forces that work in a firm’s favor and against it. The impact of these factors can also change with positive forces creating risks and negative forces creating opportunities.
It may sound straightforward, but truly understanding our businesses and the market around us is far from easy. To understand market forces better than your competitors, it is important to have an analytical approach where assumptions about the market that are based on anecdotes about the market. Unfounded perceptions are replaced with investigative processes designed to obtain empirical data and systematically apply that data to business plan hypotheses.
This data should give a firm actionable insight into the current supply and demand for a product or service. It should also explain the factors influencing supply and demand, how they change, and what drives those changes. Developing this market vision requires studying the market from diverse perspectives and building strong relationships with target consumers, along with a deep understanding of their lives. Firms must understand how consumers make decisions about products and services, as well as how they use them. Ultimately, every business is the sum of its clients.
Step 4: Plan for Uncertainty and Moving Targets
Business plans often paint a static view of businesses and the markets that they operate. They assume the only thing a business needs going forward is more of what it is currently doing. This simplistic view of business operations often leads to performance projections that quickly deviate from reality. Particularly for businesses that seek investment from outside investors. Missing forecasts can cause investors to question a business’ credibility. This can undermine fundraising efforts and other business initiatives.
Rather than assuming that an operating environment will be static, business plans should assume that many types of operating environments are possible.
Because of this, rather than view the future world as fixed target that will remain still as a business moves toward it, it is better to view it as a set of macroeconomic and microeconomic possibilities which have different sets of likelihoods of occurring. In this type of vision of the future businesses have to have the flexibility of reacting to different internal and market scenarios as they develop.
Step 5: Don’t Let the Long Term Become the Enemy of the Short Term
A business plan should inspire people to pursue future goals while providing a clear roadmap of steps needed. Businesses can fall into the trap of defining long-term goals but not outlining the short-term changes required to achieve them. These changes include both quantitative and qualitative actions the business must take to stay on track toward its goals. A business plan fails if it cannot answer: “What should I be doing right now to reach tomorrow’s objectives?”.
Step 6: Review the Business Plan Every Day
Some companies prepare a business plan, review it once a quarter or less and then. If results fall short of projections, go through a period of internal questioning as to why the targets are not being met. However, a business plan should be a document that is reviewed on a daily. It should be a constant guide through changing business currents and an inspiration to meet the challenges it sets forth. It also should be a document that reflects the best of a firm and incorporates new firm wisdom as the firm grows, makes mistakes and learns from them.
Conclusion
Business plans can range from general statements of abstract goals that have little chance of being realized to living documents that play a large role in the day to day activities of a firm. There is no one correct way to prepare a business plan. However, by creating a strong value statement, identifying a firm’s unique strengths, developing an objective methodology to understand the positive and negative forces that affect a firm, preparing for uncertainty, focusing on the short as well as long term and reviewing a business plan constantly, a business plan can play a major role in strengthening a firm’s business performance.
This article was written by Darin Bifani. The photo for this article was taken by Stephan Leonardi.
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