William A. Cohen (Author & Founder, Institute of Leader Arts) gives expert video advice on: What is the key to a successful business plan?; What are the top business plan mistakes?; Should I hire someone to write a business plan for me? and more...
What is a "business plan"?
It's a road map, really to take you from where you are to where you want to go, where you want to end up. In my mind, it's an absolute requirement in every way, shape or form. I cannot visualize getting into a business without thinking through things because you know, in doing a business plan you can make all your mistakes on paper. To do them in real life takes time, effort, money, hurts people, hurts yourself, stress, everything else, so you want to minimize that to the maximum extent and you can, doing a business plan. And then, of course, if you're going to borrow money from someone or attract a venture capitalist or a bank or anybody else, or the Small Business Administration, a business plan is required. You're not going to get it without it. That's the first thing they ask for is let's see your business plan. So it's a very very important device. There's 1, other things you can do with it. Work out your strategy. You can use parts of it to brief new employees as you expand. Whenever you got a problem you run into you've already thought things through so you can look at your alternatives. You know what the money situation is on a daily basis. It's a great thing.
What is a "marketing plan"?
With business plans, for most of us, ninety-nine percent of us, a business plan and a marketing plan are identical. All the information that you need for a marketing plan, you need for a business plan. You want to know who is involved, what their backgrounds are, and what they are going to do. All your financials regarding this project, all have to go into the plan.
When should I create a business plan?
As soon as you decide that you're going in a certain direction and start investigating a business. Once you decide that's what you want to do, you can start working on your business plan. I mean, you want to get a document, you want to get it down on paper. I know someone said until you have it in writing, you don't have it, and there's a lot of truth in that. You see these things and you keep refining them. I mean it's not something that's done overnight. A business plan takes some time so you want to start as soon as you can.
What should I do before I draft a business plan?
The more you can find out about that business the better, because you're going to need this stuff anyway. You're going to need the information about the market you're going to go after. You're going to have to get information together regarding costs--how much different things cost. You're going to have to start thinking about your pricing. You're going to have to think about distribution--all these different things. Start getting the information as soon as you can--you will naturally anyway as you get interested in this--but you want to start collecting all this information together. The business plan is really not that difficult, to tell you the truth. They say you can eat an elephant as long as you eat it a bit at a time. That's kind of like the business plan.
What are the most important parts of a business plan?
There are the two basic, there are two elements that are really key that are so simplistic that most people overlook it - one is the executive summary and the other is the table of contents 'huh", well, I wanna hit those first because the executive summary is very short, it's usually less than a page, maybe only a paragraph or two and its an overview of everything. And when you're looking, it's so important cause when you're looking for money and I don't care who its from the very first thing they look at, they read is the executive summary for example venture capitalists, they may get a thousand plans a month and fund one or two. Now if you got a thousand plans a month I mean or nothing how much time do you spend and the answer is for most of the plans not very much so look at the executive summary if it hits them they put it in one file, for most of them, you know they spend maybe they spend a minute or two, that's it. So the executive summary is critical. The table of contents is critical because no matter who is interested, everybody has a certain feel for certain different areas like mine is marketing and leadership management so the first or product maybe the instant product so I'll look at those areas, I mean I'll look at those very closely, but someone else maybe the finances, someone else maybe something else. If I can't find that in your plan and I'm the potential person to loan you money I don't have the time to mess around with it so its critical that you have a table of contents that identifies all these and so when I wanna find these, I'll turn to that part, I'll find it right away, so those are two critical items. Ok then you go into an introduction which involves the description of the business you're getting into and why it's such a good deal, what the competitive advantage, I'd like to call it competitive differential advantage what you have the other guy doesn't have because frankly again if you don't have an advantage over someone else has why should they do business with you then, there's no reason to, why should they deal with you. So you wanna have the competitive advantage very clearly spelled out you wanna have the threats and the opportunities you know and the problems, and you wanna spell these out and also show how you solve these. Now some people got a mistaken idea that well there's a problem but I won't mention it then it'll make the plan more attractive, not a good idea. I mean these guys are not dumb, these aren't dummies you know, so if there's a problem and you don't identify them, then you're gonna think either this guy is stupid or is dishonest, one of the two, so never do that. So you wanna identify but what are you gonna do about it, in other words how are you gonna, if there is a major thresh from a competitor after you entered this, don't just not mention it, say there's a major threat from a competitor has got capability of entering, here's what we're gonna do if he enters, and then you spell it out, so very important is to cover that your strategy your strategy is and I mean I split up strategy and tactics - strategy is what are we trying to do what we're trying to get into this market first that's our real strategy, we wanna be the first in the market. Now our tactics well what are we gonna do with a with a very expensive high value product but its gonna work how you're gonna distribute it, how we're gonna price it, these are all tactics you see, so how you gonna promote it, gotta advertise it and different things like that then you so you cover that and then you wanna cover the implementation, how we're gonna actually implement it step by step and how are you gonna judge whether you're winning or losing as you go through this thing. So all these things, its a lot of fun you know, its a great thing to do.
What style business plan should I use?
There are ten-thousand styles I believe. There are many different recommendations regarding "structure it this way" or "structure it that way" or "structure it some other way". I would for one, go to a book so you can look at some models and see how they structure theirs. Use what you think it applicable to use and don't worry what is not. Usually your financials are three to five years in the future and how they are going to work out. The one thing I would say is, you want to be positive but truthful. In other words you never forget that a business plan is also a sales document if you're trying to get money, but you want to be truthful about it. The big mistakes are if you try to hype everything. Another big mistake is people tend to inflate sales either consciously or uncontionally. I always say to think what you think the sales should be and "half-them."
What is the length of the average business plan?
I'm not sure there's an average length for a business plan, but, for me, I would say that a business plan should be around 30 pages upwards. I've seen a business plan of over 100 pages. It depends on how long it takes to give your message. Your introduction, for example, may be something very complex and may require a lot of information. I have heard about very short business plans - 10 pages, something like that. I don't think that is long enough. I would say that the shortest business plan I've seen is around 30 page - maybe a little less, but not much less.
What is the key to a successful business plan?
I would say one of the keys to a successful business plan is to “adopt a structure that you're comfortable with.” You're telling your story. That's why I think a business plan ought to be fun. If it's not fun, something's not right somewhere. The financials of a business plan are not fun for me, by the way. Nowadays, they have computers anyway, and you can just plug in the figures they tell you, and it punches these things out. Even the parts that you are less comfortable with can work. I think the fun thing is thinking out the business plan and working out the strategy. I think it's fun thinking about the tactics. I think it's fun when you think about all the profits that you can make.
What are the top business plan mistakes?
With a business plan, probably the biggest mistakes are sales related with the sales being too favorable I the financials. Sometimes it's obvious you don't know what you're talking about. A lot of the time though, it's an honest mistake because we all tend, its kind of wishful thinking to say “I know I can sell in the millions”. So, you have got to be very careful with that and careful about over hyping because that comes through too. Be careful with the use of adjectives about how wonderful things are, don't do it! Let the facts speak for themselves, use figures, references, quotes or anything like that from anyone else, but let the facts speak for themselves. Don't use adjectives about how wonderful something is, you want to make sure everything is in there. As I mentioned already, about make sure you cover threats and problems as well as the opportunities. Show how you take advantage of the opportunities, how you avoid the threat and how you handle the problems. You want as much of a complete plan as you can. That is why with good plans you can't say I can't get one on the back of an envelope, or do it in a few pages, because it takes time to tell the story.
Should I hire someone to write a business plan for me?
In general, I'm against that. I mean, because I don't think anyone knows it as well as you do - knows your idea. And I know that people are uncomfortable if you've never done one before, but guess what? The first time I did it, I'd never done it before either.There are so many guides and books and everything. Get one that you're comfortable with, just follow the instructions and work your way through it. Pay the price, because you'll know that much more about your business. You're going to have to do that, you're going to have to know your business, anyway. Yeah, there are people that can do these things for you. It may or may not increase your chances of success as far as getting a loan, if that's your primary purpose of doing it. Some of them charge an awful lot of money. An awful lot of money. So much so that I'm myself suspicious of those that don't charge very much. It's not that they're cheating or anything like that, because they have to do this research. That's another reason it costs so much: you know a lot of the answers already yourself, or know where to go. They don't know, so they have to get that information, if it's a good business plan. And that costs money to do that.
Where can I go to get help with my business plan?
There are consultants that will help you with your business plan, as well as ones that write your whole business plan for you. I prefer the idea of books because they're inexpensive; you can refer to them and so forth. In fact, that tends to be the consulting that I do, read my book, make a list of questions, we'll cover it. Bang, bang, bang. That's what I usually do, buy an hour of consulting, I cover it, just like that you have all the answers. Books are very helpful for business plans. U.S. Small Business Administration is a great help. They've got a site with a lot of stuff on there, www.sba.gov. You get all kinds of information in other areas as well; they do this because most of the new jobs come from small businesses. It's a great service and the government is interested in it. Unspoken fact: The U.S. Small Business Administration operates full service district offices in every state of the country. A lot of states, also for the same reason have different agencies that will help you; they'll also help you with the business plan. They will help you in certain directions like this. There is a lot of software out there, they'll ask you questions, almost like one of these income tax things, it will ask you questions and answers and it will print it out. You really have to personalize it yourself, if you want to use software, that's great. However you want to make sure you personalize it with your information. Again, no one knows the business like you do and what you're trying to do.