Business Plan: The Building Blocks

March 5, 2009sparxoo_admin

By Ethan Lyon, Senior Writer
The business plan is an important document for you to gain credibility with those interested in investing in your business. It should be comprehensive and informational, and it should also be compelling. There are several points that should be addressed in a business plan.

There is a myth that no one reads the business plan. There might be some truth in that, however, it is essential that you not take it to heart. In the event that an investor is interested in your business proposition, it is vital that everything they need to know about your business is in one central location. The last thing you want is a half-hearted business plan and the investor is confused as to what you’re trying to sell. The business plan is not usually bedside reading material; however, you want to be as interesting as you are thorough.

Components of the business plan:

Market Research
As you delve into your idea, consider what precedents exist in the market. Though you can say you have first-market advantage, a better way of phrasing it would be, “Here is how we intend to improve the market or even transform the market.” Precedents are proof that others before you have been successful, therefore, the likelihood of your success is much greater. On the other hand, if  you flood your business plan with a large amount of successful competitors that might be a warning sign that the market is oversaturated.

The rule-of-thumb is three to four successful market player. In your description of the competition, make sure to include when the company launched, who is their target market, what does their product look like and where is the company today. If they were bought or went public, indicate their exit valuation, It is not necessary to write long descriptions of the competition—a short summary about the length of a small paragraph will do.

Market Advantage
This is key to the success of your business. How are you going to position yourself in the market and be successful? When researching the competition, look for white space or gaps in their target market and product offering. Google’s whitespace was the algorithm and their focus on empowering users. Where Yahoo relied on a large team of employees to fine-tune their search, Google chose to focus on an algorithm to get better results with a more efficient team. The algorithm (and many other key decisions) led them to a more fruitful path.

Target Market
A product/service offering does better when it appeals to a market audience.  Investors will want to know about your target market, including statistics. This is where you need to do some hunting. You will need to find information such as market size, growth trends, as well as audience demographics and psychographics.

Demographics include age, income, education level, gender, employment status, location, etc.

Psychographics are lifestyle choices. For example, what is your audience’s personality like, values, attitudes, interests, etc.

It is very important to become knowledgeable about your prospective customers.  Show investors that you know your target market.

Product/Service Offering
Given your market advantage and target audience, what is your product/service going to look like? After you have discussed the competition and how you’re going to successfully position your business in the market, you need to describe your product/service. The current market environment is going to give you clues as to how you can create a unique product. This is where you need to be creative and use your imagination to bring a new product to the market; this is where you’re going to really sell your product/service.

Your soon-to-be successful product/service needs to be managed by a solid executive team.

Management Team
A exceptional business team can elevate your business potential to new heights. We cannot stress the importance of a solid, reliable management team. Not only do you have to sell your idea to investors, you need to sell the additional steps as well. These include the running and investor exit of the business. If your business is going to be successful, search for a management team that has experience in the market. Showcase your sales manager that has contacts with all the right partners. Your future investor wants security, and you can give that to them by hiring an already-established, successful management team.

Financial Model
While your target market and market research are very important, it is the financial model that really gets down to brass tax. Consider the financial model the nuts and bolts of your company. If one of your bolts is too big or two small (wacky financials), your machine (aka business) is going to fail. Make sure that you are realistic and all of your numbers add up, because what the investor is giving you is money.  They need to feel confident that their millions will be managed competently before they sign on.