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These days you just don’t hear much about business plans. The sentiment from some corners of this industry – entrepreneurs and investors – seems like business plans have lost their meaning, but I just don’t agree.
There are many good and necessary reasons for savvy entrepreneurs to invest the time and energy in writing a memorable business plan. Here are my top five.
1. A well thought out business plan is a roadmap that becomes a living and breathing document to transform your vision into a real business with paying customers
Your business plan is an opportunity to clearly demonstrate that you understand your market, that you can solve a big problem for your customers, and that your solution has a value proposition that decision makers will buy.
Writing a business plan is like catching a fish or painting a room. Most of the work is in the preparation. To ask questions. Check out the competition. Become a relentless scenario planner to identify likely outcomes and points of failure. From day one, be disciplined to collect, protect and organize what you learn.
The genesis of your plan might just be a scribble on a notepad or a Sharpie sketch on the back of a slow play baseball program. The basis of your plan will be tangible evidence of market validation from surveys and interviews with real customers. The proof of the solution will be the technical validation from impartial technical reviews and pilot prototypes. How you achieve this will be demonstrated by the experience and credentials of yourself, the founding team, and your advisory board.
Related: 3 Apps to Help You Write a Business Plan
2. Writing the business plan puts all team members on the same page
The thoroughness of “writing it down” creates a unique opportunity for you, your co-founders, and the rest of your founding team to work together to articulate the company’s intentions and define the details to make it happen. There is no better process for proving to yourself (and eventually to others) that your big idea can turn into a profitable business.
You can make writing a plan simple – there are many useful tools and templates out there that go through the mechanics of producing a document, but don’t believe it when someone tells you they can write your business plan. . It is not a job that you can delegate. Write your business plan in your own words and your own voice. Don’t attack yourself all of a sudden. Divide the project into sections; write and rewrite something every day – exchange drafts with other members of your team and advisors. Marketing reads products and technology. Finance reads market development and strategy. Technologists and product developers read the summary.
Express precisely your assumptions, expectations and justifications for the business for the next five years. It is the plan that you and your team commit to implementing. By depositing it, you agree to it. It becomes the measure of your business performance.
Related: Business Plans: A Step-by-Step Guide
3. Writing a business plan highlights opportunities and potential vulnerabilities you may have missed.
As you analyze the industry and customer specific data and knowledge that you have gathered over the months, you have worked on your startup and expect to have a new perspective. You might discover things that you had forgotten if it didn’t register. By reviewing interview notes and survey results, you might see market patterns that you haven’t identified before. Something may have changed in the economy, industry, or competition that marks some past responses as new opportunities or red flags.
4. Memorable business plans tell a good story – that story is the foundation of your brand
Stories grab people’s attention and help them remember facts. There is a classic archetype in fiction known as the Hero’s Journey. It might as well be called the Entrepreneur’s Journey, and it’s a perfect structure for telling the story of your business. Like any hero trip, every entrepreneur’s business plan begins with a problem that needs to be solved. The startup team hears the call. Aided by mentors and allies and thwarted by enemies, the team face and master hardships to earn a reward.
Think about the many and varied occasions when you need and want to tell your business story. There’s your three-line elevator pitch – for everyone from your Uncle Chad to every potential investor you meet. There is a slightly longer version, when a reporter or industry expert interviews you for an article or blog. There is a more detailed narrative for attracting a business partner. Then there’s the coveted investor pitch, a well-crafted, laser-focused mix of data and story that delivers the facts and builds connection and trust with your audience. Each version of this story is taken from the summary of your formal business plan.
Related: Let Your ‘Story’ Frame Your Business Plan
5. Investors base their current and future financing decisions on the business plan
Write a business plan that clearly and succinctly answers the questions investors want to ask. The bottom line is, why should someone invest in you? Investors invest first in people, then in technology. Define the market problem and your solution from the customer’s perspective. What are your achievements so far? How much money do you need and how do you plan to use it? The most effective business plans tie milestones to capital.
Aim for a two-page tear-off summary and 10-page plan, along with financial information. Investors make quick decisions. If you don’t get their attention in the first three paragraphs of the summary, they’ll move on. Keep in mind that the best way to get your business plan read by a potential investor is to be referred by someone they know and trust.
Towels are used for catching spills, not for writing business plans. A viable business plan is never finished. Once done, it will be time to update it again. A thoughtful and well-designed business plan creates a strong first impression, demonstrates your credibility, and turns into a working document that guides your business from start-up to scale.