3.0 Business Planning

HOW TO WRITE A BUSINESS PLAN >> Each section contains key Action Items located within the downloadable Action Guide >> Click to Download Action Guide.

BUSINESS PLANNING: THE NUTS, THE BOLTS, AND THE SECTIONS THAT TRIP ENTREPRENEURS UP

3.1    What is a market analysis and how do you do it?

The market analysis is one of the sections that entrepreneurs seem to fear and focus on the most.  Maybe it’s the endless pages of charts and numbers most entrepreneurs believe that they need which seem overwhelming.  But here’s something you should know: a proper market analysis doesn’t necessarily include page upon page of graphs and demographics. And it shouldn’t freak you out.

On the most fundamental level, a successful market analysis is whatever level of details sufficient to enable the intelligent reader to have an “Ah ha! There is an opportunity here!” moment.  In some cases, such as our hypothetical example regarding a business plan for an airplane de-icing business above (see Section 1.4), demonstrating the opportunity is simple and can be done with just a few key numbers.

For instance, if you’re trying to start a de-icing business in Antarctica, you could include a chart listing the number of flights in and out of the primary airstrip on a daily basis (hundreds).  You could also include the number of de-icing services currently available (one).  And finally, you could additionally include key details that clinch it – for instance the number of hours planes typically sit on the runway in Antarctica waiting to be de-iced (1), and what these delays translate into in terms of losses for the companies who own said planes ($10K per flight).  It’s then obvious why they might be willing to pay for your $100 service.

But that’s a simple example. If you’re entering an entirely new industry that the reader may never heard of then you’ll need to provide more research demonstrating that your basic business idea is viable to begin with.  In these instances, you can stretch a market analysis section out into two or three pages. Length is only okay when it’s absolutely necessary.

ACTION ITEMS: Complete the Action Items in your Action Guide.

What key metrics do you need to demonstrate to an investor that your idea is a viable opportunity?

Come up with a list of two or three pieces of research or figures that you believe would convince an investor that your business could be profitable. Search for actual numbers as confirmation.

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3.2    Analyzing the competition

If only we had a dime for every time we’ve heard entrepreneurs claim that they have “no competition.”  We’d be rich!  Here are a few things to consider:

  • Regardless of what you might think, you have competition. Every business has competition whether it’s direct, indirect, or otherwise.  Don’t fall into the common trap of simply assuming that you have no competition and leave this section blank or, worse, tell your investor or a banker that you don’t have any.  Remember, sometimes having competition isn’t necessarily a bad thing – it proves that there’s a demand out there for whatever it is that you’re selling.
  • Most new start-ups will operate within an existing industry.  If your start-up falls into this category, assessing the competition begins with analyzing the other businesses currently operating in this space. Consider what their weaknesses are and how your business can exploit them.  Do a gut-check to confirm that the shortcomings you perceive are truly considered weaknesses by the masses too. For instance, if you claim that your new coffee shop will handily compete with Starbucks because their coffee is bad, you have a problem – millions of them, in fact. Hoards of Americans happily stream into Starbucks everyday for coffee, some paying upwards of $4 per cup.  At the same time, you should also take a realistic look at your competitors’ strengths.  There’s a reason that they’re in business, and you should know why that is.
  • As far as your business plan goes, you should include a simple section that speaks to the competition’s weaknesses, strengths, and how you plan to deal with both of them.  This demonstrates to an investor or lender that you’ve done your homework and that you’re aware of and prepared for what you’re up against.

ACTION ITEMS: Complete the Action Items in your Action Guide.

Who are the competitors in the industry you would like to enter?  Name a few right now.

Now, narrow down your major competitors and come up with an honest list of their strengths and weaknesses.

Competitor 1:

Strengths

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Weaknesses

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In a couple sentences, explain how you may capitalize on their weaknesses and how you plan to address their strengths.

Competitor 2:

Strengths

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Weaknesses

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In a couple sentences, explain how you may capitalize on their weaknesses and how you plan to address their strengths.

3.3    Creating a pricing strategy

This part is optional for many businesses, unless pricing figures directly into your business model or you’re entering a market where there are already rigid price guidelines. A simple way that many businesses can approach the question of pricing is to say that the price will be a function of supply, demand, and cost. At this point, you needn’t provide more.

3.4    Why your management team is so important

Many investors will tell you that the management team section of your business plan is one of the most important parts of the document. The reason is simple: you can have the best idea in the world, but why should anyone write you a check unless they’re certain that you, your team, or someone on your board knows what to do with the money?

Many investors will rank the management team above all else when making investment decisions. People like to invest in people who have been successful before. As a result, you should clearly describe in your business plan why your team is capable of being successful and what experience they have that will contribute.

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