Plan, plan – then plan some more

They say failing to plan is planning to fail, and while some entrepreneurs have found success by winging it, they’re in the minority.

Most successful business people believe that a clear plan – one that’s consistently reviewed and updated – is a prerequisite to building a profitable enterprise.

Our advice is, for new Catalyst Centre tenants, that winging it is definitely not the most effective way forward. So for this week, here’s how to get the most out of your plan – and your business.

What’s the point?

Taking valuable time out from more exciting things – like researching, testing and talking to customers and clients – may be hard to justify. But these Four Cs help to validate the value of investing time in a business plan.

Communication – a business plan helps to focus you, and all those around you, on the company’s ultimate mission. Clearly writing and communicating your overall ambition as a company gives all stakeholders a common understanding in a common cause.

Control – a business plan facilitates strategy, it enables a company to identify and manage the crucial steps that comprise your key objectives. Knowing your milestones means knowing what finances and resources are required to meet them. No one likes an unexpected bill!

Consistency – a business plan ensures coherence. As products evolve and the marketplace changes, a product may require subtle changes in its look, feel and direction. Writing these changes into the business plan, and adjusting your roadmap accordingly, will help you stay on course instead of veering wildly into the unknown.

Capital – a business plan is pivotal in attracting investment for many reasons. One: when investors go through the process of due diligence, the business plan becomes their bible. A watertight plan reassures investors but a poor one will put them off. Two: investment is a sequence of finance rounds and not a one-off event, so the stages of a business plan act as an effective funding plan. And three: in the context of an investment agreement, a business plan becomes a contractual obligation; crucial in holding all parties to account.

Progress is value

Mapping out timelines to determine what’s required and when in areas like product development, personnel and funding enable a company to monitor its progress, reach its goals, and steadily improve its valuation. Defining, demonstrating and communicating your company’s successes over time will dramatically increase your appeal in the eyes of investors.

So what should a business plan look like?  

We advocate very short and concise business plans of ten pages or less, ruthlessly stripping out irrelevant information and dedicating around just half a page for each element.

Explain:

– what you are doing

– why (what problem you aim to solve)

– what your product or service looks like and how is it different (make it visual)

– what intellectual property will be created

– what the size of your market is

– who your competition is

– what your resource plan is

– what your financial plan is

– who are the team behind the project and their credentials

Unfortunately, your first attempt at a business plan won’t comprehensively cover every area – so be prepared to update your plan a lot. It also pays to think of your audience and create different versions of your plan to cater for different needs.

One might be an elevator pitch, another an investment plan. Also be aware that whilst it’s best to keep your central business plan tight, a lot of detail will be required in more weighty areas such as funding and due diligence in future. So stockpile data as and when it comes in, chances are you’ll need it later.

How to begin?  

View your plan as a hypothesis, using intelligent guesses at first and building facts in later. You may need to guess how big your market is; how long it’ll take to get your first customer; how much it will cost to engineer the product; how many team members you’ll need; how many patents you’ll file. Some questions won’t have answers so estimates are a good starting point.

Think of an initial business plan as a learning tool to identify risk. By shining a light on your business’s unknowns, you’re starting to remove and limit risk. And by building safer, sounder foundations, your business becomes a better investment or funding prospect.

As time goes on, it’s crucial you tighten your estimates because one rogue guess could ripple in crucial areas of the plan such as the finances or profitability model. For example, if you client meetings and further research revealed it’d actually take nine months, not three as you stated in your plan, to sell your first unit – it’s imperative you update the plan and adjust for the delay.

The review process

A good business review panel may consist of an intellectual property lawyer, a corporate finance person, a business development person and someone involved in product development. If the experts shake the plan to pieces and it survives then you’ve got a business plan worthy of putting in front of an investor.

As a small company, you might feel that you’re constantly up against it. But as big a time investment as a business plan seems, it’s actually a hugely efficient way to invest your valuable time.