Entrepreneurs are frequently told that a business plan is the first crucial step before launching a venture. This formal document is more than a formality; it's a strategic tool that helps you focus on critical details, uncover overlooked issues, and refine your path to success. However, a truly effective business plan is the result of deep preparatory work. Before you begin writing, entrepreneurs and experts advise working through several key elements that will form the backbone of your document.
Here are the six essential things you must do first.
1. Determine Your Purpose
While a primary goal of a business plan is to demonstrate profitability to investors and lenders, profit is far from the only thing that matters. Alan Williams, co-author of "The 31 Practices," notes that business plans often focus on what an entrepreneur is going to do, overlooking the more critical questions of why the business exists and how its people will behave.
Entrepreneurs should first articulate their business's core purpose and values, which will act as a "compass" for all future decisions. This compass can be found through open conversations with your team, engaging in a formal assessment of habits, values, and capabilities to establish a clear starting point.
2. Build Your Vision
Having a clear vision of what you want to accomplish is fundamental to business success. Before you can outline the specifics in a plan, you must first develop three to five key strategies that will enable you to achieve that vision. Evan Singer, general manager of SmartBiz, advises that "less is more," stating, "It's far better to do three things very well versus 10 things not so well".
3. Clarify Your Business Model
A solid business plan always contains financial projections, but these figures are meaningless if your business model isn't viable. Before you can project future earnings, you must work through potential scenarios to ensure the model works.
Alex Muller, CEO of GPShopper, suggests entrepreneurs start by answering "what ifs". "If I sell this product at this price point, and this is the cost of client acquisition, what rates of return can I get?". Once the business model is built and tested, you can then write the business plan. This financial model should include details like hiring, pricing, sales, expenses, and growth, and should be updated as the business evolves.
4. Work Out Your Name and Legal Structure
The legal structure of your company—be it a sole proprietorship, LLC, or corporation—deeply influences your operations and strategy. David Pomije, CEO of Bijouxx Jewels, emphasizes the need to not only officially register your company but also to secure the naming rights before drafting your business plan. The last thing an entrepreneur wants is to feature a company name throughout their official documents only to discover later that someone else owns the copyright.
5. Identify Your Target Market
An entrepreneur's concept of their target market can often be murky. This is the specific group of people for whom your product or service solves a problem. Grant Leboff of Sticky Marketing Club advises founders to ask themselves, "Why am I uniquely placed to solve the problem?".
If you cannot answer that question, you may have the wrong product or the wrong target market. By clearly defining your ideal customer and assessing your company's offerings, you can determine if you are positioned to attract the clients you want. If not, you may need to adjust your offering or redefine your market.
6. Test Out Your Business Idea
There is little value in writing a formal business plan if you haven't confirmed that a market exists for your idea. Kara Bubb, a product manager at Widen Enterprises, recommends that entrepreneurs talk to industry experts, potential customers, and other founders to gauge their business's viability.
Bubb suggests asking for honest feedback on crucial questions:
What do they think about your business idea?
Who, specifically, are you targeting with your business?
How big is the market?
Will your market buy what you are selling?
Who is your competition?
Additionally, Bubb advises conducting a SWOT (strengths, weaknesses, opportunities, threats) analysis to identify potential risks and opportunities.
While simply writing a business plan won't guarantee success, it provides an essential roadmap for your journey. The forethought involved in these preliminary steps helps identify the milestones you will use to mark your progress.
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