Starting Your Own Business: The Elusive Business Plan

Diving is one of my preferred activities, and a very safe one if you only follow the divers mantra:

Plan your dive, and dive your plan

Launching your own business just like like diving, skydiving, or even rock climbing, can provide you with lots of personal satisfaction, an improved self stem, and even lots of fun; if done properly. If you already know that You Are An Entrepreneur, and you are ready to start working on launching your business, then it’s about time you start following the Step by Step Guide to have your own business.

Paraphrasing the chinese philosopher Lao Tzu,

A Journey of a Thousand Miles Began with a  Single Step,

And a business plan can begin with a single sheet of paper!.

business_plan2What many people don’t realize is that almost 100% of the people that start their own business have a business plan, or at least have the information necessary to write down their business plan; but don’t know it. If we look at most of the information from the internet, or if you go to almost any regular college or university, we can agree that it is interesting, but overly complicated. According to the majority of the sources that I can search, writing a business plan can take you from a couple of weeks, to a couple of months, and if you hire a consultant it will cost you from a few thousands to few tens of thousands if you’re talking about a plan to get financing for your company. After all of that, most everybody gets discouraged, and abandon the idea of having their own business plan, when in reality it is a lot simpler than that. While any expert can make a business plan a very complicated process, in reality almost anyone can write at least their initial business plan, and have it ready in case the company is very successful and you need to hire employees and managers, you need to seek out financing, or you’re ready to cash out by selling your business (and having a business plan should help you actually get a better price).

From Complicated to Simple

3d_red_roadWhile the information on the business plan should be specific for each industry, the general outline should be the same regardless of the industry, the location, the size of the business, or even the language of the business itself. The business plan is just that, the Plan for your Business, and it should be a dynamic document, that projects the next 1-3 years for your business, and that it can and will be modified as your business progresses. Included below is the outline for a typical business plan, including what I could consider the mandatory sections that must be included regardless of your type or size of business. Everything else could be considered optional, and only required if you are looking for finance, growing beyond just a few employees, or getting ready to cash in by becoming public or selling your company.

Business Plan Outline

  • Executive Summary
  • Company Description
  • Market Analysis*
  • Organization* and Management
  • Product(s) or Service(s)*
  • Marketing and Sales*
  • Financial Analysis*

Executive Summary

Your executive summary is the general description of your business, and should not be longer than one or two pages. If you are looking for finance, going public, or selling the company, this is probably the section that will decide if anyone will be interested in your company or not. It should be the last section to be written.

Company Description

On the company description you can put all of the good stuff about your company. Why are you different, why are your employees and products different, why are you on business, etc. As with the executive summary, this could be optional and only required if you need to explain your company to others.

Market Analysis*

This is one section that you should not forget ever, since it’s the one that can help you identify if there is an actual market for your product or service, and how big the potential market is. As an example there is a new invention that is a set of jet powered wings that can be strapped to a person and allow him to fly like a bird (not joking look at it here www.jetman.com). Now that we have the product many people may want to launch a business selling and/or renting the equipment to others, and there is where you need the Market Analysis section. Is there a market for the product? Considering that just in order to conduct his demonstration flight in the U.S. Yves (the jet man) had to get an FAA license as a flying machine (just like any other plane), how many people want and can actually go through the whole process for a 10-15 min flight? Yes there will be a few for sure, but there may not be enough to justify investing on it as a business today (and I say today because in 5-10 years the technology may have advanced enough that it will be cheap, safe, and easy to use enough that it may become mainstream)… But if you want to launch a business today to see if there will be a market for it in 10 years, I have a few proposals where I can use your money too 🙂

lemonadeMarket analysis do not needs to be complicated, require a MBA or a PhD, and it does not needs to costs hundreds of thousands of dollars. If your business is the classical “lemonade stand”, you can probably conduct your market research by asking people that walk in front of your home if they will buy lemonade from you, and at what price? Then you can tally how many people walk in front for a day, or a week, how many will buy the lemonade, at what price, and you have your basic market analysis. Guess what, you just conducted the perfect market analysis with Primary Data (as scientists, forecasters, and PhDs want to say), and all that means is that you conducted the analysis asking direct questions to your population sample. Or if you want to put an ice-cream parlor, you can simply try to get some information from the local ice-cream store to see how well is he/she doing (secondary data). Many academics, MBA’s, PhDs, and consultants will be up in arms that I just give up their secrets, but for a simple business it does not needs to be more complicated than that.

Organization* and Management

Out of these two the truly important one is the Organization, and not as much the management. Of course the new breed of Managers that have never actually done a real job, and that are experts on meetings and power points, may disagree with me, but since we’re not asking their opinions now, we can ignore them (and you probably can save a lot of money by doing that at least initially). The one part that you cannot and should not forget is the actual organizational structure, because that can can help you and your company succeed in the future. Organizational structures can range from individual proprietorships, to multinational corporations, and from a classical pyramid (with you as the boss at the top), to a matrix model (where there are complex interconnected links between multiple groups within the organization), you need to determine and decide what is the best model for your company.

As an example the classical lemonade stand, or a local grocery store, mechanic shop, and other small business can simply be formed as individual proprietorships, with a pyramidal management model (one person owns and manages the company), while a legal firm, or a hospital could be formed as a corporation or partnership where everybody owns a portion of the company, and everybody has their own cross linked responsibilities (lawyers or doctors with different specialties can get together so they can help each other by pooling resources and referrals between them).

Product or Service*

ice-to-eskimo

Courtesy of (quickblogcast.com)

This is what I consider the most important portion of the business plan, your Product or Service. In reality if you don’t have a product or service, then you must seriously rethink your whole idea of launching your own business. Let’s remember that there is a difference between thinking that you have a product or service, and actually having one. Some people think that they can launch a consulting business (just because a couple of friends asked them for their opinion), or some other ones think  that they can make billions on the internet launching a company to compete with E-Bay or Facebook, just because it can be done. The problem is that they forget that there is a difference between thinking  that you have a product or service and actually having one, and one that your Market Research section should help you solve (since even with Amazon and E-Bay), I don’t see many people making a living out of selling horseshoes, saddles, and spurs (even if some are still doing really well in some places). You need to truly understand your market, and come up with a product or service that they need; even the corner grocery store provides a service “the convenience of having products closer to you” and that’s why they survive even in today’s internet enabled marketplace..

Marketing and Sales*

One of the biggest misconceptions of new business owners is the old “if you build it they will come” expectation. If you build it (in the middle of the Sahara, Death Valley, or the Arctic), there will not be too many people that will actually come (since there’s almost nobody there).. In addition if you build it in the middle of 5th Ave (NY), Rodeo Drive (SF), or in the local mall and do not know how to sell it, it does not matters since you will not be able to get your investment (build) money back and much less to grow.

U.S. DollarOut of the two, I consider that the Sales portion is the most important of them. As indicated before you can simply take advantage of some natural characteristics when building it, and that’s what many people do when they locate their stores or business in a well known shopping plaza, or mall. People will already be there for business, and based on that there will be some natural marketing (through exposure), to the potential customers. On the other hand, we need to remember that the most important reason to be on business is to generate a return on your investment! If you are not generating a return on your investment, then you are running a charity (which by itself is great, but it is not a business). And so far the only way I know to obtain that return is to actually close the sale!. That’s why I consider that Sales is the second most important part of your business plan (right after your product).

Financial Analysis*

Now you know your market, you have a product, and you’re actually doing sales, so you can say that you are on business. But does that means that you’re a successful business?, nobody knows yet. That’s why a sound financial analysis is one of the most important portions of your business plan, since it’s the one that can tell you if you should continue with your business or not, and while simple, CPA’s, MBA’s, PhDs, and other alphabet people may tell you the opposite, but it does not has to be. Basically all you need to do is to understand if your business is making you more money after discounting all of your investments, that you could make otherwise working for someone else and investing your savings on the regular market. While a good CPA could surely help you at the end of the quarter, or at the end of the year, you should be able to look at your numbers every day, week or month and decide if you have a successful business or not (before the bank comes knocking at your door and gives you the message)…

Here is a Simple Business Plan for a Lemonade Stand

Market Analysis

I live close to the recreation area  in a residential community in South Florida. Every saturday and sunday there over a 100 people that walk in front of my house going to and from the recreational center. When I asked them almost half told me that they will buy my lemonade if it was priced between 25 cents and a dollar for a tall glass.

Organization

Individual Proprietorship (just me). If it grows then I can hire a couple of kids from the block to make it and sell it while I take a break.

Product:

Cold home made fresh lemonade made to order

Sales:

One glass of home made cold lemonade for 75 cents.

Financial Analysis:

  1. Plastic cups 50 for $2.50 (5 cents each)
  2. Lemons 24 for $6 (25 cents each), need one for every 2 cups
  3. Sugar 10 lbs for $5, enough for 50 cups
  4. Cost per cup of lemonade = 37.5 cents
  5. Price of cup of lemonade = 75 cents
  6. Profit on each cup = 37.5 cents
  7. 100 people a weekend * 37.5 cents = $37.5

So there you have it, a complete business plan in a single page.. Now you can go and write your own (or ask us if you need some help doing it) 🙂

About Inloso

Inloso offers strategic business consulting in Latin America and the U.S., in the areas of multinational strategic business development, multinational operations, and entrepreneurship. We have over 20 years of experience and can help you expand your business, improve your profits and customer satisfaction, and/or reduce your costs of operations. Please visit our contact page if you are interested in our assistance in any of these areas.

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