When you’re working day and night to get a startup off the ground, it can be tempting to cut corners by skipping the creation of a business plan. If you’re connected with your vision, goals, ethics, and sources of funding, it can be even more tempting.
While some successful startups have opted to skip a business plan, there are many benefits of sitting down and spending the time to create one. Not only does a formal plan lay out your goals in a physical, real way, but it also allows you to take the time to look for potential pitfalls in your plans.
Much can go wrong when starting up a business, and a formal business plan can prepare you for the worst while allowing you to embrace success. It’s also a crucial document that can be used to formulate a multitude of future policies and administrative efforts in the months and years to come.
The Point of a Business Plan
On the one hand, a business plan is just what it sounds like. A plan for your business. On the other hand, it’s so much more.
A business plan grounds your goals in reality, forcing you to take a critical, methodical look at what you’re seeking to build and assess the time, money, and additional efforts that will be required to realize your dreams.
According to research conducted by the Bureau of Labor Statistics on startups over the past 20 years, roughly 20% of startups fail in their first year, followed by 30% in their second year, and upwards of 50% in their fifth year. Those are intimidating odds for entrepreneurs who are seeking to launch their ideas and create a viable business.
Creating a business plan can help prevent failure while providing you with solid direction in the early stages. Just like a pyramid needs a solid foundation to withstand the demands of the whole, a startup needs a business plan to ground and provide guidance throughout future developments.
The Key Aspects of a Solid Plan
Business plans are excellent sources of direction for your buzzing thoughts and the scores of items on your entrepreneurial to-do list. To help focus your energy and spend your time wisely, consider adding these key elements to your business plan:
Mission Statement - helps you define your overall goals
Company Description - defines what type of business you’re creating, whether product or service-based
Defining Product/Service Features - reveals what market voids your business will fulfill and how you’ll set yourself apart from the competition
Market Analysis - building on the last element, it provides clarity on the current market, including competitors and available profits
Organization Structure - describe the management roles and requirements for future hires
Marketing Plan - define your audience and the methods you’ll use to reach them authentically
S.W.O.T Analysis - conceptualizes the Strengths, Weaknesses, Opportunities, and Threats that your business will face in the coming years
Financial Need Statement - identifies projected income and expenditures for the next year at the very least, allowing you to plan accordingly
Projected Revenue - analyzes the potential revenue based on the current industry markets and your own financial requirements
Conclusions - wraps up your plans with a statement of intent that defines how you’ll proceed, which is useful for yourself and potential investors
While your business plan should include these points at the very least, you can also create a more robust plan to serve your specific needs. Your plan can be simply stated in a narrative format, or include infographics, charts, and other visual representations that reflect your creativity or branding.
The Hidden Benefits of Creating a Business Plan
Assembling a business plan is a process, and as such, you’ll inevitably go through different stages, including initial research and eventual reevaluation. Throughout these stages, the business plan will provide you with a framework that encourages you to test your assumptions and back them up with data.
Market Research Aid
If you’ve ever followed through on a hunch and been disappointed, you’ll appreciate the aspect of your business plan that encourages you to support your ideas with facts. Depending on how detailed you want your plan to be, you can research and include anything from consumer behavior to your competitor’s successes and failures.
Built-in Evaluation Metric
The importance of course-correction in any business is a given. Fluctuations in the market, rising production costs, and shifts in your target audience can require anything from minor to major overhauls. With a solid business plan, you have a ready-made metric to plug in your updated numbers and measure your new projections of success. You can also use your existing business plan as a grounding tool to ensure you stick to your original goals without losing sight of the infamous ‘Why’ that guides your actions.
Pitch Tool
Your business plan can double as part of your pitch to potential investors. Armed with the research, cost projections, and revenue estimates found within, you can use your business plan to prove your viability and professionalism to investors who might need some convincing. If your investors want to have a say in the direction of your startup, you can also include their potential roles in your organization sections.
Committing to Writing a Business Plan
While it’s perfectly understandable to dread the act of creating a business plan, it’s a task that shouldn’t be overlooked in the long list of startup necessities. As with any complex task, break it down into bite-sized pieces and set individual deadlines for each section. Working on a little bit of your plan each day will be more rewarding than trying to tackle it all in one sitting.
In addition to making the process as approachable as possible, don’t shy away from seeking help when it comes to more granular details like your financial needs and projected revenue. A trusted advisor can help guide your projections when it comes to things like startup costs for incorporating your business and estimating your tax responsibilities. The more information you’re able to include in your business plan, the better equipped you’ll be to weather the highs and lows of successfully managing a startup through its first five years.