Life Area: Professional
Topic: Business Plan
Six Key Questions To Ask When Writing Your Business Plan
As many of you know, I started my first business when I was just 19 years old and have bought and sold 16 ventures since. I’ve written here before about the elements of a business plan, creating a pitch deck and have offered up FREE downloadable email templates to help you raise seed capital. Today, I want to talk to you about the many invaluable things you’ll learn writing your business plan and the merits, beyond raising capital, of going through the effort of taking your many thoughts out of your head and committing them in writing. By first writing a strategic plan, you can evaluate on paper without the risk of finding out the hard way by trial and error. At the very least, these are questions that any potential investor IS going to be asking of you and you better be prepared to answer:
1. Why you? Why your business or your product/service? What differentiates you from your competition?
I am, or any potential investor is, going to assume that your product or service fulfills a want, need or desire of the buying public. If it doesn’t, rethink your plans. Sometimes the market doesn’t know it needs your product – and that’s fine. Henry Ford famously said, “If I had asked them what they wanted, they’d have told me faster horses.”
The first step is to identify the need your product or service will fulfill. Then determine whether or not this need is currently being met and if so, how and by whom? The first question I always ask my business coaching clients is, “Why should a prospective customer buy your product or service rather than a competitor’s?” If they can’t answer this question clearly, concisely and definitively, I tell them that that is the first thing that we will accomplish in their business coaching.
The first step is to identify the need your product or service will fulfill.
2. Is there a large enough segment of that buying public that will value that difference?
Identify the segment of the market that values whatever it is that differentiates your product or service. Estimate the size of the market segment. Now, reduce the size of this segment by the percentage of people who won’t be willing to pay what you will have to charge to make your business profitable and answer if you can still reasonably project enough volume to make your business economically viable?
3. Now, question whether that difference, the very things that set it apart, are indefensible?
If your idea is a good one, you had better know how you will keep a large competitor with deep pockets from knocking it off and running you out of the market. There are many examples of well-healed copycats overtaking people with good ideas. You need a plan to protect yourself from this. Perhaps you can protect your intellectual property through a patent. Perhaps your idea, for one reason or another, is difficult to copy. What barriers to entry are there to keep the competition from moving in?
4. How can you cost effectively reach that market segment?
Whoever said, “If you build a better mousetrap, the world will beat a path to your door,” was simply wrong. If the world doesn’t know you have a better mousetrap, NO ONE will come knocking. Make sure you are clear about how you will reach your target market with your message. You need to have a clear plan for cost effectively acquiring customers. Watch Shark Tank and you’ll soon see that one of Kevin O’Leary’s fundamental questions of all entrepreneurs in the tank is “What is your customer acquisition cost?” A marketing cost per acquired customer of $50 is no good if you make only $40 on each new customer.
5. How can you prove the viability of your idea without diving in too deep?
If you are afraid that you will need a big investment to launch your product or service, find a way to challenge that assumption. There may be ways to prove the viability of your concept without making the full investment. Ideas include outsourcing manufacturing or making version 1.0 by hand rather than buying expensive equipment.
Another way is to launch in a limited geography. For instance, I am writing a training curriculum for the local commercial real estate office of a global giant in order to “test market” its receptivity with the local brokers before rolling it out on a national basis. Pat Flynn in his recent book Will It Fly?: How to Test Your Next Business Idea So You Don’t Waste Your Time and Money advocates reaching out to your audience with an offer before you even move into production as a proof-of-concept validation. If you get enough pre-orders, you’re ready to roll. Chances are equally good that if this initial version fails, were you to go to a broader market, it would fail there too. My advice is to fail fast and fail cheap. Launch as inexpensively as possible. Learn from the market’s reaction. Make the necessary changes.
6. What will your cash flow look like?
Lastly, make sure that during your business planning exercise that you build a thorough financial model that supports your decision to move forward, and … be conservative with your assumptions. This is the one area a potential investor is going to pick apart the most.
New products or services often take much longer and cost much more to launch than you would think. Unless you have a lot of experience launching new products, the estimates you consider accurate will almost certainly be aggressive. If the economics of your product don’t look good with very conservative assumptions, you may want to rethink things.
Email me at THart@SuccessSeriesLLC.com and share with me some of your biggest struggles both in your personal life and in your business; let’s see if I can address them in upcoming blog posts!
Launching a new venture can be exciting and rewarding. It can also be fraught with risk. Honestly answering these six questions will help you make decisions that are more informed, preparing you to move forward.
Please share this blog post with your family and friends.
My mission is to inspire people and organizations to live their highest vision.
I am a Success Strategist and Master Coach. I provide transformational coaching and training for individuals and organizations to help you Grow Your Life and Build Your Business by getting clear and focused on what you want, why you want it, and how to create it. Learn more about me at SuccessSeriesLLC.com.
There is no better endorsement than that of a friend, so if you like what you’re reading or are using my many FREE resources, tell a friend to join the Tom Hart Success Series Community, to receive email notifications of new blog posts and Talk with Tom podcast episodes, learn of upcoming events, and other news, by visiting my website and clicking on the offer to receive my FREE monthly resource by leaving their email address OR forward this to them and have them simply click here (we respect your privacy and do not tolerate spam and will never sell, rent, lease or give away your information to any third party).