Creating a business plan is the first and most crucial step to building a successful company.
"A business plan is important because it communicates to everyone involved in the organization what the goals are, and how management plans to get there," says Drew Starbird, a professor of operations management and information systems at Santa Clara University's Leavey School of Business.
Growing up, Starbird helped to manage Hall & Rambo, his family's commercial insurance firm that launched roughly 110 years ago. The San Jose, California-based company began by serving fruit processing plants in the Silicon Valley before pivoting in the late 1960s to work with tech ventures.
At Leavey School of Business, the My Own Business Institute (MOBI) program provides online education tools for entrepreneurs around the world. Its website generates roughly 70,000 page views each month. Business owners can register for a web course and earn a certificate for free. MOBI also offers a downloadable business plan template, which is designed to help startups in any sector--from bakeries to IT services.
The parts that make up a business plan are straightforward. According to guidelines from the U.S. Small Business Administration, you need to include the following:
- an executive summary
- a company description
- a market analysis
- an organization and management breakdown
- a description of the service or product line
- an overview of your marketing strategy, a request for funding (if applicable)
- some financial projections to back up your ask
- an Appendix (optional) that includes relevant resumes, permits, or leases.
Here's a step-by-step breakdown to get you started with your business plan, along with a few expert tips on how to attract investors.
1. Describe your startup.
The first step is to simply describe the business you want to build. During the process, it's important to be honest about the obstacles you're likely to face.
Starbird suggests including a breakdown of the target market and customers. You should also be clear about the factors offering a competitive edge.
Be careful not to have any blinders on when it comes to your product or service. "People spend a lot of time focusing on the features that make them unique without taking the time to translate that into a value proposition," says Starbird.
Do diligent research on what your market is, and how to communicate with customers accordingly. "The most successful investors are looking for an idea that is going to have a clear and understandable market potential," he adds.
2. Have a thorough plan: Document all aspects of your company.
"As the founder, you need to be concerned about all parts of the plan," says Starbird. That means including any licensing agreements, or your location strategy, for example.
It's especially important to know and understand your numbers. "The number one reason firms go under is inadequate cash flow. If you don't know what's going on in that area, you're going to be in big trouble," Starbird warns.
3. Make sure the plan is modifiable for different audiences.
Different sections of your business plan will be more important depending on your audience. Investors, for instance, will want to see your financial projections, whereas employees might be more concerned with the organizational structure of your company.
The SBA recommends that you project that status of your company for between three and five years into the future, though it's a good idea to outline your annual goals, too. Keep in mind that the further ahead you look, the less accurate your conclusions are going to be.
"A five-year horizon is fine, but a thorough business plan looks beyond that [up to 10 years], with the recognition that some of the forecasts would be of decreasing accuracy," says Starbird.
He recommends updating your business plan every year as the company grows.
4. Include details to put you over the edge.
When writing the market analysis, it's a good idea to include any information about external growth trends, and why one company might have the market share. Pricing power -- meaning how consumer demand would be affected if your company shifted its prices -- is one detail that often gets excluded from business plans, but which can help put you over the edge.
It's also important to keep your expectations realistic and honest: The biggest mistake entrepreneurs can make when writing a business plan, says Starbird, is to be overly optimistic with sales and future cost estimates.
5. Remember why you care.
At Hall & Rambo, Starbird says his primary role was to be the "gopher guy." It allowed him to learn the ropes of running a business, and to prioritize goals beyond the bottom line.
"It was very clear working with my father and grandfather and uncle that it wasn't just about making money," he said. Other priorities included raising the payroll for employees, offering competitive benefits, and making an impact on the local Central California community.
Your business plan should reflect not only your financial goals, but also your values, and those of the community you're working to build.