Monday, December 17, 2007

What is a business plan, anyhow?

If you do a search at for books under the topic of 'business plan,' you will find a staggering 69,736 titles. Likewise, if you google 'business plan,' it comes up with 91,500,000 results!!! But, my question for you is - what really is a business plan?

According to the American Heritage Dictionary, a plan is defined as 'a scheme, program, or method worked out beforehand for the accomplishment of an objective.' So, if we apply this to a business plan, it essentially is figuring out beforehand how you are going to successfully start up your business. There are many different business plan outlines, because figuring out the how question can vary depending upon the type of business and how complex it is. That said, most business plans address the following questions:

Company: How will you be organized and bring in the personnel to exploit this opportunity?

Product/Service: What are the features and how will they benefit the customer?

Target Market: What is happening in the industry and how will your business fit into the mix?

Competition: Who are your existing and future competitors and how will you compete?

Sales and Marketing: How will you create an effective strategy to attract and sell to your customer?

Operations: How will you actually get the business up and running?

Financials: How will you make money and maintain financial feasibility?

It is important to note that technically, a business plan does not need to be written. Why? Because nothing about the definition says anything about being written. It is about planning! Of course, I suggest writing down your business plan because it is a lot of planning to keep in your head, and research does show that if you write down your goals/objectives, you are much more likely to achieve them. You will also need a written business plan to pitch your idea to important stakeholders such as investors, lenders, and key partners. Interestingly, there is a study out by Honig and Karlsson published in the Journal of Management in 2004 that found that the mere writing of a business plan is not linked to survival or higher levels of profitability in the first two years of a business. Why? My answer is that what is more important than going through the act of writing the business plan is how well you answer the how questions.

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