There are several factors that determine the fate of a startup. Having the right business plan is amongst those key factors.
In fact, every startup germinates from an idea and grows to reach fruition from the mould of its business plan. During the course of its journey, there may come a time when it may outgrow this mould or need a new one. Yet, making a business plan is that first critical step to make sure that a startup does not get carried away on a wave of optimism and passion.
A business plan is basically the road map to move ahead and be prepared in some measure to face the hard knocks that come along the way. In fact, it is more important for a startup to have a business plan for their own sake than just to target potential investors. Investors rightly need it to judge whether the entrepreneur has thoroughly thought out all the aspects of the business. But, for the startup, the whole process of making the business plan helps to clarify the purpose and direction of the business to the team, since it is the team that is responsible for executing the plans and taking them to fruition.
Considering the kind of value a business plan holds, just a rudimentary outline of the founder’s vision and goal is not enough to make the business plan a workable document. It should essentially clear the test on the following parameters:
Give clarity on the nature of business
The business plan should clearly communicate what the startup is all about. The exact nature of the business and the values on which it is based need to be put down for everyone to understand, accept and follow for the future. This is what will define and set the startup apart from others in the market.
Also, since there may be more than one person involved in the decision making of a startup, a business plan is their window to their big dream. Moreover, startups interact with various stakeholders, both internal and external, so a document clearly describing the mission, objective, target market, competitive advantage and strategies to achieve them is a must.
Set the Goals
A good business plan clearly states and establishes both – the short and long term goals. They may be three-yearly or five-yearly goals for market gains in terms of sales, revenue generation, logistic and network escalation, hiring and product development. This has to be made keeping in mind the possibilities of new competitors, changing market trends and technology. Setting goals will also allow the team and the founders to keep their eye on the end goal, as a lot of distractions come in the way of running a startup.
Forecast expenses and sales
Numbers are all important in a business plan. Knowing the current financials of the business and projecting the potential will show what distance the organisation needs to travel and with how much. Automatically, a lean model will be adopted as this exercise will lay bare the need to balance the expenses with the sales. Creating a plan with such expense projections, revenue forecasts and risk assessment can help entrepreneurs remain committed to their long term goals. Furthermore, a break even analysis in the business plan will be an important benchmark for investors to understand whether the business is viable in the long term or it is a fast growing business with an early exit.
Target market areas and customers
A complete study needs to go into the business plan about the target customer, customer demographics, and where they can be found. A tentative plan on how to attract customers will also help in determining the budget for marketing expenses. The focus on this aspect automatically prepares you to deal with current and potential competitors and how to beat them in the game. This exercise will also throw up new possibilities, which you may not be able to spot early on, otherwise.
Startups are beset with limitations. Right from a limited capital, supply chain, production capacity and insufficient team, with limited resources it’s a struggle in the initial years. So, the scarce resource needs to be judiciously used and optimised in a business plan. This helps to clearly identify the gaps and leads to early action to shore up resources.
Launching a startup is no mean feat. Often entrepreneurs end up pouring all the resources at their disposal to realise their vision by launching a startup. So, skipping a vital step of preparing a business plan can prove disastrous in the long run since it would mean a complete waste of time, resources and effort spent on the startup.
Preparing a proper business plan means the entrepreneur has thought through all aspects of the business that are vital for ensuring its viability and sustainability. It forces the founders to go into the details of the business, discover areas or items which were not taken into account previously and fine tune the steps to run a successful business. The time invested in making the right business plan may not be evident right away, but will yield huge returns in the long run. By underestimating the value of a business plan, chances of slipping up or planning for some crucial aspects of the business are higher, and that automatically increases the chances of failure. And which smart entrepreneur would risk doing that!
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