Thinking of starting a business, continued …

Two weeks back we looked into some hints and suggestions to include in a solid business plan. We saw that a business plan summarizes a project in a way that makes it understandable and attractive to potential financiers, business partners or employees. Keep in mind that the first review of a business plan is an elimination process, rather than a selection process. The challenge is to stimulate readers’ curiosity and allow them to read the plan easily. The plan should clearly identify the problem the business is going to address, not only the solution. A good understanding of a particular problem or need will lead to success. First confirm the need, then build the product. Show you understand the problem and your solution will be more convincing. Next, be focussed. Define the target market and provide a relevant description, with figures that show the size of the market. For readers to reach your conclusions, rather than their own, you need to guide them. It is not enough to describe facts as different readers may draw different conclusions. Show evidence of market acceptance, in particular with a new product or concept. Consumer behaviour is hard to predict. A common pitfall is to assume that customers will behave in the way you expect. Reality is different and common sense is the least accurate way to predict consumer behaviour.
Now describe the implementation approach. A good idea is unlikely to be unique. If it is good, expect a few other people to be thinking about it. If it’s really good, you may find others working on it already. The difference is in implementation. This is the real challenge. Even if the idea is not unique, you can make a difference in the way you carry it out. And that is what investors are looking for.
Be coherent with figures. There will never be accurate figures until the business is underway and even then, some pieces may be missing. It is always possible however to use comparisons, benchmarks, and reference points. Use them to estimate market size, market share and profit margins. Readers of your business plan will in the first instance not be able to double check the figures. They would rather look at the coherence of figures and check that they are consistent with the strategy.
Sometimes financiers provide a format for the business plan. If not, use an easy-to-read format. Remember that complicated documents are irritating and flat text with long paragraphs is boring. Think about the way people read a newspaper: they check the headlines first and focus on interesting stories. Readers of business plans are no different. Don’t use small type and don’t exceed 30 pages. If readers want more, they will ask. Remember that large files are also difficult to send by email, particularly in our situation in Ethiopia.
Use simple style, common vocabulary and avoid abbreviations. Describe the business in a way that makes it easy to understand. Describe the need to be addressed and the market opportunity. Then explain how this need will be met.
Draw the organization chart as it should be at maturity, not to fit the current team. Highlight the team’s capabilities and don’t hesitate to identify gaps, showing awareness of future trends.
It is a mistake not to include a thorough analysis of potential competition. If there is no competition, that is not necessary a positive point. In fact, it may be very negative because there could be no market for the idea. Once competition has been covered, show the differentiating points. Avoid statements saying that your business will be “better” or “cheaper” or “faster”.
Marketing and sales are strategic components of any business. Focus on how this will be done and remember that the marketing approach may provide competitive advantage.
The most important determinant for success is the ability to execute. Implementation is the real differentiator. This includes all aspects, from the choice of technology to customer service.
Always include a section analyzing the risks that may affect the business. An accurate assessment of risks will help convince investors that you are fully aware of the threats the business may face. It will also show that you are prepared and capable of responding to the challenge. This reminds us of the continued electricity problems we are facing for example. I have spoken to several business owners running different kinds of businesses and they are all seriously affected by it. Production time is reduced, production costs are rising, essential information and opportunities are missed, and a lot of business and money is lost. I wonder how many of us are prepared for such high infrastructural risks. Those who were and had earlier invested in alternative sources of energy are now at an advantage.
Going back to our business plan, don’t forget to state clearly what is expected from the target readers. The conclusion should include your funding request.
In conclusion:
Use the business plan as a communication tool.
Be simple, realistic and use common sense.
Don’t look for funding but for raising interest.
Be ready to support any statement with detailed information.

Reference: Financial Times – Mastering Management 2.0 – Joe Tabet and Albert Angehrn
Ton Haverkort

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