This 3 part series by “Mike The Business Guy” will help you with the most crucial (and scary) aspect of starting a new business – the business plan. This is an easy-to-follow guide that takes out the scary and will help get you off on the right foot. Mike the Business Guy has over 30 years of business experience as an MBA, CA and P.Eng and has recently retired to enjoy the good life and share his wisdom with others!
Almost every new business will have a better chance of success if it develops a business plan first. The two major benefits of a business plan are: (1) it will identify where you should focus your time, and (2) it will identify the likely financial returns from the business. No sense starting a business that will take more time than you have available to make it a success, nor does it make sense to start a business which won’t generate sufficient financial payback.
I’ll briefly outline the key parts of a business plan, then discuss the main focus of this article which is analyzing the expected financial results of a business.
This describes the purpose of your business – what it is that you are going to do. Is it a business involving a tangible product (that you manufacture or resell), or a service (that is provided in person or over the internet)? You should try to be as specific as possible in describing your product, so that you can make good estimates of your development timeline and costs (see below).
This describes whom you intend to sell your product to. Again it is best to be as specific as you can because you will need to come up with some numbers for the financial model of your business. For example, you’ve decided to develop a website providing advice to moms. Well there are probably 2 billion or more women in the world who are actual or potential moms and with access to the Internet. If you are writing in English and much of your advice will be related to the local scene, then your market is now English-speaking moms in Greater Vancouver. So 2 billion now comes down to half a million. Still a big market. Can this market be further defined as stay-at-home versus working moms, is income or educational level of the mom relevant, is age or ethnicity relevant, is location in Greater Vancouver important? Be specific and be realistic. If you want professional, stay-at-home moms, with kids at home, on the North Shore, now you’re down to a couple thousand.
Means of distribution also needs to be considered when identifying your market. If your business involves a physical product, then are you going to open a store, or just sell online and use a delivery service? An intangible product (service) may be able to be distributed over the Internet, but will you have to create and maintain your own website? And if you’re dealing in cyberspace, how are you going to reach the smartphone market?
Another factor that defines your market or market segment is pricing. What do you expect to charge for your product, and how many people in the overall market can afford that price? Or are you going to offer your basic product for free, and hope to make revenue from advertising or add-on services? Having some other person hand over their money to you in exchange for something you provide them, is where the rubber hits the road. So think this one through carefully.
COMPETITION AND COMPETITIVE ADVANTAGE
If you’ve come up with a totally unique idea for a business, well congratulations! In most cases though, your business will be competing with other businesses for the market you have identified above. It’s important that you reflect on who is your competition for that market. (This is a place to do some research.) Then with an eye on the competition, now consider what your competitive advantage might be. What is going to make a potential customer come to you rather than someone else?
Even if you have no competition, you still face the challenge of making your product known to your potential market. Are you just going to rely on hits from search engines? Pretty risky! What sites can you get links from? What about creating a YouTube video? What about online advertising? Tradeshows? Flyers? There are lots of options but all require an investment of at least your time, if not money.
Stay tuned for the next part of the series which will describe the next three parts of the plan or check out our TOOLS section for a sample business plan courtesy of the fab ladies at Admiral Road.