December 2, 2020

8 things entrepreneurs must consider when writing a business plan

  • A thoughtful business plan can help startup founders navigate the many challenges of growing a business.
  • Business Insider spoke to business consultant Steve Wunker, an advisor to international giants and recent startups alike.
  • From his remarks, here are eight essential items founders should keep in mind as they craft a business plan.
  • Visit Business Insider’s homepage for more stories.

One of the first steps to launching a business is creating a written plan.

Whether it’s used to pitch investors or just as a roadmap for your team, the best plans are flexible and have weighed all the inherent risks. They’re also conservative and passionate at the same time.

For advice on how to create a strong business plan, Business Insider spoke to Steve Wunker, a managing director at New Markets Advisors, a consulting firm with clients ranging from international giants to recent startups.

Here are eight things founders should consider when preparing their plan.

Cash is king

Cash is the literal lifeblood of a business, and your plan should be clear about where its money comes from and where it goes.

For a brand new company, Wunker says revenue numbers are a “work of fiction,” while your expenses are very real.

“You really have to have a clear sense of what is an unavoidable cost versus what is a variable cost,” he said. “When you think about expenses, think not just about when they’re incurred but when the cash is going to have to come out of the bank.”

Pay special attention to risk

In addition to outlining the expected costs of business, Wunker says it’s critical to think through the many ways it could surprise you, especially if you’re hoping to use other people’s money to grow the company.

“Your initial iteration of the business shouldn’t attempt to be the business in miniature; rather it should focus on what are the key risks or uncertainties and reduce those as thoroughly, quickly, and cheaply as possible,” Wunker said. “That will give you and your financial backers the confidence to invest in feeling out the business.”

Balance passion with skepticism

As a founder you’ll have many different roles and responsibilities. As a team leader, it’s up to you to inspire others to work with you, invest in you, or buy your stuff.

On the flip side, Wunker says founders that have a healthy skepticism about the realities of their business are more able to anticipate potential challenges.

“Entrepreneurs have a very tough time doing that,” he said. “They have to be passionate otherwise they wouldn’t be starting up their idea.”

Get help from others with different experience and perspective

If you’re having a hard time taking off the rose-colored glasses, Wunker suggests that you “find cynical people to share your ideas with.”

As you gather and evaluate feedback, be sure to put things in balanced perspective.

“It doesn’t mean you shouldn’t do the business, but it means that you’ve really thought about everything that might go wrong and how you can mitigate the risks,” Wunker said.

Consider your audience

Your business plan has two primary readers: investors and yourself.

“If you’re trying to raise money then you’re going to need that for investors and to some extent the plan is a sales document. It’s got to be a balanced sales document, otherwise investors aren’t going to look at it creditably,” Wunker said.

If you don’t need outside funding, the document can simply serve as a reminder of the goals and strategies that guide your company through a competitive marketplace.

Envision your ideal customer

Regardless of how spectacular your product or service is in theory, your business won’t go far unless it offers something useful to people in the real world.

“Most entrepreneurs start with the answer, not with the problem, and they ignore innovation opportunities that way,” Wunker said.

Wunker recommends thinking outside of established categories or silos and imagining new solutions that help people live and work better.

“Think about it from the customer’s standpoint,” he said. “What is the person trying to get done, how might you help with that, and what is the full range of competition?”

Understand your competition

Taking the customer’s perspective will allow you to look across the existing categories and identify where their needs are not being met. That is where the opportunity — and the competition — is.

In many cases, Wunker says customers use solutions from a range of categories, like video games or miniature golf, to satisfy a more central need, like weekend entertainment.

Thinking like a customer shows you who your company is really competing against.

Base your revenue model on necessity, not wishful thinking

Every startup boasts the same hockey-stick revenue projection, and savvy investors are unlikely to be swayed by such unfounded claims.

Still, there is a place for revenue projections that ties directly to the King Cash principle mentioned earlier.

“If your threshold for making the business happen is that it has to bring in a million dollars in revenue, for instance, then ask yourself what you would have to believe about pricing and market penetration and other factors, to get you to a million dollars of revenue,” Wunker said.

This approach to revenue forecasts will give you a much more useful number to evaluate your business and leave the fiction writing to other authors.

 

Carolyn Cutrone contributed to an earlier version of this article.

Source Article