How do entrepreneurs write a business plan for a start-up?
Mastering the Business Planning Process
Your business plan acts as a reflection of you, showing that you have really thought things through. It requires advance preparation, delegation, refinement, and, most importantly, a disciplined approach.
Eugene Kleiner shares sage advice, “Writing a business plan forces you into disciplined thinking if you do an intellectually honest job. An idea may sound great in your mind, but when you put down the details and numbers, it may fall apart.”
Many entrepreneurs begin business planning by incorrectly estimating the length of time and effort it takes to prepare an effective business plan. It cannot be completed in one attempt. A business plan is a living document, and business planning is a process that never ends. The plan changes, especially with most high-tech ventures, where it may change in the early stages on a weekly if not a daily basis. These are not huge changes but iterations, and the business plan becomes “someplace” where modifications are noted as the venture takes shape and more information is collected. The overall business planning effort is based on the degree of uncertainty, the degree of complexity, and the potential threat from competitors.
It Starts with Storytelling
According to David Berkus, a past-president of the Tech Coast Angels, one of the largest angel investment groups in the United States, the first step to writing a business plan is fleshing out your “talking points” and weaving them into a storyline. Storytelling is having the ability to communicate succinctly and precisely what you do, what you want to do, and what you need to do it. Bill Joos at Garage Technology Ventures, who has heard some 100,000 pitches from entrepreneurs, agrees that there is a “big problem with entrepreneurs who have the inability to talk about what they do.”
A story conveys not only information, but also meaning and knowledge in a certain context that can be easily remembered. Peter Orton of the IBM Story Project says that “one of the most important yet least appreciated facts about storytelling is that perceivers tend to remember a story in terms of categories of information states such as propositions, interpretations, and summaries rather than remembering the way the story is actually presented or its surface features.”
The Writing Process For A Business Plan
Crafting an excellent business plan is a very arduous task that involves hundreds of fully committed, heads-down hours, and seemingly endless periods of researching, drafting, discussion, writing, editing, and rewriting. Before beginning, it is important to understand the entrepreneurial life cycle and the venture drill process if you are attempting to raise money from investors. You need to have in mind the purpose of the business plan, the intended audience, and the orientation of your approach to writing it. Set an overall schedule and then start work on writing the plan following the action steps we provide here.
Step 1. Brainstorming
This is the creative and uninhibited step in the writing process. You need to be free and non-critical. Lightly read through our materials and begin writing your business plan by jotting down the related ideas, good or bad, in a journal or in a simple Microsoft Word document. Collect information like articles, industry studies, press releases, and Web resources.
Step 2. Organizing
This is the time to be critical. Looking at the random collection of ideas, sketches, and articles that have come from brainstorming, make an attempt to edit them. Look for some common patterns of thought. Examine the Value Drivers in more detail. We suggest that you create ten folders, one for each Value Driver, for segmenting all this information.
Step 3. Outling and Storyboarding
In addition to creating an outline in Word, we recommend that you work with Microsoft’s PowerPoint to storyboard your concept into slides that consist of simple bulleted talking points and diagrams. Print them out as you change or edit them, tape them on a wall or flipchart, and then discuss them with your partners.
Storyboarding is effective because it breaks critical thinking into smaller, more manageable parts. Storyboarding goes back to the days when Walt Disney’s animators were creating very brief, quickly completed sketches and then posted them on the wall. In 1934, Disney, well overextended on his latest film, Snow White and the Seven Dwarfs, used a storyboard presentation to keep Bank of America from calling the studio into bankruptcy. Perfected today, the storyboarding process is described by Disney Imagineers: “Layer upon layer, we create a patchwork of sketches and words that color the original idea. Funny, fantastic, diverting, enhancing, persuasive, serious or not, our visualized thoughts begin to chisel away and uncover the diamond in the rough.”
Step 4. Drafting an Executive Summary
Looking up at your top ten or fifteen slides from your storyboard efforts (if they are above your desk in your war room), attempt to write a very tight three- to five-page summary. First segment your slides into the ten Value Drivers. Then write a few talking points for each slide, adding some content to make complete sentences, and review for spelling errors. Then discuss it with your partners, close friends, and your advisors.
Avoid the mistake made by entrepreneurs we know who spent as much as $25,000 on preparing a full business plan without the benefit of any feedback.
Step 5. Flight Testing
Who else do you know who can “get their eyes on this” and give you an objective appraisal? Too many entrepreneurs delude themselves in the early stages. They want so much to believe in their ideas that they listen only to what they want to hear and see only what they want to see. Venture capitalists do not want to be the first to validate an idea. It is not about hitting the bull’s eye on the first attempt but it is about how quickly you can improve your aim and get another arrow on the way to the target. We recommend that you flight-test your Executive Summary with outside trusted individuals. Consider your banker, past business associate, leader at the non-profit trade organization, and business professors at the local universities.
Step 6. Focused Writing and Editing
Now the real work begins. It will be valuable to go through and read our book again, but this time begin studying it and applying it to the particulars of your venture. You will be need to be narrowing down your strategic options, alternatives, and begin working on the precise language and wording.
Step 7. Revising, More Flight Testing, Reworking
This step involves the details: proofreading, spelling errors, punctuation, and grammar. Following a more professional approach to business writing, discuss your opportunity in the third person. Instead of saying “we project” and “our projections,” write “the Company projects,” and “the Company’s projections.” Remember that your plan is a living document and that business planning never ends. Likewise, the preparation of a business plan must be seen as an iterative process, since both the assumptions and the projections those assumptions engender must be constantly refined. Therefore, the preparation of a business plan really never stops.
It is best that you do not work alone on your business plan, because working alone can get very frustrating and lead to many errors. This means that you will have to find someone who can help and figure out how to split up the work. A “stakeholder,” with respect to your venture, is anyone or any group, within or outside your venture, who has a “stake” in your venture’s future performance. Creditors, suppliers, employees, owners, investors, board members, are all stakeholders. From this group of potential stakeholders, consider who could help you with the business planning. This search can also help you find and recruit members for your venture team.
Some say that you should not involve outside consultants. But finding good advice, which is always difficult for an early-stage venture with limited resources, is more important than ever in today’s uncertain times.
As one successful entrepreneur pointed out, “If you have to learn just through trial and error, it’s going to be very slow. If you can hire good advisers, the learning curve is shortened.”
Over the years, we have found that there are three broad types of professional advisory consultants.
Three Type of Professional Advisory Consultants
Strategists are what we call your general practitioners, providing business advice and knowledge about your business models and your directions, and a feel for the market environments. Strategists are the most important link in the information chain for new business ventures. They come in very early, and usually become more familiar with the venture over a longer period of time. But it is difficult to find one whose ego is not threatened by an occasional request to see a tactician or a field support specialist.
Tacticians are specialists—like engineers, lawyers, and CPAs—who focus on specific advisory services. Examples of their services are: a marketing consultant preparing a report about a new opportunity, an engineer issuing a report on how to get more throughput on a production line with existing machinery, a programmer crunching software code, and an accountant doing an end-of-month closing and preparing financial documents.
3. Field Support
Field support refers to all regular day-to-day services, including banking services, preparing and hosting a Web site, payroll and employee taxes services, and temporary hiring agencies.