Business Plans - Hate them or Love them

This blog written by Ben Goldsmith on behalf of Club Workspace - a network of creative co-working hubs based within their business centres - is reproduced in its entirety with kind permission.  I was delivering my workshop entitled "Love creating Startups...Hate writing Business Plans" in conjunction with Dreamstake - an online network to help you build great startups and get funded!

Ben blogs...

On the evening of Tuesday 29th May Dreamstake introduced Gary Weinstein to Club Workspace’s Leathermarket venue. Gary shared secrets about how to write a winning business plan.

Gary has written plans for international giants, SMEs and for pre-start companies. His experience at all levels makes him the perfect candidate to guide an audience full of entrepreneurs through the pitfalls of business planning.

Are Business Plans Important?

Gary cleared up that question right away: of course it is important to have a business plan! However, Gary didn’t just give the usual, expected reasons for the importance of planning. Everyone in the audience knew that a watertight business plan would help persuade VCs, Angels or Banks to part with their money.

Gary has his finger on the pulse of the modern startup world. Gary explained that if you have an impressive plan, it will help you ascertain funding on crowdfunding platforms. If you chose to raise funding on one of the many emerging crowdfunding sites, it is your job to encourage multiple investors to back your startup. Having an exemplary plan will only help capture the imaginations of prospective crowdfunders.

Business Plan: Section One - Objective and Milestones

The first section of your business plan should include your Objectives and Milestones. You should split your key business objectives into three sections: year one, year two, and years 3-5. Your objectives need to be specific milestones that are directly tied to a date-of-achievement - they can’t merely be haphazard predictions. Using specific dates will exhibit the control you have over the future of your startup.

In this first section, Gary recommends that you include sections for ‘Mission’ and ‘Vision.’ These small sections would further demonstrate the ambitions you hold for your business. ‘Mission’ should be something like, ‘to be the leading sausage supplier in London’; the ‘Vision’ section should be along the lines of, ‘to attain 1000+ repeat customers with ‘x’ months.’

Gary also recommends that you share your ‘Values’ in the first section of your plan. Do not claim to have a unique idea, as you probably don’t. Facebook, Google and Ebay are all non-unique propositions, however they combine several non-unique elements to form a desirable, useable and market-leading package. Use your ‘Values’ section to explain how your package sets you apart.

Business Plan: Section Two - The Company

You should use this section of your business plan to start getting into the financials - you’ll have a change to go into huge financial detail in Section Eight. In this second section you should discuss your ownership structure: whether you are a Ltd or Partnership, for example. You should detail whether you are eligible for EIS or SEIS funding.

Gary explained that startups should question whether they are being mean and lean enough. Investors will be discouraged by your plan if they see that you’re paying yourself a ‘generous’ salary and spending money on potentially erroneous supplies.

In this section, explain how much funding it will take to startup. Explain, also, where you have attained money from beforehand. If you have won any competitions, secured microfinance loans, have attained crowdfunding or family money, drop those details in here.

Lay out a prediction of how you will phase your spending in direct relation to the achievement of the milestones that you outlined in section one. Doing so will demonstrate your clear understanding of the spend required to hit each target.

Business Plan: Section Three - Product (or Service)

Deciding whether you’re a product or service sounds simple, but when techies speak in terms of software creation, we enter a grey area.

This decision impacts other areas of your business plan. For example, if you approach an investor with a ‘product’, they will expect more up-front spend to be required than if you have a service proposition.

Business Plan: Section Four - Market Analysis

Before going into detail with this section Gary warned that you must be realistic. Investors would rather hear the real figures than an exaggeration. If you inflate the numbers, your credibility will diminish.

Include data that focuses on your customer. Include buying pattern statistics and trends. These figures will not only encourage investors, but it will also help you better target your sales efforts.

Research your competition via Companies House. Include data on what they are doing.  Analyse their model, strategy and website as best you can. Use them as an example as to how you are going to depart from the norms of your industry.

If a similar idea to yours has failed in the past, be sure to include it in this section! Explain why they failed and explain how you will avoid making their mistakes. Analyse their pitfalls and highlight how your model is different. Investors will be heartened that you approach the subject of failure head on, rather than trying to swerve past the issue.

Business Plan: Section Five - Development Plan

In this section, include manageable phases, 3 or 6 months chunks, that detail what you are going to achieve in each 3/6 month section.

Like the spending plans from sections two and eight, a business development plan reaffirms the control that you have over your business.

Business Plan: Section Six - Strategy

Gary recommends that you use the SWOT analysis model to decipher a strategy. Speak about your Strengths, Weaknesses, Opportunities and Threats.

Your strengths include the knowledge and innovations that set you apart from your marketplace. Speak about the scope of your vision and the minutiae of your technological innovations - without disclosing IP, of course, unless you have an NDA.

Recognising you weaknesses is important. Potential weaknesses include your lack of credibility - as you’re completely new - and your lack of brand equity and consumer awareness.

The Opportunities that you can exploit could include the current financial climate. Although it’s a time of doom and gloom, you could be uniquely placed to take advantage. Threats are your larger competition. How will you deal with their aggressive tactics, or their ability to be flexible with price?

Also, in this section, include specifics about your PPC strategy. Which adwords will you use? What is the approximate CPC? Consider whether you’ll use an affiliate advertising model - like those offered by LateRooms - to provide yourself with ad-supported revenue stream. If you could open up a secondary revenue stream such as the above, this could be beneficial.

Business Plan: Section Seven - Organisation Structure and Roles

In this section you need to detail your employee structure. Begin by explaining the staff structure that you will use immediately after investment, and progress to the structure that you hope to achieve after 5-8 years.

It is wise to include a section that explains the role and purpose of each member of staff. You need to make it clear why each of your team-members are necessary, as an employee is a huge investment. Not only do you need to account for their salary, but the relevant PAYE/NI costs, too.

Also, explain why you are investable. Go into detail about why you have what it takes to lead your business. Be sure to include shining, relevant examples from your background in the industry.

Business Plan: Section Eight - Financials

In this section, you must include a sales forecast, a profit and loss forecast and cash flow predictions. Your market research will help you predict accurate cost-of-sale and overhead figures. These three documents are complex and important in their own right, be sure to be accurate and detailed.

In addition to the aforementioned spreadsheets, include a Cash Burn prediction. A cash burn prediction puts your worst-case scenario on paper. It details how quickly you would lose money if no business came your way.

A cash burn prediction can be used to explain your contingency plans. You can answer the question: what would I do if I have zero Sales after six months? Would you lay off staff? Change your marketing plan? Downsize premises?

Another area to cover in this section is your Exit Strategy. Gary suggested that some companies could use their P/E ratio (shareprice to company earnings ratio) to determine at what price they are likely to sell. Furthermore, Gary encouraged businesses to suggest what ‘kind’ of business or likely to buy them out, and they could also make some predictions as to the likelihood of an IPO.

Business Plan: The Other Bits

After you’ve perfected the eight sections of your plan be sure to include all points of reference in your Appendices. You could have the most thoroughly researched marketing plan that your investor has ever seen, but if you don’t reference your sources, the investor has no reason to believe that your figures are correct.

A pre-Business Plan document, that you can use the whet the appetite of investors, is your Executive Summary. An ES is a document that is no longer than 5 pages, a pared down version of your BP.

Thank You

Thank you to Paul Dowling and Marina Atarova from Dreamstake for putting together this wonderful workshop. Tuesday’s event formed part of their impressive Dreamstake Academy. If you’re a startup or an entrepreneur, please use the link in the opening paragraph to check them out. A huge thanks, of course, to Gary Weinstein, whose knowledge and expertise will, I hope, be of great benefit to many of you.