WRITING AN EFFECTIVE BUSINESS PLAN
- PART 3
Last week we discussed the
all-important Executive Summary. This week we'll continue on with the meat
of the business plan.
DESCRIBE YOUR BUSINESS
You described your business briefly in the Executive Summary, now you are
going to describe it in detail. Describe how your business is organized,
where your offices are located, how you operate day-to-day, the products you
sell, and so forth. This section should be relatively easy for you to
Some readers of your business plan will not be very familiar with the
particulars of your industry. You will need to educate them.
Other readers, such as a venture capital specialist in your industry, may be
nothing short of an expert in your industry. You will need to prove to this
person that YOU know your industry.
If you can write this section and gear it toward your reader's level of
knowledge, all the better. If you don't know your reader's level of
knowledge of your industry, you must write it as if you are educating
someone totally unfamiliar with the industry in which you do business.
Every industry has its own unique characteristics that differentiate it from
others. You need to display a thorough understanding of these
characteristics and how they affect your ability to operate profitably.
Point out factors that create risk and explain your strategy for minimizing
these risks. Point out factors that create opportunities and explain how
your strategies will exploit those opportunities.
You'll need to do plenty of research to properly prepare this section. You
should know and present representative gross profit and net profit margins
earned by companies in the industry. Explain how the distribution channel
works. Include charts that show the size of the different competitors in the
industry and other information that helps define your competition.
How do advances in technology affect market penetration in your business? Is
there a chance to dominate a segment of the industry by pioneering
technological advances like American Airlines did with the Sabre reservation
system? If so, are you and your competitors all working on such
A lot of people think the industry analysis section is just fluff. It's not.
You can gain a lot of credibility with your readers in this section if you
exhibit a thorough understanding of your industry.
At first glance, one might think the industry analysis described above is
the same thing as market analysis. They are strongly related, but not quite
In your market analysis you are going to build on your industry analysis and
take it a step further. You're going to discuss the positioning of your
products in the market, pricing strategies, and how your products compare to
your competition's products. You're also going to give demographic data that
has an impact on your product sales.
For example, let's assume you are selling to small businesses and your
target market comprises five major metropolitan areas within one state. You
should provide data on the number of small businesses within those target
markets and data regarding their normal usage of products like yours. In
other words, you are attempting to quantify the size of your market in terms
of potential customers and potential sales including repeat sales.
This type of research is very difficult to do properly. But doing it will
teach you many things. You'll learn much about the market that you never
realized, hopefully giving you more ideas on how to penetrate the market and
where your emphasis should be placed. You may even find you should abandon a
specific territory based on your research.
In defining your markets in this manner, you don't want to just borrow some
verbiage from a chamber of commerce type site and throw it into your plan.
Get the raw data, preferably from several different sources, analyze it, and
draw your own conclusions based on the data. A lot of your competitors for
funding won't be so thorough and this will give you an edge.
If you can afford to purchase this data from a market research firm, that's
great! It will make your life easier. If that proves to be too expensive,
you'll have to do the research on your own.
You can start with census data. There's a lot of good, detailed information
available. Most metropolitan areas or counties will also have websites where
information on the number of businesses, business types, and business size
can be gathered. Check out regional magazine websites that focus on the
business and economy in your target markets. They often provide this type of
information at least annually. Trade publications offer you your best shot
at getting an estimate of the market size for your products in dollar
figures. From these sites alone you should be able to gather enough
information to create a professional representation of your market.
If you are using your business plan to raise equity funding and there is
fierce competition for funding in your industry, you may need to seriously
consider obtaining your industry and market data from a market research
firm. If your competition is using professional market research data, you do
not want to be outclassed. But I suggest you also do your own research as
well. Analyze it in light of the data provided by the market research firm
and try to find ways to use it to make the data even more specific to your
business. Find every angle you can to gain an advantage.
Copyright (c) 2002