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WRITING AN EFFECTIVE BUSINESS PLAN - PART 3

by: Cary Christian

 

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 complete.


INDUSTRY ANALYSIS

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 technologies?

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.


MARKET ANALYSIS

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 the same.

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.


A CAVEAT

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
 

 


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