Daily Archives: May 23, 2011

Developing a Winning Business Plan – Improving the Odds

Creating a winning business plan demands a mixture of precise business thinking, art, timing and luck. Business planning skills such as market and competitive analysis, pricing strategy, organizational planning, financial analysis among others can and must be learned; courses and books can help you.

My experience shows that you should also pay particularly strong attention to the following 10 points to improve your odds of creating a winning and fundable new business plan:

1.Maintain a market and opportunity focus and view technology as an enabler.

Define a tight, focused opportunity with a well-defined target market. Technology may be the enabler used to create the business. Suppose you propose a new wireless data service for remote entry of patient data by health care professionals- the business addresses a real, quantifiable opportunity. Compare this to framing an opportunity for a new 802b.11 wireless data entry service. In today’s challenging market, specific opportunity-driven ventures are preferable to pure technology plays.

2.Understand the difference between feature, function and benefit

Image transmission is a function. Moving high resolution images via telephone lines is a feature. The ability to send a high resolution image in 5 seconds via a telephone line using a $99 device is a benefit. Sell benefits and make this the cornerstone of your plan.

3.The “So-What” Tool

A very important consultant tool and not used as often as it should be for new venture development. A simplified “so-what” analysis goes something like this. Our new service offers a unique encrypted data solution for e-commerce applications. So what? We can provide authentication using voice recognition. So what? Our voice authentication technology instantly identifies buyers’ interests and demographic profiles. So what? We can identify and route e-commerce customers based on voice response and past history. The results? Using the “so what” tool, we refocused our thinking to create a more unique, defensible opportunity.

4.Sensitivity Analysis

You need to ‘exercise’ your financial model, examine “what-ifs” and boundary conditions. Reduce sales and/or increase costs by 10, 20, 50, 80 percent-what happens? Delay product launch plans, reduce competitors’ costs-how do these impact IRR and total cash needs? Formal analysis tools exist to complete these analyses, but you can also do this with any financial model. Properly done, these analyses show that you understand your market, business, elasticities and sensitivities.

5.Advisory Board

Develop a “hands-on” Advisory Board. Carve out roles and responsibilities. Provide incentives, typically options, vested based on time served and milestones achieved. Powerful, well-known names and impressive marquees may look great, but you need contributors who can help you move the business forward.

6.Strategic Alliances

Same points as for Advisory Boards. Developing marketing alliances with GE, IBM and others sounds impressive, but make sure there is defensible substance here. Are there any revenue guarantees? What staff and other resources have your partners committed to the venture? Any joint promotion plans among their respective customer bases?

7.The Sanctity of the Business Plan

Another important point. The completed business plan looks impressive; GBC bound, laser-printed, color charts, and maybe 200 to 300 hours to prepare- sure looks and feels like a finished product. The reality is this document is probably out of date before the ink is dry. The plan is only the starting point, a work-in-progress, showing what your team is thinking, assumptions, strategies and projected results. These will tested, attacked, defended and changed as your business proceeds. A hard lesson sometimes for those investing more than 200 hours in developing a business plan and financial models, but that is reality. As you progress, create sales, make products, encounter competition, see new opportunities, you will refine strategies, providing the foundation for the revised plan. There is no sanctity of the Business Plan- revising adds value and is the norm.

8.Adapting to Change : Avoiding the Icarus Paradox

Strategic management courses relate the story of the fabled Icarus from Greek mythology. Icarus’ greatest asset were wings of feathers and wax that let him soar higher and higher closer to the sun. He kept going to the sun, ignored warnings about getting too close, the wax wings melted and he crashed and burned. This is often used to explain management failures such as pursuing a single-minded business strategy even in the face of disaster, and also believing that achieving great past success ensures future success. (it doesn’t). Avoiding the Icarus Paradox means that new business “trajectories” must be examined, refocused and assumptions reviewed even when performance is strong.

9.Precision

Don’t say you are addressing a large, growing market. Instead say “ … the market for ‘gizmos’ is $20 million in 2011, increasing to $65 million by 2014.” Specificity and quantitative precision shows clarity of thinking and understanding of your market and business. And also improves your ability to secure funding.

10.Frugality

Running out of cash and inability to secure new funding is most often cited as the reason new ventures fail. Studies show however, that ventures funded with minimal capital have a higher probability of success, implying that a “frugal” investment structure demands tight management and strong financial controls at the outset. The message here is to tightly define cash needs, operate parsimoniously particularly in the early months, and demonstrate that you know how to manage cash and resources to win. Achieving this objective often smooths the path to secure new funding.
There are plenty of minefields and absolutely no guarantees in the entrepreneurial world. Follow the above guidelines however and you may improve your probability of creating a successful new venture.

Tagged , , ,