Page 49 - Business Plans that Work A Guide for Small Business

40 • Business Plans that Work

per year, spending 200 hours on business planning equates to a $10,000
investment in time spent ($50/hour times 200 hours). However, launching
a flawed business concept can quickly accelerate into millions in losses.
Most entrepreneurial ventures raise enough money to survive two years
even if the business will ultimately fail. Assuming that the only expense
is the time value of the lead entrepreneur, a two-year investment equates
to $200,000, not to mention the lost opportunity cost and the likelihood
that other employees were hired and paid and that other expenses were
incurred. So do yourself a favor and spend the time and money up front
in planning.
The business planning process not only can prevent an entrepreneur
from pursuing a bad opportunity, it can also help entrepreneurs reshape
their original vision into a better opportunity. The business planning
process involves raising a number of critical questions and then seeking
answers for those questions. Part of that question-answering process in-
volves talking to target customers and gauging what is their “pain.” These
conversations with customers, as well as other trusted advisers, can assist
in better targeting the features and needs that customers most want. This
work prior to start-up saves untold effort and money that an entrepreneur
might spend trying to reshape the product after the launch has occurred.
This is not to say that new ventures don’t adjust their offering based upon
customer feedback, but the business planning process can anticipate some
of these adjustments in advance of the initial launch.
Perhaps the greatest benefit of business planning is that it allows the
entrepreneur to articulate the business opportunity to various stakehold-
ers in the most effective manner. The planning provides the background so
the entrepreneur can communicate the upside potential and attract equity
investment. Business planning provides the validation needed to convince
potential employees to leave their current job for the uncertain future of a
new venture. It is also the instrument that can secure a strategic partner or
key customer or key supplier. In short, business planning provides the en-
trepreneur the deep understanding needed to answer the critical questions
that various stakeholders will ask, even if the stakeholders don’t actually
read the written plan. Completing a well-founded business plan gives the
entrepreneur credibility in the eyes of various stakeholders. The process
can sharpen thinking and strategies that define the risk and reward, and
ultimately the odds for success. This book illustrates the most common
business plan, but you should keep in mind that there are different types
of business plans suitable for different purposes.