Last week, we kicked off a content series around starting a new business with the How To Fund A Business video. Many of you have asked about how to write a business plan so today we start with the WHY.
While some businesses make it without a business plan, I’ve seen a TON of businesses close their doors because they never had a plan to begin with.
You’ve heard the old saying, “Few people plan to fail, but many fail to plan.” So have a plan!
For me, there are three main reasons to write a business plan. Ok, there’s a fourth, but you’ll see my response below.
Definition – Start by defining a few things:
- Product or Service – What in the world is it that you’re planning on doing? You have to be able to completely define what the product or service is, what it does, how it’s used, etc. If the customer can’t understand it, they surely won’t buy it.
- Customers – You would be shocked at the number of highly profitable corporations that have launched products that nobody wanted. Hello, New Coke circa 1985. Everyone has an idea that is their baby. The problem is, not everyone thinks it’s cute. Do a lot of market research to find out if people even want to purchase your baby…uhhh, product.
- Competition – It’s not enough to have a great product idea, you have to know if anyone else had the great idea too. Is your idea going to catch fire more than what’s out there? If you run up against someone who already has a foothold, you might find your incredible idea struggling to get any attention. Anyone remember Betamax?
Viability – By definition, viability is having the ability to live and grow normally. Can the product or service you have grow because of demand, or will it just be a flash in the pan?
Way too many times I see people want to launch a product because of the “perfect storm” moment, only to realize by the time it gets to market, the storm has changed direction.
You have to be able to forecast your Product Life Cycle to the best of your ability. This can be both stunning, and comforting at the same time.
Startup costs – It doesn’t matter how great your product idea is if you have no clue how much it will cost to get it to a sellable model. It’s vital for you to think through every possible cost on the front side, before going into production. It’s hilarious how the standard of building a house is to give the customer a budget, and then go 30% over. Everyone in the construction community understands that but the customer.
I’ve coached a few entrepreneurs who started building their business before counting the cost, only to come to a screeching halt due to a lack of funds. It happens a lot in the restaurant world.
Financing – Oh heck no. I’m not going to give you financing as a reason why to write a business plan. If you have to borrow or get venture capital, then start your business plan with, “This will most likely cause me a great deal of pain, stress, pain, anxiety, and PAIN!”
So, those are just a few reasons WHY you need to write a business plan. Understanding these aspects in the beginning could be the difference between moving forward or not, as well as succeeding or not.