MBA, business planning course

you may ask why do I need a business plan why can’t I just launched my business and get to market the importance of a business plan cannot be understated first you have to define your business and how you’re going to compete you need to understand the market and where is your business going to occupy its space in that market versus your competitors you’ll need to clearly define your product and why your customers should be interested in it once you’ve defined that product have a good understanding of how you’re going to take it to market after you’ve decided how you’re going to take a product to market you need to understand and articulate how you’re going to operate that business and create an operating plan to support those operations now that means you’re going to have people and you’ll need a plan for managing your people and the resources that come along with them you’ll also need to define the administrative responsibilities and how you’re going to fulfill them once you’ve got all that down you’ll need to project your financial results and create a clear financial plan that helps you understand how should the business perform over time now with all of that done you’ll need to think through what are some of the major pitfalls that you could face as you launch your business and make sure you incorporate those into your plan now depending on the type of business you’re running not all of these elements will be relevant however these are the major components of the business plan and why you need to put them in place the first step in writing your business plan is articulating the problem that you solve is this a problem that people are willing to pay you to fix you’ll need to define who has the problem is it companies is it individuals spell out what your typical customer looks like then think through how big is this problem how does it show up for your customers is it a question of things are expensive and they have a cost problem do they have a time problem is it a quality issue with the products that they’re turning out and you can help them improve that quality when you write this problem statement you should be able to take it to your target customers and they should read it and say I have that problem please come fix it that’s where the demand for your product or service is going to come from as you’re writing your business plan having a clear understanding of the size of the market is going to help you understand how attractive is the business you’re trying to get into does the market consist of businesses or is it consumers how many people are in your addressable market articulate how does the market organize itself is it organized by product by segment by problem is it organized by geography spell out some of the common characteristics of the customers in that market now how big is the addressable portion of the profit pool that profit pool is the dollars that are available in that market and how much of it can the problem that you solve address now some ways that you can size the market are things like looking at market research gathering analyst reports even looking at what some of your competitors are doing and how they’ve reported the size of the market a good market sizing will tell you what you need to do to scale your business it will also help you understand is this an attractive enough market for me to make a return you’re going to be investing as you build this business you need to know how much market is out there that you’re going to be able to capture now obviously bigger markets are exciting however niche markets can be just as lucrative so as you’re running your business plan articulate what the market looks like and how much of it you think you can capture your business plan needs to clearly define your product explain the product in simple non-technical terms avoid buzzwords and also assume your audience is completely unfamiliar with your product describe how that product solves a problem and talk about the benefits in a very concrete way so as you’re writing your business plan make sure your product description is clear and simple and articulates concrete benefits for your customer your business plan has to spell out your revenue model for your product or service this is a huge determinant of how successful your business is going to be how are you going to make money at this is it going to be a one-time charge or are there recurring or subscription charges for your product are there going to be cross-sell or upsell opportunities are you going to sell add-ons that complement the product or service how are similar products priced in the market what are your competitors do what’s their revenue model if you’re looking for ideas also ask what are your customers willing to pay conduct some pricing market research or look at competitive offerings and how they’re priced and then analyze the value of your product and the value it creates and price as a portion of that don’t leave value on the table and your choice of a revenue model is going to determine how much of that value you’re going to capture so when you articulate your revenue model make sure you think through what’s the value you’re delivering and price accordingly once you’ve described the market you’re going to compete in and the way your product solves that problem you need to do a SWOT analysis and describe why you’re going to win in that market it’s not good enough to just have a product you need to understand how you stack up versus your competitors and what your competitive advantage is going to be you’ll conduct a SWOT analysis strengths weaknesses opportunities and threats those are going to highlight implications for how you’re going to approach the market and compete there so when you conduct your SWOT analysis don’t just leave it at doing the analysis think through the implications of those strengths and weaknesses and the threats and opportunities you face and turn those into a plan for how you’re going to compete effectively your business plan needs to spell out the major customer and market trends that you’re going to face and more importantly how you’re going to react to those trends what are the major trends do they help you or do they hurt you is the market growing is it flat is it shrinking is the market fragmented or is it consolidated and how are people behaving in that market are you seeing acquisitions are you seeing divestitures who makes the buying decisions from a customer standpoint and are those patterns changing at all think through what other products and services do your customers want and need are there emerging trends where customers are asking for new things some of the sources for this information are things like market research conducting focus groups doing some competitive analysis for your business plan articulate what the major trends are and the actions you’re going to take either to offset the negative trends or take advantage of the positive ones your business plan should go into great detail in terms of how your product or service ranks versus your competitors now be honest about your standing versus your competitors I like to create what I call a moon chart and that’s where you lay out all of your competitors and then articulate how you stack up versus them one thing you should never say in a business plan is we have no competitors that’s not believable and it’s risky because it’s pointing out that you have a blind spot in terms of the market and where you stand now when you create this moon chart what you’re going to do is list all of the competitors across the top and then down the side you’re going to list out all the performance dimensions and how you stack up and within each square on that matrix you’re going to spell out whether you’re the best the worst or somewhere in between and again that’s compared to your competitors offerings this document is going to help you pitch your idea and how you’re going to position yourself with your customers so when you look at your business spell out who those competitors are lay out the evaluation dimensions and then compare yourself on each dimension versus those competitors then at the end of that section of your business plan spell out the implications of that positioning in terms of how you’re going to pitch your product or your service to your customers your business plan has to spell out what the threats are to your product and one of the biggest threats you’ll face is substitute products what can replace your product what can solve the customers problem just as easily and do it cheaper what substitutes are competing for the same dollars that you are and remember it may not be a direct competitor to you be able to articulate what those substitutes are and why your customer is going to choose your product versus that substitute so when you spell out your business plan lay out what those competitive offerings are and what those substitutes are and more importantly what you’re going to do to make sure the customer chooses your product versus the substitute your business plan has to spell out your go-to-market strategy both in terms of building awareness for your product or service as well as how you’re going to deliver it how are you going to reach your customers what are the channels you’re going to use again to market to them as well as to deliver to them are going to go direct are you going to go through distribution how are you going to build awareness for your product or service will it be through partnership or licensing understand the economics of each of those channels so as you’re writing your business plan make sure you articulate both types of channels and understand the economics involved in each one your business plan needs to spell out the value proposition of your product or your service what are the tangible benefits that your customer is going to get from using your product are there things like cost or time or quality and you need to quantify these things to the extent that you can perhaps you include testimonials in the business plan or test results if you can’t quantify it because you’re selling softer benefits there’s an approach that I call the what do you have to believe approach for quantifying it so you need to articulate your value proposition for your product or service and to the extent you can quantify it in terms of the benefits your customer is going to receive your business plan needs to clearly spell out the points of differentiation for your product or service compared to your competitors and those points of differentiation need to be things that your customer cares about now the differences need to be substantial relative to competition by saying you’re one to two percent faster than your competitors that won’t get a customer’s attention 20 percent faster now you have their attention second they don’t just have to be substantive differences they have to be meaningful if your customer cares about cost but not at all about speed it doesn’t matter if you’re twenty percent faster so make sure as you’re articulating these points of differentiation you look at substantive differences as well as meaningful ones now knowing how you’re differentiated is going to help you know where to invest your time and money because this is a planning exercise and you’re going to focus on those differentiating factors and where to compete or not compete in the marketplace this is the part of your business plan that’s going to keep your strategy focused and staying on strategy is going to make you more effective and more competitive it’ll prevent you from chasing work you shouldn’t pursue it’ll prevent you from investing in things that are going to be diluted that your customers won’t care about so as you articulate your business plan make sure you think through those points of differentiation that your customers care about and that you have a meaningful performance advantage on versus your competitors and by spelling those out clearly you’re going to make sure that you focus on strategy and you have a more competitive offering just because you’ve built a business it doesn’t mean it’s safe and in your business plan you should articulate how you’re going to protect what you’ve built how are you going to protect another company from taking your customers maybe you look at things like proprietary rights that you have to the product or service you may look at things like patents or copyrights do you have trade secrets that nobody can replicate perhaps you put in place some non-compete agreements or other proprietary knowledge and skills that’s going to keep your business safe from competitors taking your customers now recognize a lot of people want to go down the patent or copyright path however that’s costly and it takes a lot of time additionally just because you have a patent or a copyright it doesn’t mean it can’t be defeated there are companies out there that will infringe upon your patents there are companies who will sue you in court and while you may ultimately win the case it’s gonna cost you a lot of time and money to defend it so just be aware of the pros and cons of each of these defensive mechanisms also don’t underestimate speed and size as defense mechanisms for protecting your market in your business plan lay out what mechanisms you’re going to use to protect your business from the threats you’re invariably going to face your business plan has to lay out your product development roadmap that roadmap should spell out what the major phases are in product development as well as the timelines that go along with it describe what’s in your Minimum Viable Product the first product that you put in the market what are the features you’re going to release then discuss what the next level of prototypes are going to be as well as when that final product is going to be available and released into the market the business plan should also describe your approach to testing research and development and what that future product roadmap will be explain the key risks in your product development lifecycle and how are you going to mitigate or account for those risks when you layout your product development roadmap lay out those features and functions at each stage of development and articulate what the gates are for you to build that next level of functionality the next section of your business plan needs the layout product or service delivery how are you going to get your product in the hands of your customers if it’s a product who’s going to ship it are you going to ship it the rack through the post office or UPS or Federal Express are you going to sell your product through retail if it’s a service are you going to go to the customer or are you going to deliver your service remotely or you going to have the customer come to you to be serviced and then once you’ve laid out how you’re going to get that product and service to them explain the operational hurdles and challenges you’ll face as well as how you’re going to get over them make sure you lay out the channels you’re going to use to deliver your product or service and how you’re going to overcome the challenges you’re going to face a brand is a promise and you should spell out what you want that promise to be also lay out why are your customers going to care why is that promise important to them then how are you going to advertise and promote your product or service in a manner that’s consistent with and builds that brand how are you going to communicate with your customers will it be online advertising public relations perhaps it’s personal selling or printed materials are there other promotional opportunities you’re going to take advantage of spell these things out in the branding section of the business plan then how are you going to emphasize your points of differentiation are you going to point out the problem you solve and why you’re better than anyone else at solving it so in your business plan spell out what the promise is that you’re making to your customers why they’ll care and how you’re going to get that message out into the market pricing is one of the most critical decisions you’re going to have to make and your business plan needs to spell out your pricing model as clearly as possible you need to understand even a 1% differential on pricing can have a disproportionate impact on your total profitability let’s assume your business has a 10% profit margin if you raise prices by just 1% on the top line for revenue you’ve increased your profitability by 10% that 1% will go from your revenue line all the way to the bottom and your pricing will drive margin from 10% to 11 pricing is huge do not under invest in thinking about it so how do you come up with your pricing benchmark some of your competitors look at their pricing model as well as their price points and use those price points as anchors for pricing your own service also determine your pricing model and the rationale behind it are you going to sell on a cost-plus basis are you going to sell on a value basis is it going to be a one-time fee or ongoing fees or some combination thereof laying out this model is critical because you’re going to have to message it to the market as well as build the model into your ultimate financial model as part of your business plan in the sales section of your business plan you have to spell out how are you going to sell your product or service will you use a sales force or will you just go direct consumer maybe from your website if you’re using a sales force what’s the sales cycle going to look like how long will it be what’s the conversion rate from prospect to customer and make sure in the business plan if possible have supporting evidence for that how are you going to compensate your sales force will it be a base salary we pay them a commission is it going to be a combination of the two because that’s going to drive your sales forces behavior and in the sales section how are you going to conduct contracting will you have long-term contracts will you have certain payment terms that you’re going to expect what type of salespeople do you need and how are you going to compensate them and having that clarity in your business plan is going to make it clearer how those people will perform as well as how it will show up in the financial performance of your business another operational area to cover in your business plan is how are you going to support your product or service just because you sell it doesn’t mean you’re done what’s it going to take to deliver aftercare to handle returns to deliver customer service when your customers have questions how are you going to staff that service are you going to insource it and have people within your organization who do it are you going to outsource it to another organization are you going to make it self help what are the expectations that your customers are going to have for this support how many calls do you expect how many incidents are you going to handle what’s the return rate on your product going to be and what expertise is going to be required to handle some of these issues you need to spell out all of these operational components in your business plan because if you don’t think about them you’re going to have operational challenges down the road the lesson here is think about how you’re going to support your business before you make any operational changes and this is exactly what you’ll be doing as you write this section of your business plan your business plan needs to lay out your people plan and that people plan needs to be built from the bottom up you need to look at the demand factors that are going to drive how many people you need what job families do you need and where will you hire them from do you need operational folks do you need finance HR IT will they be employees or will they be contractors how are you going to use vendors to augment your internal personnel strategy you have to think through what are the ramped up times and the training requirements for somebody just because you say you need someone doesn’t mean they’re going to be effective in the role on the day you hire them you need to work backward and say it’s gonna take us three to six months to find this person and after we have them it’s gonna take two months to train them this all needs to be part of your people plan how are you going to staff as you grow your business and what’s going to drive that staffing growth so if you take on new customers how many new customers do you have to have before you hire an incremental person and when do you achieve those scale benefits when is that hiring going to flat now while the business continues to grow you’ll also need to lay out how much do these people cost what’s the turnover going to be how much are the benefits you’re going to pay them all these numbers are going to feed into your financial plan and by building your people plan based on the demand factors as your business grows and laying up that plan on a quarterly basis you’re going to be able to more accurately predict what your financials will look like so as you lay out your business plan think through all the different job families and what’s going to drive their growth how much they’re going to cost you and what the pace of hiring will be a major component of your operating portion of your business plan is how you’re going to manage production where are you going to make your product are you going to insource or outsource what suppliers are you’re going to use will you own or lease the equipment you’ll also need to discuss how are you going to meet demand manage facility utilization and deal with peak or slack periods of demand once you’ve built your operating plan ask do your operations match your product strategy and it’s something you should think through in this section of your business plan for your business as you write your business plan think through what your major inputs are to make in your product and then who are the suppliers do you have backups for those suppliers do you have a diversity of sources to mitigate supplier risk how are you going to manage the costs of the things you buy from your suppliers do you intend have long term contracts will you conduct a scheduled bid will you have any partners joint ventures alliances for key components supplier risk is a huge risk for your business if a major supplier goes down or decides to renegotiate rates what’s your backup plan what financial risks do you face from supplier concentration and how are you going to mitigate those risks what operational risks do you face by in sourcing things that you’re not great at things that aren’t your core competency what reputation risks do you face in your supplier strategy if you partner with someone or you buy a lot of product from a supplier and they do something wrong what’s the risk to your business think through some of the large companies who have partnered with famous athletes or movie stars and that athlete or star does something that isn’t so great and look at the risk that that company who sponsored them faces these are all risks that you should be articulating in the supplier section of your business plan so understand where you’re going to get your product what the concentration risks are and how you’re going to mitigate it to have a clear and compelling piece of this operating plant as you build your business especially if you’re seeking outside investment the leadership team is going to be something people will evaluate very closely some investors say they’d rather nests in a great management team with an okay idea than in an okay management team with a great idea the leadership team matters a lot and this is your opportunity to show people how great that team is in this section of the business plan define who the executive team is and draw the organization chart who reports to who put in the blank boxes with job descriptions for people you’ll hire in the future you should include brief bios of each leader and include their relevant experience that shows how they’re going to contribute to the team link their past experiences and accomplishments to the role they’ll be playing in this organization you should also describe the ownership structure of the company including decision-making authority you may be smart but it’s even smarter to surround yourself with other smart people this is the role of advisers for your business and you should spell out who those advisers are within your business plan there are several types of advisers you can pursue there’s an advisory board an advisory board typically gets brought together during the earlier stages of your business they can help you get customers investors they can help you build out your team and they may play an ongoing role as your organization grows there’s a board of directors these people are formally elected and have legal responsibilities they’re typically not needed until you receive outside investment and you have shareholders the board serves as experts on special topics they’ll be responsible for compensating management and holding management accountable to shareholders other advisers you can have our specialists they’re brought in to advise on a specific topic they’re not usually involved on an ongoing basis and they can be paid as consultants or you can pay them with equity and your board should change as the business grows and as the needs of the business evolve so think through your advisory needs for your business identify who those people are and what the structure of those advisory boards will be your business plan needs to include a perspective on how you’re going to compensate management there are various ways that you can compensate your leadership team you can give them cash bonus or equity and there are a variety of forms of equity that you can issue things like stock or options I highly suggest you get some legal assistance from somebody who has done this type of agreement before when you are awarding equity that equity needs to vest over time even for the founders this way if a founder quits they don’t walk away with a big chunk of equity just for having a good idea cash is also tight when you first start your business so equity tends to be the preferred way to compensate management but you have to realize that equity is the most expensive form of financing and give it out wisely this is why it’s so important to spell this out in your business plan deferred cash or a bonus is another option for compensating management if your executives don’t need cash right now and doing so it’s cheaper than equity but it preserves the cash you need to start up the business no matter what put employment agreements in place that specifically spell out compensation because when your business plan is complete and you think about taking it in front of investors the way you’re compensating management is going to have an impact on the return those investors might get these can be very complex transactions and you do need legal and financial assistance as you set us up but it’s a section of your business plan that has to be completed especially if you’re going to seek outside investment when you run a business there are a lot of administrative matters you’re going to have to handle these are non-negotiable many of them are regulatory requirements which firms are you’re going to use for your finance HR legal intellectual property who’s going to represent you and who on your team is going to manage administrative matters for your company there are some key questions you need to be able to answer as you build your business plan are all your licenses and business filings complete and accurate are you sufficiently insured are you compliant with all laws like tax law employment law safety law if you’re doing some manufacturing is your business legally protected do you have the right legal structure intellectual property and copyright protections or your contract solid and are your finances correct are you issuing 1099s and w-2s and filing your taxes appropriately these aren’t fun things to deal with however they’re critical especially if you get them wrong so spend some time find some external service providers who can help you with this and make sure you have these things buttoned up before you launch your business a major component of your business plan is your financial plan and the first step in building that financial plan is documenting your assumptions what are you going to assume and what’s the grounding for those assumptions maybe you look at comparables market research or basic estimates to figure out what that ingoing assumption is you’ll also need to lay out what the best case and worst case scenario is for each assumption because they’ll drive different financial performance then explain how large of an impact each assumption has on your overall financial performance by having your assumptions clearly articulated you can track your financial performance and revisit those assumptions over time to make sure your forecasts are as accurate as possible your financial forecast is the heart of your business plan without a good forecast you don’t know if you even have a viable business or what financial results you can expect when you build your financial forecast build them from the bottom up and build them by month based on unit drivers so how many courses are you going to sell how many widgets are you going to produce understand how those drive the financial performance you’ll need to build a full profit and loss statement with all line items accounted for and use the assumptions you’ve already created to drive that financial forecast you’ll forecast your revenues your costs how much cash you’ll have what your balance sheet and income statement look like and if you don’t know how to do this seek professional help from a financial firm when you build your forecasts you’re going to want to have several cases build a worse case where you have accelerated and increased costs and delayed or lower than expected revenue build an expected case which should be conservative and build a best case which is your costs are as expected and you have accelerated revenue by looking at that complete picture you’ll understand what happens if things don’t go well and what happens if things go great invest the time in building forecasts that are as accurate as you possibly can because they’re going to tell you what your business will look like in the future and help you plan accordingly it takes money to run a business and there are three critical numbers you’ll have to know how much capital do you have on hand what’s your burn rate and how much runway do you have capital on hand is how much cash do you have in the bank your burn rate is how much money are you spending every month to pay your staff to run your business and then runway is if you look at how much cash you have on hand and assume no more money comes in how long do you have before you run out of money obviously the longer the runway is the safer your business is you’ll also need to create a perspective on when you’ll hit cash flow breakeven which is when is the business generating enough money enough profit to pay the costs of running that business every month and your investors are going to want to know at what point are you going to hit cash flow breakeven because that’s when you don’t need any more money invested your business plan should also spell out where you plan on getting your capital from will it be from the owners loans friends and family will you seek outside investors or grants will you work with partners who will give you money also what are you going to use the capital for by the way the only good uses of capital in the early years of running your business are things that drive sales marketing sales force or product development if you’re spending money on anything other than those items your investors are going to question it so as you’re thinking about your business be very clear about how much money you’re going to need to hit the point where the business is self-sustaining every business faces financial risks and you should lay out in your business plan what those risks are and what you’re going to do if they come to pass some of the risks you might face what happens if you lose funding what happens if you don’t get that loan or the investment you are counting on what if you lose a big customer or the economy turns south what if that marketing campaign you thought was going to be huge turns out to not work what happens if you get sued for intellectual property or a major competitor emerges all of these are bad things that could happen to your business but if you think about them now and plan for them you can put contingency plans in place you could do things like cut expenses or lay off staff you might seek additional loans or additional investment or the founders might put more money in you could drop prices market more offer retention discounts for some of your customers you may even say we would sell out to a competitor or partner with another firm having these contingency plans in place enables you to react more quickly so think through what the risks your organization faces are and put them in your business plan along with the contingency plans to go along with it as you build your business make sure you’re clear on whether it’s a lifestyle business or if you’re looking to exit because it has huge implications for how you’re going to fund it if your business is built to exit your investors will want to know how are you going to exit will it be by acquisition and who might buy your company will it be a sale just to other owners now if you say we’re gonna do an IPO it sounds a little bit silly especially in the early stages of running a business so be practical about saying what your exit might be if it’s a lifestyle business just understand that you’ll get fewer people who are willing to invest in that when you layout your exit plan expect an ROI your investors will what’s the return on the investment that they’re going to get what’s the timing they should expect it on your investors will want their money back and then some so your business case needs to spell out is it going to be a lifestyle business for you where you’re not seeing external investment and you’re just looking to build something to give you personal income or is it something where your investors can expect a return you

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  1. completely comprehensive guides on how to teach yourself all the fundamental business, marketing, accounting, and entrepreneurship KEY-POINTS |

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