A business plan is a formal statement of a set of business goals, the reasons they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.
Business plans may also target changes in perception and branding by the customer, client, taxpayer, or larger community. When the existing business is to assume a major change or when planning a new venture, a 3 to 5 year business plan is required, since investors will look for their annual return in that timeframe.
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AUDIENCE
Business plans may be internally or externally focused. Externally focused plans target goals that are important to external stakeholders, particularly financial stakeholders. They typically have detailed information about the organization or team attempting to reach the goals. With for-profit entities, external stakeholders include investors and customers.
[2] External stake-holders of non-profits include donors and the clients of the non-profit’s services.
[3] For government agencies, external stakeholders include tax-payers, higher-level government agencies, and international lending bodies such as the International Monetary Fund, the World Bank, various economic agencies of the United Nations, and development banks.
Internally focused business plans target intermediate goals required to reach the external goals. They may cover the development of a new product, a new service, a new IT system, a restructuring of finance, the refurbishing of a factory or a restructuring of the organization. An internal business plan is often developed in conjunction with a balanced scorecard or a list of critical success factors. This allows success of the plan to be measured using non-financial measures.
Business plans that identify and target internal goals, but provide only general guidance on how they will be met are called strategic plans.
Operational plans describe the goals of an internal organization, working group or department.
[4] Project plans, sometimes known as project frameworks, describe the goals of a particular project. They may also address the project’s place within the organization’s larger strategic goals.
Content
Business plans are decision-making tools. There is no fixed content for a business plan. Rather, the content and format of the business plan is determined by the goals and audience. A business plan represents all aspects of business planning process declaring vision and strategy alongside sub-plans to cover marketing, finance, operations, human resources as well as a legal plan, when required. A business plan is a summary of those disciplinary plans.
For example, a business plan for a non-profit might discuss the fit between the business plan and the organization’s mission. Banks are quite concerned about defaults, so a business plan for a bank loan will build a convincing case for the organization’s ability to repay the loan. Venture capitalists are primarily concerned about initial investment, feasibility, and exit valuation. A business plan for a project requiring equity financing will need to explain why current resources, upcoming growth opportunities, and sustainable competitive advantage will lead to a high exit valuation.
Preparing a business plan draws on a wide range of knowledge from many different business disciplines: finance, human resource management, intellectual property management, supply chain management, operations management, and marketing, among others.
[6] It can be helpful to view the business plan as a collection of sub-plans, one for each of the main business disciplines.
[7] A good business plan can help to make a good business credible, understandable, and attractive to someone who is unfamiliar with the business. Writing a good business plan can’t guarantee success, but it can go a long way toward reducing the odds of failure.
Presentation Formats
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The format of a business plan depends on its presentation context. It is common for businesses, especially start-ups to have three or four formats for the same business plan:
* an “elevator pitch” – a three minute summary of the business plan’s executive summary. This is often used as a teaser to awaken the interest of potential funders, customers, or strategic partners.
* a pitch deck with oral narrative – a hopeful, entertaining slide show and oral narrative that is meant to trigger discussion and interest potential investors in reading the written presentation. The content of the presentation is usually limited to the executive summary and a few key graphs showing financial trends and key decision making benchmarks. If a new product is being proposed and time permits, a demonstration of the product may also be included.
* A written presentation for external stakeholders – a detailed, well written, and pleasingly formatted plan targeted at external stakeholders.
* An internal operational plan – a detailed plan describing planning details that are needed by management but may not be of interest to external stakeholders. Such plans have a somewhat higher degree of candor and informality than the version targeted at external stakeholders and others.
Typical Structure For A Business Plan For A Start Up Venture
* Executive Summary
* Cover Page And Table Of Contents
* Business Description
* Business Environment Analysis
* Industry Background
* Competitor Analysis
* Market Analysis
* Marketing Plan
* Operations Plan
* Management Summary
* Financial Plan
* attachments and milestones
COST OVERRUNS AND REVENUE SHORTFALLS
Cost and revenue estimates are central to any business plan for deciding the viability of the planned venture. But costs are often underestimated and revenues overestimated resulting in later cost overruns, revenue shortfalls, and possibly non-viability. During the dot-com bubble 1997-2001 this was a problem for many technology start-ups. Reference class forecasting has been developed to reduce the risks of cost overruns and revenue shortfalls and thus generate more accurate business plans
Open business plans
Traditionally business plans have been highly confidential and quite limited in audience. The business plan itself is generally regarded as secret. However the emergence of free software and open source has opened the model and made the notion of an open business plan possible.
An open business plan is a business plan with unlimited audience. The business plan is typically web published and made available to all.
In the free software and open source business model, trade secrets, copyright and patents can no longer be used as effective locking mechanisms to provide sustainable advantages to a particular business and therefore a secret business plan is less relevant in those models.
While the origin of the open business plan model is in the free software and Libre services arena, the concept is likely applicable to other domains.
Uses Of Business Plan
VENTURE CAPITAL
Venture capital assessment of business plans – focus on qualitative factors such as team.
Business plan contests – provides a way for venture capitalists to find promising projects.
The better the business plan, the better your chances of landing that big initial investment.
WITHIN CORPORATIONS
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Fundraising is the primary purpose for many business plans, since they are related to the inherent probable success/failure of the company risk.
TOTAL QUALITY MANAGEMENT (TQM) is a business management strategy aimed at embedding awareness of quality in all organizational processes. TQM has been widely used in manufacturing, education, call centers, government, and service industries, as well as NASA space and science programs.
MANAGEMENT BY OBJECTIVES (MBO) is a process of agreeing upon objectives (as can be detailed within business plans) within an organization so that management and employees agree to the objectives and understand what they are in the organization.
STRATEGIC PLANNING is an organization’s process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Business plans can help decision makers see how specific projects relate to the organization’s strategic plan.
EDUCATION
Business plans are used in some primary and secondary programs to teach economic principles.
Wikiversity has a Lunar Boom Town project where students of all ages can collaborate with designing and revising business models and practice evaluating them to learn practical business planning techniques and methodology.
Not for profit businesses
The business goals may be defined both for non-profit or for-profit organizations. For-profit business plans typically focus on financial goals, such as profit or creation of wealth. Non-profit, as well as government agency business plans tend to focus on the “organizational mission” which is the basis for their governmental status or their non-profit, tax-exempt status, respectively—although non-profits may also focus on optimizing revenue.
The primary difference between profit and non-profit organizations is that “for-profit” organizations look to maximize wealth versus non-profit organizations, which look to provide a greater good to society. In non-profit organizations, creative tensions may develop in the effort to balance mission with “margin” (or revenue).
Satires
The business plan is the subject of many satires. Satires are used both to express cynicism about business plans and as an educational tool to improve the quality of business plans. For example,
* Five Criteria for a successful business plan in biotech[dead link] uses Dilbert comic strips to remind people of what not to do when researching and writing a business plan for a biotech start-up. Scott Adams, the author of Dilbert, is an MBA graduate (U.C. Berkeley) who sees humor as a critical tool that can improve the behavior of businesses and their managers. He has written numerous critiques of business practices, including business planning.
The website Dilbert.com – Games has a mission statement generator that satirizes the wording often found in mission statements. His book The Dilbert Principle – A Cubicle’s Eye View of Bosses, Meetings, Management Fads & Other Workplace Afflictions discusses the foibles of management and their plans as depicted in the Dilbert comic strips by Scott Adams.
* In the article “South Park’s” Investing Lesson, The Motley Fool columnist “Fool on the Hill” uses the Underpants Gnomes to illustrate the fallacy of focusing on goals without a clear implementation strategy. The Underpants Gnomes episode satirizes the business plans of the Dot-com era.
* Business case
* Corporate finance
* Cost overrun
* Cost-benefit analysis
* Marketing plan
* Optimism bias
* Parkinson’s Law of Triviality
* Reference class forecasting
* Revenue shortfall
* Strategic plan
* Business Motivation Model
References
1. Pinson, Linda. (2004). Anatomy of a Business Plan: A Step-by-Step Guide to Building a Business and Securing Your Company’s Future (6th Edition). Page 20. Dearborn Trade: Chicago, USA.
2. Small Business Notes business plan outline for small business start-up
3. Center for Non-profit Excellence non-profit business plan[dead link]
4. State of Louisiana, USA government agency operational plan[dead link]
5. Tasmanian government project management knowledge base government project plan[dead link]
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