Elements of a business plan – 12 Steps Your Business Plan Should Have
- April 28, 2020
- Posted by: Fabian
- Category: Uncategorized
The length and elements of a business plan will vary, based on things like
- where you are in the planning process,
- the age and status of your venture,
- and whether or not you are seeking funding.
That being said, there is a standard business plan format that should be followed not only to ensure that nothing is left out, but also because it is the standard format that audiences will expect.
A standard formal business plan is broken up as follows:
- Executive Summary
- Company Overview
- Description Your Value
- Proposition Market
- Analysis Industry
- Analysis Value
- Operations Overview
- Marketing Overview
- Growth Plan
- Management and Staffing Plan
- Financial Summary
From here on out we will cover each of these sections in detail.
What will I learn?
I. The Executive Summary
The Executive Summary is the most important part of your business plan.
It is the first part of the plan that your audience will read, and in many cases it may be the only part.
The Executive Summary portion acts as
- a summary of your plan,
- an introduction to your business opportunity,
- and a reader hook that is designed to pull your audience in.
Because the executive summary serves such an important role for the business plan as a whole, it must be well-written and enticing.
If your audience isn’t interested in what the executive summary has to say, then the chances of their reading the rest of your plan plummet to about zero.
We’ll address another important plan summary in this section as well:
the elevator pitch.
Your elevator pitch is a networking tool and a sort of summary of your summary, designed to be delivered in less than a minute.
It may be written down somewhere, but it doesn’t accompany your business plan. Instead, keep it in your head and don’t hesitate to bring it out at a moment’s notice.
A well-developed elevator pitch may seem like an afterthought, but nothing could be further from the truth. Networking skills are an entrepreneur’s best friend, so treat your elevator pitch with the same consideration you would your executive summary.
Because the executive summary is a summary of the contents of the business plan, it should be written last despite being on the first page.
In order for it to be an accurate summary of the contents of the plan, each of the details needs to be compiled first.
This also means that developing your elevator pitch can’t be done until the executive summary is completed, since your elevator pitch is based on the contents of the executive summary.
No matter what portion of your business plan you are writing, keep in mind that the entire document is essentially a sales pitch.
The content is designed to sell the reader
- on the idea that your business will be successful,
- that you have done your research,
- that you are the right entrepreneur for this opportunity,
- and that you have the right team to pull it off.
Even if no one reads it but you, you’re selling yourself on these things!
Because your executive summary is the first page that is put in front of your audience, it is central to your sales pitch.
A good way to test this is to review your executive summary out of the context of your business plan.
Ask yourself: Can my executive summary stand on its own?
If it was removed from the business plan, would it make sense?
A reader should be able to understand your executive summary without any prior knowledge of your plan. This also means that the executive summary should not directly reference any other part of the plan.
Your business plan has to be completely understandable by the average lay reader without any specific expertise in a given industry.
That means technical jargon, acronyms, etc., must be kept to a minimum. It also means you need to avoid what I call “MBA speak”—vague generalities and buzzwords that sound good but don’t convey any meaning.
What to include in the executive summary?
Your executive summary must answer several basic questions for your audience.
Because real estate on the page is limited, use only one or two sentences to answer each question and ensure that you are being as clear and concise as possible.
The answer to each of these questions is summarized from the different, pertinent sections of your business plan.
The answer to this question is a summary of the information in your Product/Service Description section. Front and center, your readers should completely understand exactly what it is you have for sale. It’s important to be specific.
This information is summarized from the Market Analysis section. It tells your reader not only that your product or service has a market, but that you have taken the time to gather information about that market.
This information is also summarized from your Market Analysis section. It demonstrates to your reader that you know who your customer is and what potential pain points they may have. Your customer avatar will be a big help here.
Summarized from the Value Proposition/Competitive Advantage portion of your business plan, this information is a key selling point. Mainly it should be presented in such a way that it gets the reader excited about your venture.
This is the (realistic) potential scope of your venture. This information is summarized from your Growth Plan and Financial Summary.
This is summarized from the Company Overview and Operations Overview sections.
Take a few sentences (summarized from the Management and Staffing Plan section) to highlight the unique qualities of your team and why they are the best choice to make this venture a success.
Use tight, concise language with a positive tone. Read your executive summary out loud.
Does it flow, or is it choppy?
Put yourself in the place of your audience. Would you be interested in learning more, or would you be inclined to pass?
Operate under the assumption that your executive summary will receive five minutes or less of attention. Make every word, and therefore every minute, count.
What not to include in the executive summary
It can be easy to want to point to all of the evidence that you have spent time meticulously assembling and checking, or to back up the answer to each of those questions with specific examples.
An executive summary is not a place for
- detailed financial projections,
- glossy charts
- and graphs, or extensive market research.
It is the place where your business plan is summarized, and your audience’s burning questions are answered in brief.
Remember, the purpose of your executive summary is to encourage the reader to want to learn more about your plan, not to answer every question they may have in exhaustive detail.
That comes during due diligence. Another aspect of writing your executive summary to keep in mind: avoid excessive jargon.
It may be tempting to flex your professional muscles and show off to your audience, but highly specific or obscure language will only frustrate them.
Use industry-specific jargon only when absolutely necessary and keep concepts simple and accessible. This isn’t because your reader is stupid, but because an executive summary should be crafted for ease of reading and clarity.
Your Elevator Pitch
If your executive summary is a summary of your business plan, then your elevator pitch is a summary of that summary.
Elevator pitches are short, succinct, and highly persuasive speeches about a business opportunity.
The term “elevator pitch” comes from the hypothetical idea of being on a long elevator ride with a potential investor.
Because she is “trapped” in the car with you for the duration of the ride, she has to listen to your pitch. In theory, if your pitch is strong enough, she will be intrigued and want to hear more, and will give you her card for follow-up when she gets out at her stop.
Of course, this scenario has no bearing on reality. No one is forced to listen to your pitch, and any attempt to coerce someone to do anything will only result in resistance.
A better way to think of your pitch is as a networking tool.
Imagine you’re at an event, and you spot the same investor waiting in line for a glass of wine. You go up to her and introduce yourself as an entrepreneur.
She’ll probably ask you about your venture. Here is your chance to give a smooth, polished, informative, compelling, and brief introduction to your business. She won’t have time to discuss it further here, but she may well give you her card for follow-up!
What makes a good elevator template?
Networking is a critical entrepreneurial skill, and your elevator pitch serves the same purpose as a handshake and a business card for your business opportunity.
It can allow you to make the most out of meeting investors or potential talent, and it helps you familiarize yourself with your business at the high level.
When planning your elevator pitch, aim for under a minute and practice, practice, practice.
A good template for an elevator pitch is as follows:
- Your name
- Company name
- Product or service
- Target customers
- Value proposition or competitive advantage
- Call to action
Let’s look at those in a little more detail.
Of course you can’t leave this information out, and it should be accompanied with a networking card so that your audience can contact you or follow through on your call to action.
Just like the summary you provide in your executive summary, it should be crystal clear to your audience exactly what it is you’re selling. If you aren’t sure how to pack that information into such a blurb, that’s a problem. You need to know your product or service like the back of your hand.
- Who are the people who will be buying your product or service?
- What problem are you solving for them?
Ideally, your product is such a good fit for your target customers that your audience will say “That’s obvious!” Some people like to lead with this but be careful—people will stop listening and start wondering what your product actually is if you don’t tell them pretty quickly.
Why is your venture a winning proposition? Just like with your product, if you can’t summarize why your business will be healthy and competitive, that’s a problem.
A call to action is when you transfer the ball into your audience’s court. What is the action that you would like them to take after listening to your pitch?
Your Pitch Deck – free pitch deck template included!
If you are asked to make a presentation to an investor, you will be expected to have a PowerPoint-type presentation known as a pitch deck.
The pitch deck is also an abbreviated synopsis of your business plan, but in somewhat greater detail.
The added visual component of a pitch deck means that you have a lot of opportunity to make your slides captivating and engaging, but it is important to remember that the content of your pitch deck is the most important factor.
Your pitch deck should cover the same basic areas as the executive summary, but in more detail.
It should consist of around ten slides. Although you should be prepared to give additional details in your accompanying talk, the slides are still not the place for tables full of numbers, etc.
Really slick entrepreneurs anticipate the more specific questions investors will ask and have detailed backup slides with that information ready to pull up upon request.
II. Company Overview
The company overview is the reader’s introduction to your plan.
This section should contain the following elements:
- The name and status of your company
- Basic information regarding your business and its status.
Be honest about the current state of your business, even if it doesn’t yet exist.
If that is the case, use this space to discuss the sales that you have already made, the rate at which you have acquired clients so far, etc.
Keep in mind that investors such as venture capitalists, banks, and angel investors don’t invest in startups.
At this point, you’re writing the plan for your own use.
Nothing is more annoying to readers than to get several pages into the plan without a clear idea of what the company does.
You will provide much more detail about this in the next section; however, here you should provide several clear, concise sentences addressing the issue.
Avoid vague generalities or technical/business jargon. I’ve mentioned this several times for a reason—it is a very common, and very annoying, issue with business plans.
Here you will tell the story of how your company came to be and what stage of the development process it is currently in.
This is a great opportunity for you to infuse the history of your business with storytelling elements.
- What challenges did your business overcome to become what it is today?
- How does the history of your business reflect your entrepreneurial thumbprint?
- What unique aspects of your vision and perspective are reflected in the story that stars your company?
Also keep in mind, while attempting to induce excitement in your audience, that this is not a time to get wordy or waste space. As with all sections of your business plan, keep it concise and to the point.
Unless there are compelling reasons to set up your business as a C corporation, you should be considering whether to organize as an S corporation or an LLC.
Each of these can be easily converted to a C corp at a later date if necessary. Keep in mind that entrepreneurs who undertake ventures as sole proprietors expose themselves to potentially catastrophic financial ramifications—in the event that their venture is found liable for damages, sole proprietors have no legal entity to shield their personal assets.
Your business is inherently dependent on the people that make it up.
Specifics regarding your management team will be included in the Management and Staffing portion of your plan, but this is a great place to highlight the experience, accomplishments, and other pertinent information related to your management team.
This information may not be important unless the location of your firm reflects a strategic decision.
For example, some companies are located in certain states to take advantage of tax credits or other incentives, or in certain cities to be in close proximity to shipping or freight-handling hubs. This is the place to mention those strategic decisions. This area should also include information about multiple facilities, whether your company rents or owns those assets, and any plans to expand to new facilities in the near future.
Both the introduction and the following portion are presented here in a broken-out format; however, in your finished plan they should be presented in a paragraph format with one or two sentences for each point.
Next is a section that summarizes the goals, objectives, and exit strategy for your company. This is the portion of your business plan where you spell out the objectives of your company and answer key questions that investors will have regarding your vision for its future.
This section should include the following information:
What are the short-, medium-, and long-term growth prospects for the company? Be realistic.
This is not the place to include charts, tables, or financial forms, but your assessment of the company’s growth prospects should reflect as much real data as possible.
- What is your vision for the future of your business?
- What are the key milestones that will mark the completion of these goals?
Investors will be looking for evidence of a clearly defined exit strategy, and you should have one in mind for yourself as well.
Outside investors want to understand how and when they will be able to receive a return on their investment, or a “harvest” on the business. This exit strategy often takes place as a liquidity event at some point in the foreseeable future, such as selling to a larger firm.
A best practice when it comes to exit strategies is to provide two, with one as a contingency plan in case the preferred option ends up not working out.
My personal advice
My personal advice
An exit strategy is still a good idea even if you are not seeking equity funding with your business plan.
Keeping an exit strategy in view on the horizon brings discipline to the venture-planning process and helps decision makers keep in mind the fact that every venture has a beginning, a middle, and an end.
Even if you are not planning on selling the business, it is necessary to plan for growth and change. Ignoring the fact that your venture has a multi-stage life cycle will eventually lead to its downfall. Always remember,
“Failing to plan is planning to fail.”
III. Product/Service Description
The other sections of your plan that we have covered so far have called for brevity in summarizing what exactly your product or service is.
Now is the time to build on those summaries and provide a clear and detailed picture of your core offering in two pages or less. Also included in this section is a portion of what will become the heart of your business: your value proposition.
Even if your reader is an expert in your industry, take your time to ensure that he or she fully understands what it is you do.
What to include
Your product/service description should be broken into two sections.
- Section 1 – is a detailed introduction to your product, proprietary rights, and pricing strategy.
- Section 2 – includes a summary of your competitive advantage and your value proposition.
The introduction should answer the following key questions:
Of course, no introduction in this section would be complete without definitive information explaining exactly what your venture is offering.
Build on the summaries you have presented thus far and ensure that there is no way your audience could put down your business plan without a complete understanding of what your product or service is.
Stay away from vagueness such as “our product is the future of XYZ” or “our service is the next evolution of ABC.”
These kinds of statements do nothing to answer your reader’s questions or shed light on what it is that your product has to offer.
Focus on concrete statements that don’t waste words or use excessive jargon.
- Where is your product or service within its life cycle?
- Is your product market-ready or is it still in development?
- Does it have a long life cycle or a relatively short one?
- Do you have plans to mitigate declining sales as the product life cycle runs its course?
- If your product or service is still in development, how far along have development efforts come?
- What remains to be completed, and are there any obstacles in the way?
Pricing is a strategic decision that has far-reaching implications for the success of your venture.
Pricing is further complicated for new ventures because in many cases the products offered are new to the market.
Entire books could be (and have been) written on the topic of pricing strategy, however, a brief primer on pricing strategies is here.
Be sure to detail your pricing strategy and be sure to explain why it will be effective with regard to your target market and your competition. Keep in mind that it is very rare for new ventures to sustain a cost advantage over their competition.
What, if any, proprietary rights do you have to your product?
Proprietary rights include patents, copyrights, trademarks, and trade secrets.
If you are licensing proprietary property from another entity, the specifics of that relationship should be detailed here. Don’t forget to include any proprietary knowledge or skills in this section as well.
Copies of the legal documents that certify these proprietary rights (patent filings, agreements, etc.) should be included in the appendixes. Most new ventures do not have significant proprietary rights. If this is the case for your venture, this subsection can be omitted.
You may draft this section in the beginning of the business planning process, but many of these items will be further developed as you dive deeper into your analysis in subsequent sections.
Expect to revise this section many times during the business planning process. Don’t be afraid to take a stab at these areas in the beginning, knowing that you will be revisiting them as you progress.
IV. Market Analysis
The Market Analysis and the Industry Analysis go hand in hand, but they are distinct, and it is important for new entrepreneurs to address them separately.
Your industry analysis focuses on your competitors and your market analysis focuses on your customers.
The market analysis is an examination of the people who will buy your product and the solution that you provide for them.
Remember that successful firms always solve a problem for their customers—even if the customer is not aware of the problem!
Don’t be a solution searching for a problem.
If you can’t think of a problem that your product solves, why would anyone buy it?
For both the market and the industry analyses, it is very important that all statements or claims made are supported by primary or secondary research.
Of course, the entire business plan document should be as accurate as possible, but in certain areas it is necessary to make educated guesses or even WAGs (wild-ass guesses).
The industry and market analyses are not the places for such estimations.
Show your work. Don’t make your readers search for evidence that you have done your research, but don’t overwhelm them either.
Because the information from this section is often drawn from online sources, it can be mentioned right in the text (no long citations needed).
Be prepared to talk through objections. Many of the objections that your readers may have can be settled through careful analysis and insight.
Your market analysis should answer the following questions:
- Who wants your product?
- How much will they buy?
- What will they pay?
- Can you find a niche in this market that is big enough to make money?
This information will be communicated by first presenting a summary of how you define your target market, then a detailed look at how you define your target customers.
Defining your market
Your initial market will likely be a small segment of the market as a whole.
For example, if you are opening a restaurant, your market will be limited in various ways, such as
- to the people within the city where you operate or even just within one neighborhood;
- the type of food and the price point;
- the style and customer perception of the restaurant;
- and many others.
Unlike your industry analysis, which can largely be done with online research, gathering information related to your market is more involved.
The bulk of your data here will come from interviews with potential customers, suppliers, and even competitors.
With the right questions and the right approach, you will find many people who are happy to share what they know or discuss their area of expertise.
Market segmentation should never be a top-down process.
Saying that you need a very small percentage of a very large market to be successful (although quite common) indicates to the reader that either you have not done your analysis correctly or you do not understand the nature of market segmentation.
You must initially focus on a relatively small segment in which you can maintain a sustained competitive advantage.
Your market analysis should answer the following critical questions:
Your product or service isn’t a perfect fit for everyone.
- How do you define your market?
The answer to that question should reflect characteristics of your product or service.
- Is your market based on geographic boundaries?
- What about demographic information such as age or gender?
- Is your market large or small?
- How fast is it growing?
If your market is shrinking, that is a warning sign. If there are fewer and fewer people willing to buy your product, how can you expect to grow your business?
All industries and markets can be segmented in a variety of ways. Pick the segmentation method that makes the most sense for your venture and your product.
Remember, you will be competing and doing business in the future.
Historical data from the market’s past can be a helpful tool, but ultimately all markets are dynamic, and your business will be operating in the future.
- In what ways are you prepared to capitalize on current and emerging trends within your market?
Defining your customer
The next subsection of your market analysis defines and segments the current customers in your market.
Use interviews and secondary research to develop this section.
These secondary sources include
- market research reports,
- industry publications,
- and data from trade groups.
This information will tell you how others in the industry define, identify, and segment their customers.
- Who are your customers?
- What segmentation method makes the most sense for your venture?
- What motivates buying decisions for your target segment(s)? These motivators are responses to specific “pain points” or critical problems that your customers need solved (whether they know it or not).
- Are your customers sensitive to price?
- Are they interested in convenience, or quality?
- Why does your value proposition resonate with this customer group?
- In what ways are customers dissatisfied with current offerings in the market, and how does your value proposition fill in these gaps?
- What customer needs are currently unmet by your competitors?
- What emerging customer groups are being ignored?
- How is your product or service a good fit for the needs of these emerging segments?
This section will help you develop your value proposition, so in the first pass of writing this section, the information won’t be available.
Why is this section so important?
Why is this section so important?
These questions must be answered with facts, not supposition.
It is very common for nascent entrepreneurs to create a narrative of customer problems and their desire for a specific solution based on what they think, not what actually is.
You’ve created your idealized customer avatar—now support it with facts. Your market analysis isn’t just busywork or context for your reader.
This section is a key element in the development of your value proposition—the core of your business.
Understanding your market, your customers, and their problems are critical to the success of your business.
Where can you find customer informations?
The best data is a mix of qualitative and quantitative—that is, data that represents opinions or emotions along with numbers-based data.
Unfortunately, quality information about customer preferences can’t be found simply with an internet search.
The following sources of customer data are arranged from least expensive to most expensive.
Historical data, such as known data about certain customer segments or information in trade publications and journals, can be a useful starting point.
Just keep in mind that while this information may be easy to access and may include qualitative and quantitative data, it may lack current industry trends and will never be as timely or accurate as information derived directly from your customers themselves.
It can be used to establish a baseline or to flesh out a background, but it should never constitute the only source of information for your market analysis.
- Surveys and questionnaires are cost-effective alternatives to more expensive and time-consuming interviews.
- With the benefit of tech-enabled solutions, they can be administered to a large group of people and targeted to certain specifications, and the resulting data is easier to explore than ever before.
- Surveys are great because they are very current, and the questions you use can help you capture exactly the information you are looking for.
When it comes to uncovering information about your customers, there is absolutely no substitute for talking to people.
Interviewing is also the most time-consuming method of uncovering customer information.
Interviews don’t have to be formal—simply talking to people who are using similar products or services and asking them what they like, dislike, would like to see more of, etc., counts as an interview.
Pay special attention to criticisms of existing market offerings, as these may present opportunities for you to outmaneuver the competition.
Remember, you will be competing and doing business in the future.
Historical data from the market’s past can be a helpful tool, but ultimately all markets are dynamic, and your business will be operating in the future.
- In what ways are you prepared to capitalize on current and emerging trends within your market?
Suppliers are often more than willing to talk about the market they operate in, and even competitors can be sources of information.
Look at their offerings, and purchase those that are most similar to your own.
- How does their buying process work from start to finish?
- What support do they offer,
- and how is their product or service process tailored to the people they serve?
While competitors may be unwilling to discuss their business in an interview format, consuming their goods or services can be a way to reverse-engineer their customer avatar.
Calling successful ventures in your space who aren’t direct competitors, such as those in a different location, etc., can also be very useful.
Everyone wants to talk about how they succeeded!
V. Industry Analysis
The Industry Analysis focuses on the competitive environment in which your business will operate.
This means trends within the industry, but more importantly it focuses on your competitors and the ways in which you will differentiate yourself from their existing offerings.
No business is an island, and competition is an inevitability of undertaking a new venture.
An industry analysis is not a market analysis.
It is easy for new entrepreneurs to conflate the two.
An industry analysis focuses on competitors, and a market analysis focuses on customers.
The two sections are often used together in a finished business plan to describe a firm’s potential for future success, but when researching and compiling your business plan it is best to tackle them separately so as not to mix them up.
Most of the research you do for this portion of your business plan can be conducted using internet sources.
- Government statistics,
- agency findings,
- and trade organizations’ reports
are all great primary sources of information, particularly quantitative information.
Other helpful sources of information are:
- suppliers who sell to the industry,
- financial analysts,
- and even competitors
Together, these reliable primary and secondary sources inform your analysis to produce a big-picture overview of the size and scope of your industry, along with the role and position of competitors.
If the focus on documentation and citation seems excessive in these two chapters, consider this:
the success of your business is dependent on the ability of your venture to survive the stresses of the marketplace.
Operating on faulty information or unsubstantiated assumptions can pose jeopardizing risks down the line.
What’s more, the insights that your industry analysis produces are used to inform and develop your value proposition—the core of your business.
That is certainly not something that can be based on a WAG (wild-ass guess)! Your industry analysis is important in another way:insight gleaned from it forms the second half of your value proposition.
The market analysis answers the question “Who will buy your product or service?” The industry analysis answers the question “How are you different (and better) than your competitors?”
Your first paragraph should address the following:
- How do you define your industry?
- How is the industry segmented?
- And how are these segments defined? All industries and markets can be segmented in a variety of ways. You must select a segmentation that is relevant for you.
- What are current trends and important developments?
- What role is technology playing in this industry?
- How are customer preferences changing?
- What national and international events are influencing your industry?
- Are they boosting the industry, or will they create problems in the future?
- What are the growth forecasts for the industry?
- Is it growing or shrinking?
- Why is this an advantage right now?
In this section, identify potential direct and indirect competitors in your industry.
Focus on why they are your competitors and where you differ.
Try to include all direct competitors. If there are numerous existing competitors, pick several that produce products most closely related to yours.
Of course, it goes without saying that having numerous competitors who are very similar to you is a worrisome sign.
Provide a chart showing the attributes and characteristics of these competitors and their products.
Include basic information such as
- their size,
- location, target
For each competitor’s products or services, identify
What you are trying to show with this chart is that your product has one or more unique features not offered by your competition, so be sure to highlight the attributes that make your product unique.
Make sure that you acknowledge the strengths of your competitors and their products, as well as the weaknesses or gaps that will create an opportunity for you.
It is not desirable to appear overconfident or dismissive of your competition.
When conducting an analysis of your competitors, keep three key pieces of information at the forefront of your mind:
It is common for entrepreneurs, especially those starting new ventures that offer unique products or services, to state with confidence that they do not have any competition.
This isn’t true, and it demonstrates to your reader that either
- (a) you have not correctly researched your competitors or
- (b) you do not understand the nature of competition.
Every business has competitors, even if their product is unique.
if your product is so unusual that nothing like it has ever been seen before, what were your customers using before your offering was released? Nothing. And nothing is a powerful substitute. However, “using nothing” is rarely the case.
If direct competitors are numerous, select those that compete with you most directly.
That is to say, the competitors that produce products most similar to yours or offer very similar services.
It should go without saying that if you are faced with the prospect of sifting through piles of competitors to pick the “best” ones, that’s a worrisome sign for your future success.
Your readers want to know why the competitors you chose are your competitors, and you want to sell them on the fact that you offer something better and different.
Don’t just focus on why they are your competitors; also focus on the areas where you differ.
The easiest way to do this is via a side-by-side comparison chart.
If the chart can be presented in a compact manner, it can go right into this section. If not, then it should be placed in the appendixes.
There are no hard-and-fast rules that dictate what information should go in your competitor comparison chart.
The objective is to demonstrate to your readers that your offering has one or more unique features not offered by the competition.
So, pick whichever attributes are relevant.
Common candidates for comparison are
- and distribution.
Whichever set of attributes best helps you highlight the ways your offering is unique is the right set to choose for your comparison chart.
What not to include
The Industry Analysis section is best kept to two pages or less, so if you find yourself with five pages of competitor analysis you have a problem.
- Did you focus on your direct competitors?
- Would your competitor comparison charts be better served by being placed in your business plan’s appendixes?
If your competitor analysis is long because you simply have a high number of direct competitors, that’s another problem all its own.
High-competition industries that are jam-packed with entrenched competitors are tough environments for new ventures to tackle.
VI. Your Value Proposition
Now you’re ready to write a concise, impactful value proposition statement for both yourself and other stakeholders.
Determining your value proposition is an inflection point in the business planning process.
This is the point where you ask yourself some tough questions:
- Is this something real?
- Can this be a healthy and sustainable business, or should I go back to the drawing board?
Being honest with yourself and relying on the honest input of friends, family, peers, and mentors can save you lots of money, lots of time, and lots of frustration.
Your value proposition is the answer to two fundamental questions:
- Who is your target customer?
- How are you different from your competition?
Those are the two questions that make or break your new venture.
Without a firm, confident answer to both, your marketing plan, your operations plan, and all of the other parts of your business plan that have yet to be written don’t matter.
Even though your value proposition is totally dependent on the work you have done so far drafting your business plan, it should make sense standing completely alone.
A good way to test this is to print it out on a single sheet of paper.
Does it make sense? It should. Does it reference any part of your business plan? It shouldn’t.
The introduction is a single sentence that gets right to the point.
That doesn’t mean that it has to be boring or that you can’t cast your venture in a positive light.
It does mean, however, that your introduction should be more than just the name of your venture.
Under no circumstances should it be a slogan or a tagline or be jam-packed with jargon.
A slogan is not a value proposition.
Furthermore, leaving the jargon at the door means that anyone—investors, team members, suppliers, and customers—can get right to the bottom of who you are and what it is you do without being an industry expert.
To illustrate the value proposition construction process we will be using a fictional pet specialty e-commerce retailer named Rex. Rex focuses on hard-to-find items for unusual (not dogs, cats, birds, etc.) pets.
“Rex is an online pet product retailer focused on nontraditional and exotic pets.”
02. Market Definition
The information from your market analysis informs this section of your value proposition.
First, identify your target customer. Your target customer may or may not be the end user of your product. They may be a consumer (B2C) or a business (B2B).
For the purpose of your value proposition, your target customer(s) can be identified in a single sentence.
“Our product assortment is perfect for friends of pets that are neither a dog nor a cat who need specialized products to live happy, comfortable lives.”
Next, define the problem that your target customers have, and how that problem is a pain point—how does it make them feel?
Again, this information is drawn from your market analysis. If you asked one of your target customers today, they should immediately identify with the pain point(s) your value proposition addresses.
“Owners of nontraditional pets struggle to find an adequate, affordable assortment of supplies and accessories in one place. They end up wasting time and money traveling to expensive specialty stores or searching online for the products they need.”
“Their current choices are limited to expensive specialty stores, big box retailers with limited stock of the products they are looking for, and e-commerce sites such as Amazon. Frustrated pet owners often have to spend an inordinate amount of time and money tracking down the supplies they need.”
03. Competitor Differentiation
Based on the competitor analysis within your industry analysis, who are your competitors?
Use direct competitors for your value proposition.
Keep it concise. Your competitor may be called out by name if it is large enough or well-recognized.
On the other hand, if you are competing with a number of smaller firms within an area, just say so
“Rex competes with local specialty pet stores, big box pet retailers such as Petco, and online outlets such as Chewy and Amazon, but it has distinct advantages over each of these categories.”
Focus on features and benefits that relate to your target customers’ pain points that were outlined in the market definition.
The features are only an organizing tool for you.
Customers do not buy features.
They only buy benefits.
If a feature does not provide a benefit that is relevant to your target customers’ pain points, then it is not a point of differentiation—it is not a reason that a customer would choose you over a competitor.
Once you have listed your key features and benefits, summarize them in a concise sentence format.
“Specialty pet stores are expensive and don’t exist in most places. Big box pet retailers have limited shelf space, highly rotational products, and a preference for popular pets. Online retailers like Amazon may have the products, but the search is difficult and customers may end up having to buy from multiple outlets. The specialty selection that Rex offers presents unique supplies and accessories that fill the needs of nontraditional pet owners and are affordable and easy to find.”
04. The Complete Value Proposition
To produce your completed value proposition, put together each of the statements you have already written into a single, succinct statement.
VII. Operations Overview
Operations are defined as the processes used to deliver your products and services to the marketplace and can include
- marketing and sales,
- customer service, etc.
Be sure that you carefully link the design of your operations to your value proposition.
Since you are building your business around a point of differentiation from your competition that is critically important to your target customers, make sure you design your operations to maximize this point of differentiation, not necessarily to minimize costs. Don’t go crazy with nitty-gritty details.
The most critical aspect of the Operations Overview is to show an understanding of where your competitive advantage is coming from and how you have designed your business to take advantage of it.
Other nonessential activities can be purchased, outsourced, or simply eliminated.
This section should demonstrate that you understand this and have a solid grasp of how to run your business.
In this subsection, describe how you will use your firm’s internal operations to create value for your target customers. It will be helpful to show your firm’s value chain and describe how you intend to run each area of the business.
In this subsection, describe how your firm will interact with suppliers and partners in your industry group, including the following:
- What you will produce internally and what you will purchase?
Essentially, this is a question of what you will make versus what you will buy.
- More importantly, why do these decisions make sense for your particular business?
- How do you fit into the industry’s supply chain?
- What is your relationship with vendors, suppliers, partners, and other service providers?
- Again, more importantly, why does your operations strategy make sense for this position?
- What critical partnerships will you have to develop in order to be successful?
- What outstanding critical partnerships are yet to be developed?
- What progress has already been made and what remains to be completed?
VIII. Marketing Overview
Your plan has already covered the product and price portions of the marketing mix in the Product/Service Description.
This section covers the remaining two:
- place (your distribution strategy)
- and promotion (sales, advertising, and public relations)
The Distribution Strategy section of your marketing overview should answer the following questions:
- How is your product/service going to get to the customer? Remember, your customer may not be the end user.
- Will you distribute your product through digital channels?
- Are you going to sell to a wholesaler or distributor who then delivers to retailers, or does it make more sense to only sell direct? Explain why you selected the distribution method(s) you did, why it is a good fit for your business and your customers, what distribution channels are involved, and how you will access them.
- How does your chosen distribution strategy fit into the larger set of your business goals? For example, if your pricing strategy and overall objective is to gain market share fast through the use of a penetration pricing strategy, how does your distribution strategy support that objective? Perhaps it goes without saying, but the greater the number of business elements you have working in concert, the higher your goal completion will be.
- How will the method(s) of distribution you have chosen impact other aspects of your business?
- Are there distribution-related costs that invalidate your pricing strategy? If this is the case, it may mean going back to the drawing board on distribution.
- How will a distribution lead time affect production?
- Does a distribution lead time affect the way you prepare for or execute your service?
- Are there packaging or labeling concerns that may arise based on the chosen distribution method(s)?
- Are there minimum inventory levels that must be adhered to for a particular distribution method to be viable?
Sales Strategy Channels of distribution may get your product to your customers, but an effective sales and promotion strategy generates demand.
Unless it is crystal clear in the minds of your customers how your product or service solves their problem(s), they will be reluctant to buy.
There is no such thing as a product that sells itself, and a comprehensive sales strategy is needed to get startups off the ground.
In addition to answering the above critical questions regarding your sales strategy, another aspect of the sales process that you must understand is the sales cycle.
The sales cycle is the process that a company undergoes from the initiation of a sale to the close of that sale.
To put it another way, your sales cycle is the blueprint that your sales force follows to generate sales.
If some entrepreneurs are guilty of overlooking their distribution strategy and chalking it up as a noncritical part of the business planning process, then far too many have done the same thing to their sales strategy.
Selling is a critical function that is often overlooked by new ventures. It is not uncommon for new entrepreneurs to either badly underestimate the time and expense that an effective sales effort requires, or worse, ignore the task of developing a sales strategy altogether.
The Sales Strategy portion of your marketing overview should answer the following questions:
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