Creating Business Plans (HBR 20-Minute Manager Series)

1. A business plan is crucial for success and securing investment

Writing a business plan is an important first step in starting any new venture.

Evaluation tool. A business plan serves as a roadmap for your business, helping you navigate opportunities and obstacles. It allows you to thoroughly evaluate your idea and assess its feasibility.

Persuasion document. For potential investors, managers, and resource controllers, the business plan is their window into assessing your concept. It's your opportunity to create a compelling argument for your idea.

Living document. The business plan shouldn't be static. Regularly updating it enables you to track progress, verify assumptions, and respond to challenges proactively. This ongoing process provides valuable information for anticipating and addressing issues before they become critical.

2. Executive summary: Your elevator pitch in writing

In just one page, it gives readers an understanding of your proposal and captures their interest in your new venture.

Concise overview. The executive summary should succinctly describe what your company is, where you want it to go, and why it will be successful. It's often the only section time-pressed readers may review.

Key elements to include:

• Mission statement
• Brief industry and market description
• Unique business opportunity explanation
• Competitive advantages
• Financial potential and risks
• Management team overview
• Business stage and structure
• Capital requirements

Write last, polish thoroughly. While it appears first, draft your executive summary after completing the rest of the plan. This ensures consistency and allows you to distill the most critical points.

3. Opportunity analysis: Define your market and competitive landscape

Savvy investors try to spot markets with high growth potential early in their development because that's ultimately where the big payoffs are.

Market potential. Demonstrate that your target market is either large, growing rapidly, or ideally both. Investors seek opportunities in expanding markets, as gaining market share is often easier than competing in mature or declining ones.

Competitive landscape. Provide a thorough analysis of current and potential rivals. Address:

• Who are your competitors?
• What are their strengths and weaknesses?
• How does your business differentiate itself?
• What is the competitive outlook for the industry?

Customer focus. Clearly articulate the customer problem you're solving and how your offering is superior to existing solutions. Use data and expert sources to support your claims about market growth and competitive strategies.

4. Management team: Showcase the people behind the vision

Without the right team, no business idea will move from concept to reality.

Team qualifications. Highlight relevant experience, achievements, and skills that directly relate to your venture's success. Address:

• Professional backgrounds
• Industry expertise
• Notable accomplishments
• Education and special abilities
• Reputation in the business community

Complementary strengths. Demonstrate how team members' skills balance each other, forming an effective unit. Acknowledge any perceived weaknesses and explain how you'll address them (e.g., through advisors or future hires).

Management philosophy. Outline your team's guiding principles and leadership style. This provides insight into company values and decision-making processes, helping investors assess cultural fit and operational approach.

5. Marketing strategy: Articulate your path to customers

Your marketing plan details how you intend to sell your product or service—that is, how you'll motivate customers to buy from you.

Customer focus. Center your strategy on the specific customer problem your product or service solves. Consider buying behavior, priorities, and factors influencing purchase decisions.

Marketing mix. Address the classic "four Ps":

• Product: Features, functionality, and unique value proposition
• Price: Pricing strategy and rationale
• Place: Distribution channels and methods
• Promotion: Communication and awareness-building tactics

Customer acquisition and retention. Outline strategies for both attracting new customers and building long-term loyalty. Consider the lifetime value of a customer against acquisition costs to determine appropriate marketing investments.

6. Operations plan: Demonstrate feasibility and scalability

The operations section of your business plan provides a general idea of the flow of everyday activities at your venture and the strategies that support them.

Key considerations:

• Breakeven point: When will the business begin to make money?
• Supply chain: How will you source materials and manage inventory?
• Manufacturing/distribution: What is your production or service delivery process?
• Location: Why is your chosen site advantageous?
• Workforce: How will you attract and retain skilled employees?

Scalability. Show how your operations can grow to meet increasing demand. Address potential bottlenecks and how you'll overcome them.

Technology leverage. Highlight how you'll use technology to improve efficiency, reduce costs, or enhance the customer experience.

7. Financial projections: Paint a realistic picture of risk and reward

Even if you have expert advice, crunching the numbers yourself is a worthwhile exercise.

Key components:

• Capital requirements: How much funding do you need and how will you use it?
• Assumptions: Clearly state expectations about growth rates, costs, and market conditions
• Income statement: Project revenues, expenses, and profitability
• Balance sheet: Outline assets, liabilities, and equity
• Cash flow statement: Show the timing of cash inflows and outflows

Risk and return analysis. Use tools like breakeven analysis and risk/return graphs to illustrate potential outcomes. Be transparent about risks while emphasizing the upside potential.

Investor perspective. Consider your audience's goals:

• Corporate investors: Will the project meet the company's hurdle rate?
• Venture capitalists: What's the potential return on investment?
• Lenders: Can the business repay its debt?

8. Milestones and attachments: Set clear goals and provide supporting details

Develop an ambitious schedule that you can meet, while still giving yourself room to handle unexpected problems that may slow you down.

Milestone timeline. Create a realistic yet ambitious schedule of major events and achievements. Use generic time frames (e.g., "month six") rather than specific dates to allow flexibility.

Key milestones might include:

• Prototype development
• Key hires
• Product launch
• First customer sale
• Breakeven point

Supporting documents. Include detailed information in attachments to keep the main plan concise:

• Detailed financial statements and assumptions
• Technical specifications
• Full team résumés
• Market research data
• Legal documents

Regular updates. Treat your business plan as a living document. Revisit and revise milestones and projections as your business evolves, using it as a tool for ongoing strategic planning and communication with stakeholders.

Last updated: August 9, 2024