How to Write a Business Plan

All businesses need a roadmap to direct them towards success and growth. This roadmap is called a business plan. At the most basic level, this document provides a synopsis containing both the firm’s objectives and the steps the business expects to take to meet those objectives.

For purposes of this article, two approaches to business plans exist. One involves a traditional presentation that developed from business planning methods taught for decades in business school strategic planning and entrepreneurship courses. The other embodies an alternative approach that grew out of the inability of these traditional business plans to cope with disruptive competitive environments that require accelerated adaptations to rapid change.

This primer written for entrepreneurs and digital platform workers presents overviews of the sections that typically appear in traditional business plans, along with a newer alternative approach that develops a somewhat different strategic planning document known as a business map.

Anybody starting or running a business requires a business plan. Specifically, anyone seeking investment capital to lift a new venture off the ground requires a business plan, and so does anybody who wants a bank loan to expand. Business plans are not only for Silicon Valley entrepreneurs seeking tens of millions of dollars in venture capital to fund technology startups. All entrepreneurs at all levels who need funding need business plans, and that group especially includes the one-third of U.S. adults who work in the growing digital platform economy.

Furthermore, defectors from life as corporate employees often need business plans to start their own firms. As discussed in this classic 1985 Harvard Business Review article titled “The Heart of Entrepreneurship,” entrepreneurs face challenges that differ substantially from those facing managers in large corporations. Developing a business plan encompasses one such challenge for which life in large organizations rarely prepares the legions of former employees who leave to start their own firms.

These days, comprehensive business plans often run no more than 30 to 40 pages—much shorter than those plans typical of past decades which could extend into hundreds of pages. Additionally, many entrepreneurs only need a format intended for internal use called a lean business plan. This format only includes the essential projections along with terse bulleted lists, and omits discussions of the management team unless people outside the business need to review the document. By writing a plan in a lean format first, the drafting process feels less overwhelming, and one can rapidly expand a lean plan into a more comprehensive document.

Good business plans often read like collections of engaging, well-written essays about various anticipated facets of the organization and operation of new and existing ventures.

Although this brief article cannot provide the comprehensive guidance offered by books on business plans, below we offer some useful perspectives on several essential sections which typical traditional business plans contain. These include the executive summary section, the opportunity section, the execution section, the executive team and company overview section, and the financial plan and forecast section.

As the most crucial business plan component, the executive summary grabs and inspires readers’ attention, and then explains the purpose behind the business, the firm’s operations, and its business model (i.e., how the firm earns revenue).

Busy potential investors often ask to see only this one- or two-page synopsis. They won’t even request the rest of the document or an in-person sales pitch unless the summary convinces them that learning more will seem like a worthwhile investment of their time and effort.

An outstanding executive summary provides an overview and encapsulation of the complete plan. An effective summary often leads off with an attention-grabbing lead, or introduction.

According to Chief Executive Officer Tim Berry and Chief Operating Officer Noah Parsons of longtime business plan software leader Palo Alto Software, the narrative first explains the firm’s USP, or unique selling proposition. Then, the summary sets forth the marketplace problem the firm intends to address, as well as the solution it plans to provide. This synopsis then presents the following topics in a digest format:

• Marketing aspects (e.g., target market)
• A brief analysis of the firm’s competition
• The names and titles of the executive team
• A financial summary as only one or two charts or graphs
• The funding requirements sought
• A schedule of actions and milestones

This section encompasses a detailed analysis of the problem solved by the business, the firm’s customers, and the role played by the product or service in the competitive environment. The opportunity chapter explains the ways the firm differentiates its solutions from others offered by competitors, and forecasts likely future updates and expanded offerings.

Answers to questions like these dominate the opportunity section:

• What need does the business’ product satisfy?
• What problem does the business solve for the market?
• What does the business sell?
• Who are the customers that make up the critical segments of the target market?
• What do those customers actually buy?
• Who are the competitors? How significant are their threats?

Probably no single element of the business plan might be as critical as a definition of the problem the business solves for customers. Specifically, this section needs to define that problem in detail, followed by the proposed solution embodied by the intended product or service.

The section should provide a detailed analysis of how the solution works to justify the business concept as viable to potential investors. At this point, the plan needs to disclose an analysis of the target market that delineates the market segments and estimates the relative current sizes and growth rates of each segment. Market trends need to appear here as well.

Ideally, this section also needs to present vivid, specific buyer personas identified by fictitious names, income levels, and preferences. Persona “families” describing compelling use cases and online browsing habits are especially critical to justify funding for entirely online businesses. These personas have comprised an essential component of analyses in marketing plans within online and e-commerce businesses for more than ten years.

Finally, this section needs to report an analysis of both direct and indirect competitors, especially focusing on the firm’s competitive advantages it expects to exploit to achieve market dominance. Matrix tables that describe how competitors’ offerings compare to the firm’s product or service often appear in this section. Investors will refuse to fund firms who cannot convince them of advantages over competitors.

This section discusses plans for sales and marketing, followed by plans for operations. Some entrepreneurs may wish to include a discussion of success measurement and evaluation metrics in this chapter as well.

The sales and marketing plan section presents sales and pricing strategies. This section focuses on the well-known “Four Ps” of the marketing mix: place, positioning, promotion and price:

• Place is still vital for brick-and-mortar businesses shipping physical products, but less significant with digital and online firms.
• Positioning involves the creation of perceptions about the product in the minds of buyers through branding.
• Pricing involves strategies based on costs, competitive market prices, or value provided to the customer through benefits.
• Promotion includes packaging, advertising and public relations, but in a digital world also encompasses content marketing and social media promotion.

The operations section summarizes the inner workings of the gears that turn the wheels of the business. These topics include sourcing, technology, fulfillment, logistics, distribution, direct sales, and merchandising.

A tremendous executive team can take a mediocre business concept and turn it into a wildly successful company. Investors invest in people before ideas, and don’t fund companies that suffer from lackluster management teams and insufficient human resources.

For that reason, entrepreneurs need to argue a compelling case in this section that they benefit from the right managers acting in the right roles, and that the team will lead the firm to success and growth. In this section, succinct experience and education bios need to appear, preferably talking about past successes with similar firms and projects. Existing firms may want to also add a passage about their hiring plans, along with an organizational chart.

The company overview should include the firm’s corporate mission statement, an essential and fundamental requirement for any business. This overview should also comment on the firm’s ownership in a legal sense—i.e., is it a sole proprietorship, partnership, limited liability company (LLC), or corporation? Existing businesses should also provide a concise history of their progress.

Financial sections in business plans typically include sales projections for several years, along with corresponding figures for the Cost of Goods Sold (CoGS)—the direct costs related to sales. These financial chapters also include personnel cost projections that include salaries, benefits, payroll taxes and insurance.

The business plan usually concludes with projected financial statements in spreadsheet formats that incorporate the sales and personnel cost projections. These should include an income statement, a cash flow statement, and a balance sheet. Because investors want to know how the firm will use their contributions, a statement of changes in financial position that enumerates the major ways the firm will use the funds should also appear.

Finally, all investors want to know how they would obtain a return on their investment through a sale of the business. Accordingly, the final topic should present plans for an exit strategy (i.e., some way of selling the business to another firm as an acquisition, or going public by selling stock in capital markets through an IPO). This passage should include some likely candidate companies who may wish to buy the business.

Traditional business plans can work well for many businesses and in many industries. However, many entrepreneurs have found traditional multi-year business plans poorly suited to sectors such as technology, which is marked by upheavals due to disruption and rapid changes. An alternative business fundamentals framework emerged to meet the planning needs of tech firms and other entrepreneurial businesses facing these volatile competitive environments.

This business fundamentals framework, known as the “Seven Forces of Business Mastery,” was developed by entrepreneur and CEO coach Tony Robbins. Robbins has a strong track record as a business consulting authority, particularly due to his work with other successful entrepreneurs.

As this Fortune Magazine cover story explains, Robbins and his teachings were instrumental in the founding of Salesforce by entrepreneur Marc Benioff in 1999. Today, Salesforce ranks as the sixth-largest software company in the world, reporting $8.39 billion in revenue in 2017 and a market capitalization of $113.14 billion in August 2018. Robbins is also the chairman of a holding company comprising 40 privately-held businesses.

Robbins has worked closely with many professionals and celebrities, including Bill Clinton, Hugh Jackman, and Peter Guber. He has made it on many lists, such as the Power 100 by Worth Magazine, the Top 50 Business Intellectuals by Accenture, the Top 200 Business Gurus by Harvard Business Review, and the Celebrity 100 by Forbes. Money Magazine reported Robbins’ net worth at about half a billion dollars in late 2015.

Strategic planning has always played a role as an essential business fundamental, and as an important one for startups seeking venture capital funding. However, Robbins points out that marketplaces today change more rapidly than ever before. Disruptive technologies and unexpected competitors can suddenly emerge, displacing businesses in months rather than years. How can companies position themselves in such hyper-competitive environments?

He suggests that drafting traditional multi-year business plans makes for an old-fashioned and suboptimal practice because the planning process cannot possibly keep pace with such rapid market changes. He suggests that these days, many traditional business plans become obsolete even before they’re completely written.

Robbins instead argues that firms need short-term business maps—i.e., strategic planning tools that depict the shortest route from where a firm currently is to where it needs to go. In other words, these maps close the gap between a business’s current position and the position their leadership seeks.

To create a business map, Robbins recommends that the leadership of any business consider a series of analytical questions.

Management theorist Peter Drucker offered the profound observation that “the customer rarely buys what the business thinks it sells him.” Often a disconnect exists between the leadership’s perception of their business and an accurate portrayal that describes the business in which the firm accurately operates, as the following example illustrates.

Is Starbucks in the coffee business? CEO Howard Schultz observed during a trip to Italy in 1983 that Italians routinely meet in cafes before and after work. Schultz recognized how the Italian cafe customers were buying into an experience of a transitional meeting place between home and their jobs. That is when he understood that his business was actually about creating a “third place,” a community experience beyond selling coffee.

In support of these questions, Robbins argues that the ways business leaders frame issues during planning in the midst of a rapidly changing competitive environment afford the greatest impediments to success—and also the best opportunities. For example, he cites how in 1997, with Microsoft’s software running on 97 percent of the world’s PCs, Steve Jobs asked himself one of the most critical questions of his life: “What business are we really in?”

Apple decided to suddenly redefine its corporate mission to be in the business of connecting people to their passions—to their photographs, music, videos, and each other. Two decades later, Apple is one of the world’s largest companies, with a market capitalization exceeding $600 billion.

These questions directly relate to the development and renewal of the corporate mission statement. Business success requires a lot of energy from its leaders, which can wear out.

According to Robbins, a company’s leadership needs “a reason and a vision of something you’re truly passionate about where you’re serving more than yourself. Harness that passion to keep moving forward.”

Whether they define themselves as skilled producers, managers, or entrepreneurs, the leadership needs to align their true nature with their roles to better serve customers as well as the business overall.

These final questions emphasize how success depends on doing the right things at the right times. The leadership needs—above all else—an accurate and complete analysis of the situation currently facing the business, as well as precise identification of the current opportunities on which the firm can capitalize.

It is important to note how Robbins’s questions appear to pay homage to two foundational assessment models taught in business schools. One is the SWOT Analysis which was developed by the Stanford Research Institute in the 1960s to analyze the strengths, weaknesses, opportunities, and threats of a company. The second is Porter’s Five Forces Model, a framework that identifies and analyzes five competitive forces that determine any industry’s weaknesses and strengths: competition, new entrant potential, the power of suppliers and customers, and threats from substitute products.

BustedCubicle suggests that in 2018, the optimal format for drafting a business plan may encompass a hybrid approach that integrates the probing questions and short-term emphasis of business maps within the structure of traditional business plan sections.

Interesting answers to the insightful business map questions can help to inspire confidence among potential investors weary of having reviewed large numbers of plans that omit those topics. Map answers can also help differentiate winning plans from those written according to a strictly formulaic, traditional approach.

Authors can capitalize on a variety of strategies for integrating business map topics into their plan. Authors might consider presenting their map topics as the basis for a separate FAQ (Frequently Asked Questions) section. Alternatively, authors might consider distributing the map topics throughout their business plans’ sections, adding emphasis to the map topics through design elements like pull quotes and sidebars.

In our editors’ view, integrating the insightful analysis of business maps within a business plan framework offers the most compelling opportunity for entrepreneurs and digital platform workers to inspire investors and lenders to supply funding essential for growth and success.

For more on business fundamentals like business plans and business maps for entrepreneurs and digital platform workers, see our guide, A DIY Guide to Business Fundamentals.

Douglas Mark

Writer

While a partner in a San Francisco marketing and design firm, for over 20 years Douglas Mark wrote online and print content for the world’s biggest brands, including United Airlines, Union Bank, Ziff Davis, Sebastiani, and AT&T. Since his first magazine article appeared in MacUser in 1995, he’s also written on finance and graduate business education in addition to mobile online devices, apps, and technology. Doug graduated in the top 1 percent of his class with a business administration degree from the University of Illinois and studied computer science at Stanford University.