Create professional business plan by yourself. Chapter 2: Expanding your idea
What's waiting in this chapter ?
In previous chapter all we did was choose the best idea out of variety. It is only an idea. There is still a long road to creating a business plan: we need to describe our idea, its essence, goals, marketing strategy, analyse micro & macro environment of our future organization, create its structure and so much more...
This chapter is all about this one special idea. We have to convert our idea from being only a concept, mental image to sounding like a really well measured organization plan. How do we do that? Well, let's start from the very basics.
Describing your idea's essence
We already discussed what business idea is in previous chapter. Now, we hold this vision in our mind but we want it to be defined and specified, though still not to lose its abstractness. All basic principles of our business idea have to be written down and designed as a formal, understandable project. Good idea's essence, read by a complete stranger will give him a clear view of what you are going to do, how are you going to do it and why do you think you are going to succeed.
Ideas essence is usually 300 - 500 words long. It's a description of your intentions, senses and mind-set towards your own idea. Essence contains of your thoughts about how you are going to provide (sell) your service (product); what measures are you planning to take to attract your customers; why do you see your service/product better than others'; which aspects of your business you are going to improve most ant why; few thoughts about employing and your employees; your business models' pros and cons.
There are some typical mistakes made when writing idea's essence.
- First, don't hook up on one principle of your idea. You have to write about almost all aspects of your business. Then the reader will perceive how you really imagine your future organization.
- Do not mess with discrete calculations of your profit/expenses or anything like that. We will dedicate some time for things like that later. Everything should be informative and abstract.
- Your idea is probably not perfect - show that it has at least a tiny weakness. This will show the reader that you are realistic and wisely thought everything through.
New company will usually face only two sides. One side is the company itself (and everyone working in it), second one is everybody who uses company's services. Problem is that both sides have particular needs and the company will fail if all needs won't be fulfilled.
Your task is to imagine what customers and your employees will want and expect from you. For example, if you are about to open a barber shop your future customers will have certain needs:
- professional hairdresser
- high hygiene
- good tools
- cozy environment
And don't forget second side - your employees. They will also request some things from you:
- certain salary
- social guarantees
Write down from 7 to 10 prior needs without which neither your customers nor employees will want to have business with you.
How are you going to attract people ?
Doesn't matter what you are doing - you will need steady clients to hold on your business. Because steady clients - steady income which is very important in business. But how are you going to achieve this kind of clients? This is quite easy - you have to prove that you are the best. But being the best itself is kind of a hard task.
This paragraph is all about it - trying to be the most attractive option there is. Write a paragraph that's 400-500 words long and contains everything, from advertising your business, to making it cozy and attractive to your clients. Of course everything should be written down carefully and thoughtfully. Don't think you will be able to spend 100 000$ just to advertise your new business, young companies have to manage themselves without spending too much money until they set their roots deeper.
Don't forget that you already have a clue for this task. Previously I wrote about analysing your and your client's needs. Now combining these two aspects will generate the best theoretical option on how to attract your clients. But how you will fulfil this theoretical option practically is all depending on your imagination.
Setting objectives for future company
There are three types of objectives if you consider time. Long-term (more than 5 years), average-term (2-5 years) and short-term (less than 2 years). It is obvious that the more time you give yourself to complete certain purpose the less accurately you can describe and measure it. Almost all long-term goals are round-off and abstract. Vice versa short-term goals should be more specific, measured.
Let's start with the structure of our goals. Standard business plan have at least four short-term goals, at least two average-term and at least one long-term goal. Every objective has to be:
- clearly explained
- can be interpreted in only one way
- should contain particular numbers
- should have formula explaining those numbers
- should be written in formal language
After you have written down all objectives it is time to connect them with each other and generate one final goal. This is your main goal. It should contain at least a bit of all your previous goals. The main objective is presented at the top of goal list.
It is very important to set measured, thoughtful and achievable goals. And this is where basic math knowledge comes to our aid. When counting goals, especially your earnings, we basically use two main formulas: arithmetic progression and geometric progression formula. If you're trying to count your yearly income you can't simply multiply 12 (number of months) and monthly income because your last month might generate twice as much as your first month. That's why we need these formulas.
If you think your revenue will be growing by a certain amount of money every month you should then count your early income using arithmetic progression. For example you presume that first month your business will generate 1000$ for you and with every upcoming month it will earn 100$ more than from previous one (1100$; 1200$; 1300$ ...). In this case we use this formula: S(n) = (2×a(1) + (n-1)×d) × n/2 = (2×1000 + (12-1)×100) × 12/2 = 18 600$.
S(n) = sum of n months.
n = number of months (in our example = 12)
d = monthly increase (in our example = 100$)
a(1) = income of first month (1000$)
If you think your revenue will be growing at a particular rate every month you'll then use geometric progression formula. For example, you think your first month will bring you 1000$ income and every next month will generate 1.05 times more (1050$; 1102$; 1157$ ...). To count sum of 12 months we use this formula: S(n) = (a×(1-qn)) ÷ (1-q) = (1000 × (1-1.0512)) ÷ (1-1.05) = 15 920$
S(n) = sum of n months
q = growth rate (in our example = 1.05)
a = income of first months (in our example = 1000$)
n = number of months (in our example = 12)
Just keep in mind that growth rate usually stays below 1.2 and is almost never above 1.3,
Setting achievable but not cheap goals
I want you to understand that numbers in your goals must be the lowest you can accept. Yes, of course, the lowest. It is much better to set lower goals and to achieve twice as expected than to fail trying to achieve the impossible. Nevertheless your objectives must promote you for hard work and be proportionally competitive.
If you don't understand why lower goals are good, think this way - you plan every month's expenditures and incomes and every other detail of your business for the upcoming 5 years. What happens, if at some point you earned more than you had expected? Great news - you have more money to spend or invest to your business. But then again, what happens if at some point you are short? You have to borrow more money to go according to your objectives and plans or you have to create new ones. And that's first step to bankrupt.
Some worth considering thoughts about setting goals
- Always be aware of negative net income period. Most of new companies need at least half a year to start making more money than they spend. This period could easily last year or two, keep that in mind when setting your goals.
- Not all goals are about money. You can set an objective to service certain number of clients or to find a certain number of constant clients. Your goals can be about how popular you will become in comparison with relative companies, how well you are rated or even about finding desirable supplier.
Few more advices about setting goals
- Create professional business plan by yourself. Chapter 1: Choosing the right idea
Step-by-step guide "How to create a professional business plan", common business plan's mistakes. How to choose the right idea, business idea's selection system/algorithm
What do we have? Why do we need this?
So far we managed to choose the best business idea out of variety and create simple model of it, containing business ideas essence, analysed needs, measured objectives. This is not much but it is the very basics of business model. We already have an idea that is formally described and is a huge part of business plan.
If we tried to start a business having only an idea itself we would face a lot of problems. This chapter lets you to put your idea into shape, get to know what do you really want, how do you want it and how are you going to get it. Now, not only you understand the essence of your business idea but also everyone who read your work - future investors, partners, suppliers and so on.