<< How To Write a Business Plan – Building Quality Financial Projections >>

Just because you need a business plan doesn’t mean you need to write a 100 page tome.  Depending on the type of business you are starting and the purpose for writing the plan there are four different types of business plans you could write.  Click on the picture below to view templates for each of the different types.

1. The One Page Plan – Popularized by Jim Horan’s book of the same name, this business planning model is intended mainly as a strategic planning tool the one page plan gives entrepreneurs a 10,000 foot view of their opportunity.  It focuses mainly on the mission, vision and objectives of the company at the expense of the marketing and operations plan.  If you aren’t looking for capital then this just might be the ticket for you.
   
2. The Three Sheet Strategy – Also based on a book but this one is by Mike Michalowicz call The Toilet Paper Entrepreneur.  The three sheet strategy takes the one page plan and adds two more components (and therefore pages…smart huh?), the SMART goals page and a paper version of a financial dash board.  This model is also designed for strategy but uses a 10,000 foot view, a 90 day goaling window and a historical look back at the metrics.
   
3. Summary Business Plan – A summary business plan is a comprehensive business plan with the operations plan ripped out.  This plan usually has a business description, market analysis and full financial projections but is designed for businesses that are don’t have overly complex operations.  A couple examples are e-commerce companies, consulting companies and service companies.   Another version of this is the Company Acquisition Proposal.  Since companies being purchased are usually in operation the operations planning can be minimized.
   
4. The Comprehensive Business Plan – And then there is the grand daddy of them all.  There are literally hundreds of different comprehensive business plan templates but they all pretty much boil down to the following six sections: Executive Summary, Business Description, Market Opportunity, Marketing Plan, Operations Plan and Management Plan.  Tack on 3 or 5 year financial projections and you’ve got yourself a business plan.  Software such as Business Plan Pro and Ultimate Business Planner reign supreme in this area but if you want to try it out without a financial commitment you can always try out Capital Business Plan’s free online business planning software (shameless plug…I know). 

<<  Know Your Entrepreneurial Strengths  - Why Write A Business Plan >>

Before we delve into what makes for a good business opportunity we must first discuss the two general approaches to starting a business.  The first type is the Technician.  By technician we don’t necessarily mean an auto mechanic (though that fits this archetype) but a person with a technical skill or are technically knowledgeable in a specific product.  The second type is the Opportunist. The opportunist derives their business idea from the market itself. 

The important differentiation is that the opportunist has two distinct advantages the first being they have explored the market and are providing something that is already known to be in demand.  The second is that they “fail fast, fail cheep” in that they test the waters.  Why dump tons of money into a business model that might not even work?  Test, Test, Test!  Then when you have a product or service that works (with PAYING customers) then dump money into product and process improvements, office space, employees and other over head. 

If the number one reason why business fail is lack of capital (they run out of money!) than doesn’t it make sense to give your new business a fighting chance by ensuring you have a product that people want and are willing to pay for?  Sell your product on eBay, test market on a college classroom, go to tradeshows or open air markets, make your product in a rented commercial kitchen before you sign a five year lease and buy a bunch of equipment and inventory. 

OK…so now that you are not going to go broke before you even get started let’s talk about what makes for a killer start-up.  It’s easy…so listen close.  You can either be CHEAP or DIFFERENT.  So before you say “OK…I’ll be cheap” let me explain the problem with that strategy.  If you come into the market and cut pricing by 10% the natural reaction of your competition will be to do likewise.  So you cut another 10% and they do the same.  Pretty soon it’s a race to the bottom and guess who wins?  That’s right…they do.  Why?  Because they have deeper pockets and they will just wait until you go out of business and then raise their prices back to where they were. 

If you are going to be cheap then you have to be lowest COST not just lowest price.  If you have a technology or process that allows you to make a product or deliver a service for less than the other guy then you can be lowest price.  Wal-Mart has a motto of “Low Prices…Always” because they have buying power through economies of scale, a logistics system that rivals FedEx and brand recognition to bring in the customers.  You don’t so you probably are going to have to be different.

So in what ways can you differentiate?  If we look at the continuum above we can see that there are several steps up from low cost/low price:

• Efficiency – is really just a function of being low cost but not necessarily with the low price (in other words you provide a good value that costs you less). The benefit of living in the information age is that internet startups tend to have significantly lower overhead. Successful businesses like Owen Tripp Reputation.com have been springing up more and more over the last decade because of the ease with which efficiency can be realized.
   
• Quality/Reliability/Dependability – This is the true value play.  Think Honda Accord – good at everything but excellent at nothing.  Usually provides a standard amount of features at a fair mid market price.
   
• Exceptional Customer Service – While this is self explanatory there are some companies out there that have such a connection with their customers, employees and stakeholder they really shine in this area.  One example is www.Zappos.com.
   
• Quality as excellence – Here thoughtful design, engineering excellence and user friendly features take center stage.  Apple is the quintessential example.  Premium pricing is in play.
   
• Innovation – All the bells and whistles and the price tag to match.  Think of the technology in a Mercedes-Benz with more processing power than a super computer.

Aside from determining where you land it is important to bring up a concept proffered by Doug Hall in his book Jump Start Your Business Brain.  After analyzing over 50,000 data points related to new inventions and ideas brought to market they determined that successful products and services have the following characteristics:

1. Overt Benefit – It has to be obvious to the customer what’s in it for them.  One of my favorite examples is www.mint.com who’s tagline is “The Best Free Way To Manage Your Money”.  Straight forward and simple.  No technical specification, no feature diagrams just a clear message to the customer.
    
2. Dramatic Difference – So now that they know what’s in it for them they have to know why they should care.  Just because you say they should want or need something doesn’t make it so.  To get their attention your offering has to be wildly different.  Seth Godin refers to it as a “Purple Cow”.  It has to be remarkable.
    
3. Real Reason To Believe – Your claims need to be credible.  Every day your customer is barraged with advertising.  You can’t even go to the bathroom without seeing electronic displays in the stalls.  So now that you have their attention with #1 and #2 above you have to make sure they don’t just blow your claims off as mere puffery.  Back up your claims with real statistical differences and customer testimonials. 

 So where do you begin with all this information?  My suggestion is to first figure out what makes your new business idea different.  This is what makes you unique, dramatically different or your “secret sauce” if you will.  Then put yourself in your potential customer’s shoes and ask how does that “difference” benefit me as a user.  Then you can categorize where your company lands on the competitive advantage scale.  The more advantages you have the higher your chances for survival as a new business and success in the future. 

<< Are You An Entrepreneur?  - Successful New Business Ideas >>

I hope you were able to learn a little bit about yourself from the last article about character traits of entrepreneurs.  However, there is another, perhaps more important self-analysis to be done.  You need to figure out what your entrepreneurial strengths are.

Most people find they are one of three types of business people:

• Product/Service Guru – These are the product innovators, the engineers and the tech geeks of the world.  They are also the system junkies who figure out how to run the most effective and most efficient services with the highest bang for buck.
   
• Marketing/Sales Specialist – They are the extroverts that are REALLY excited about the company, its products and generally are not afraid to cold call or just pitch to random people walking down the street. (Do they still say “They could sell a catsup popsicle to a woman in white gloves?)
   
• Spreadsheet Geeks – These are the finance specialists.  The bean counters. They are constantly analyzing the risk/reward structure of the opportunity, the gross margins and forecasting and budgeting until everything makes financial sense.

I think when looking at the list above most people believe they are good at one of these areas.  Some believe they are strong in two areas.  But, if you are really honest with yourself you will realize that you are not strong in all of these areas.  I believe too that a lot of entrepreneurs are “technicians” in that they have technical expertise in some product or service making them Product Gurus.  This falls in line with Michael Gerber’s E-Myth: You need to work on your business not in your business.

Too many people find themselves as the chief cook and bottle washer (or the Chief Employee Officer).  Because they started their business based on some technical product or service knowledge they believe that is where they should work in their own company.  The problem is the company will never grow beyond the time you can put into it.  Further, it will never obtain any real value because all of the revenues will be tied to you…and when you leave the value leaves with it. 

In order to be a true CEO you need to recognize your strengths and either partner up, hire out, or outsource the rest.  Does this mean you have to give up two thirds of your company to take on two business partners to fill the gaps?  No, certainly you can hire on employees in marketing or finance if those are your week spots. 

If you can’t afford to pay a decent wage when you first start out consider profit sharing bonuses, stock options or even outsourcing.  There are many good small advertising agencies who can handle your marketing plans, brochure designs and media buys for a lot higher return then trying to do it yourself (usually poorly).  You can burn through tons of cash on poorly designed marketing pieces because you wanted to save a couple hundred bucks on the front end.  Also, the yellow pages typically lists scads of book keepers who cost a lot less than a CPA to do your monthly reports, quarterly taxes and other functions that don’t drive sales for a reasonable fee. 

The point is that when you are a Chief Employee Officer you are too busy putting out fires.  Too busy dealing with crappy employees who are trying to scalp a $20 from the till or run inventory out the back door.  Too busy checking the most recent inventory delivery to make sure a supplier didn’t short your order or overcharge an item.  Too busy to worry about marketing your business.  Too busy to look at last month’s financial statements.

I can tell you the end result because I see it in my office every day.  A business owner looks up and finds out that two years ago they lost $50,000.  Last year they lost $100,000.  And now they are most of the way through this year and they are out of cash and looking at me asking for a loan cause they are “just about over the hump”. 

And that may very well be true, but there is not a lot I can do for them at that point unless they have a time machine.  The time to ask for a loan was before they got sooo deep into the hole there is no way to dig out.  Had they paid attention to their financial statements they might have changed their business model or marketing plan.  But that would require working on their business not in their business. Giving your new business a change to survive, let alone thrive, is the name of the game and you just can’t do that if you are trying to fill all the roles…especially those that are not the highest and best use of your time.

<<  Small Business America  –  Know Your Entrepreneurial Strengths  >>

What does an entrepreneur look like?  Can you spot one on the street?  What do you think of when you picture an entrepreneur or a small business owner? 

Perhaps they are the quintessential tech geek.   

Or maybe they are the globetrotting Maverick.   

You may think of the youthful (or perhaps not so youthful) visionary. 

But the truth is these are the exceptions…not the rule.  Most entrepreneurs look, well…just like you and me.  Joe and Jane Average.  They are not a certain age, sex, or race.  They are typically not smarter, wealthier, luckier or holier than the rest.  They just decided to take a leap of faith in to small business ownership.   

However a quick Google search will bring up another image.  Myriads of sites and blog posts propose a litmus test for characteristics of people who are entrepreneurial including: 

Characteristics 

◦      Risk Taker 

◦      Follow Their Gut 

◦      Independent  

◦      Problem Solvers 

◦      Big Picture Thinkers 

◦      Competitive 

◦      Dreamer  

◦      Driven / Tenacious  

In my experience the last one is the only one that counts.  You have to be driven.  I have meet with over 1,000 entrepreneurs in the last decade and I can tell within 15 minutes of meeting if a person is going to go into business.  I can tell because they look me in the eye and say: “I don’t care what you say. I don’t care what you think. I don’t care if I have good credit or money or resources…I AM GOING TO START THIS BUSINESS!”  

Now, I can’t claim to know who will be successful in business. Nobody can.  If they could pick successful ideas on a lark why would they waste their time in anything bust picking single stocks in the lottery we can an efficient stock market.   

You Have To Ask Yourself…Do You Like These Words? 

We all like and aspire to the words above in black but rarely does an entrepreneur think about the words in red.  That’s what makes entrepreneurs special.  According to the SBA office of Advocacy about 1 in 12 adults in the United States are actively involved in either starting or owning a business.  On the flip side that means that about 11 out of 12 people are probably not very entrepreneurial and therefore are probably pretty risk adverse.  Herein lies the problem.  When you go to tell people about your new business idea 90%+ are not going to have the mental capacity, risk acceptance or vision to see the opportunity…to see what you see.   

When Twitter fist came out I thought it was the bane of our social existence.  After all, what can you possibly say with 140 characters.  Until the river in my city filled it’s banks and Twitter became an invaluable communication tool to know where to go to sandbag to save our town, not to mention a tool to topple governments by connecting the people.   Talk about short sighted.  And, this was with years of experience talking to thousands of entrepreneurs about new ideas for infinite markets.   

So who knows if you are an capital “E” Entrepreneur…the truth is only you know.  The truth is that most entrepreneurs are made not born.  While you may not be a risk taker you can become one by taking a small risk, realizing that it’s not so bad and then taking ever bigger risks on ever better business opportunities.  So go out there are live your dreams of starting your company and getting your piece of the small business pie.  

Bonus Material  

Starting a business isn’t a decision to make overnight. You need to take a few weeks to think about whether or not you really want to start a business. Here are questions to ask yourself before starting a business.  

1. What are you passionate about?  

2. What tasks do you not like to do?  

3. What do you do on your day off?  

4. How well do you plan and organize?  

5. What skills do other people compliment you on?  

6. Do you have the physical & emotional stamina to run a business? 

7. What have you always wanted to try but never had the time? 

8. Are you determined to be successful in business? 

9. Can you afford to advertise your business all year? 

10. How good are you at making decisions under pressure? 

11. How well do you get along with different personalities? 

12. Are you able to hire an employee or get a helper every once in a while? 

13. Are you willing to spend hours working late and early in the morning each day? 

14. Can you save enough money in advance to pay for six months of business expenses? 

15. Are you ready to be the receptionist, salesperson, bookkeeper and the product guru? 

16. Do you and your loved ones understand how business ownership will affect your family life?

This is the first installment of a series called Entre-U (or Entrepreneurship University). Other installments and future videos of each installment will follow. Think of this as the most straight to the point Entrepreneurship degree you can get without the $20,000 price tag. Most entrepreneurs learn by the school of hard knocks anyway so save yourself the time, energy and money and get started!

Next: Entre-U Class #2 – Are You An Entrepreneur? >>

Between 2008 and 2010 The United States GDP hovered around $15 Trillion Dollars.  Small Business has been responsible for about 50% of that economic impact here in the U.S or about $7.5 Trillion Dollars.  The World’s second largest economy is tied between China and Japan at around 5 Trillion dollars.  In effect, this makes Small Businesses in the United States the world’s second largest economy.   

Further, Over the last 30 years from 1980 to 2010 big businesses have experienced a net loss in employment while small businesses have been the driver of our economic growth.  A Kauffman Foundation March 2010 study entitled High Growth Firms and the Future of the American Economy supports this view.  One of its key findings is: “…the top-performing 1 percent of firms generate roughly 40 percent of all new jobs.”  The study also found that high growth young firms – or firms that are less than 10 years old – create most of the new jobs.  

Clearly changes in technology have brought this revolution in entrepreneurship to the forefront.  What only five or six years ago cost millions of dollars to start can be done with $10, some open source software and a few hours of work.   

But also changes in social norms have affected the entrepreneurial landscape.  According to a Center For Women’s Business Research from 2008-2009:

A major shift in societal norms has made women owned businesses, minority owned businesses, and (the super growth combination of) minority owned women businesses the fastest growing segments amongst entrepreneurs in the United States.  

If we look at the stock market as a proxy for economic growth we can see more clearly the stages of the United States Economy in the past and future:   

Ignoring the 200 years before World War II when the economy was dominated by agriculture we can see clear parabolic economic growth cycles that are spanning time periods that are smaller by half or less.  The Ag economy was 200 years, followed by a 50 year Industrial Revolution, a 20 year Technology Bubble and a 10 Year Housing Bubble.   

It is my opinion that the Age of the Entrepreneur is upon us.  One could argue that the entrepreneur has been present since the dawn of the Industrial Revolution with Innovation leading the way.  However, it was the vast changes of the Technology Revolution that brought affordable, powerful technology to the forefront. 

The massive unemployment and economic hardship brought on by the Housing Crisis has also brought with it great opportunities for those with an entrepreneurial spirit.  The unemployed and underemployed can be a boon to Small Business America if they would apply their creativity with collaboration and new technologies to become the job creation of tomorrow.  I believe in this country’s economic future because I believe that our citizens are the brightest most innovative people on the planet.  I believe in the American Entrepreneur.