How & when to write a business plan

You’ve decided you need a business plan – so where do you start?

My previous post explained why you should write a plan – and what’s wrong with all your excuses for not doing so. Here I give tips on how, and how not, to write one. But first of all, when to.

When?

Business plans are often written too late. As a proper first draft takes weeks to research and write, people tend to procrastinate it – and do other things too soon instead.

In particular, don’t start the business or create a full product before writing a plan! Why plan a skyscraper after building it? (Remember from my previous post that a plan is a simulation of a business, to help decide whether it’s worth starting at all.)

With my first company, we began by developing the product (music software) – which took, oh, seven years. Only then did I write a business plan. But for all we knew, the research involved might have shown that there wasn’t a big enough market, or we had unbeatable competition, so all our effort would have been wasted. (By sheer luck it didn’t.)

It’s also possible to write a plan too early, before establishing whether it will be worth the time. So, do these things first:

Consider why you want to start a business. If it’s to get rich quick, that’s not going to happen – most start-ups fail, and almost all the rest take many years of hard work before you can enjoy success. Alternatively, if your aim is to break free and be your own boss, the reality is not quite like that either – as your customers, and maybe investors, end up becoming your boss.
Consider whether you’re the right kind of person. You need to be smart, confident, motivated, thick-skinned, and good at teamwork; if you fall down on any of these, don’t start a business. You also need the skills and experience/expertise for your particular role in the start-up.
Don’t just go with your first business idea, as it’s unlikely to be your best option. Come up with several ideas, in fields you or a co-founder know a lot about. Do initial research on them, then run any promising candidates past experts for their view (see below).
While you shouldn’t create a complete product yet, there may be a case for producing a minimum viable product (MVP) or mock-up to see what potential customers think (as in the lean start-up methodology). But only do this now if you can make one quickly, in days or weeks; otherwise, leave it till later.

Then pick your best business idea and write a plan. Or it may be that none of your ideas is good enough – in which case give up. Don’t pursue an iffy idea just to fulfil your dream of starting a business; it will probably turn into a nightmare.

Sections

Various web sites cover the nuts and bolts of business plans, so I won’t. Most of them list key points, such as StartupDonut; two that go into greater depth are Inc.com and EntrepreneurHandbook.

But here’s a little about sections of your plan. Business plans use fairly standard section headings, which are topics to research, think about, discuss and model in depth. These include your start-up’s products/services, market, sales, marketing, operations, people, competitors, SWOT analysis, financials, and often an appendix with further detail.

Online advice often suggests fewer sections than this, with topics grouped together; but I reckon more is better, as it clarifies your thinking. For example, sales and marketing are often combined, because in small businesses they’re often managed by the same person or handled by the same channels. But if you can’t distinguish between sales and marketing, you haven’t thought them through. (Sales for example includes business model and pricing, which may have nothing to do with how customers hear about your product.)

The SWOT analysis should include all weaknesses, threats and other risks you can possibly think of, and say how you’ll deal with them. If you identify a seemingly fatal flaw, then a change to your product, how it is used, or its target audience, may well fix the problem. Your disruptive deodorant-shampoo combo may not appeal to salons, for example, though it might be a great product for dogs. If there’s no solution, abandon this start-up idea, and move on to your next best one.

Business plans start with an executive summary, but this should be written last of all – being essentially a list of the plan’s key points. For you won’t fully understand what your start-up is about until you’ve written the whole plan.

Expert feedback

Get feedback on your initial start-up ideas, and any resulting business plan, from two or three independent experts. Each should be an experienced entrepreneur, investor, company director, business adviser, or a specialist in your market or product/service type. They’ll have dealt with many businesses, so can take an outside view. A specialist will also have domain-specific knowledge which may be invaluable; e.g. for Airbnb, a senior executive in the hotel industry would have been ideal (because hotels are its main competitors, so it’s in that market). In addition to reading your business plan, get at least one of these experts to go through your financial projections in detail.

Expert feedback is essential, because to a trained eye your world-beating plan will be like this:

So, believe what they tell you, and revise or abandon the plan accordingly.

Don’t dismiss the experts’ criticisms, e.g. on the grounds they don’t understand your product, market, or disruptive vision. They’re probably right. And don’t continue with your plan just because you’ve spent so much time on it!

If you do abandon the plan, bear in mind that it was still extremely useful – because it helped you to find a fatal flaw in advance, and avoid all the cost, time and stress of running a doomed business.

Refine the plan

If you keep going, spend several more months:

improving your ideas
maybe create an MVP or mock-up, and test it on customers
revise the business plan, and get more feedback, perhaps several times

until the plan is like this:

It’s possible to spend too long planning, either due to analysis paralysis, or to avoid starting a business you’re not confident about. But under-planning is far more common for new entrepreneurs.

If all founders and experts end up satisfied with the plan, and it’s still your best option, decide whether to start the business.

Use the plan

Assuming you do go ahead, make sure you actually use the business plan! Follow it, and measure progress against it: not just financials, but the actions, responsibilities, targets and goals of everyone in the business. Your start-up will diverge from the plan over time, so figure out why things didn’t turn out as expected, and update it annually.

You can also use the plan to help raise money, to brief new senior employees, and as a basis for other documents and presentations.

Bad plans

Not writing a proper business plan is as bad as not doing one at all, because you can kid yourself or others that you are ready to go. Don’t throw a lame plan together just to say you’ve done so, or to try to raise money.

Bad business plans lack detail or credibility, with flaws like these:

Too short: ten pages is a bare minimum, if you’ve researched it and thought it through properly. See my previous post for why a lean plan, business model canvas or pitch deck won’t suffice. Though conversely, a very long plan (e.g. 50 pages) will go unread, and is hard to use and update later
Sketchy, disorganised, or missing sections
Unclear who the target customers of the business are, and why they’d buy your product/service
Doesn’t deal with obvious issues/questions/risks
Over-optimistic sales projections (e.g. hockey-stick curves) and timescales
Contains things you don’t fully believe, e.g. hype aimed at investors
Bullshit business jargon, or technical jargon readers may not know
Ignores expert feedback.

Summary

Don’t begin by creating a company or full product. First, think through your motives and suitability for starting a business.

Then consider a range of start-up ideas, in fields the founders know a lot about. Run any promising ones past experts, and perhaps also customers (using quick MVPs or mock-ups).

Choose the best idea (if any), and only then write a proper business plan. It must be fully researched and thought through, with realistic projections, incorporating expert feedback, in multiple drafts over months. Half-baked efforts are worthless.

If you decide to start the business, then follow the plan, measure progress against it over time, understand deviations from it, and update it annually.

Thanks to Cat and Ari for helpful comments