Recently, I was on a call with a gentleman who had a new business concept that needed investment capital. He also had some intellectual property questions, and wanted to run them by me and my business partner. He was a very eloquent young man, wildly enthusiastic about his concept. However, when we asked him basic questions about how he would use the startup funds, he spoke in generalities: marketing, paying for the patent application, and money to “do this full-time.â€ I got nervous. When I gently probed about his business plan, he dismissively chuckled. “Investors are not looking through 20-page business plans anymore. They want visuals and marketing decks.â€ In that moment, he lost me.
Contrary to popular opinion, business plans are alive and well. Not only do financial folks look for them, you absolutely need a plan to identify the profitability of your concept.
Here are a few reasons why all startups need business plans:
Memorialize Your Vision. The single most important thing that entrepreneurs can do is write their ideas down. Many people have great ideas that they like to talk about, but those who write their visions down have a greater likelihood of achieving their goals. Making an agreement with yourself, and holding yourself accountable, is a very important first step in this long and ever evolving process. The process of planning is an excellent habit to develop as a business owner. It’s also one that continues through each stage of your business’ growth.
Answer The 5BizWsâ„¢. Before you invest your time, money, and effort into this project, you really need to sit down and answer many of the vital questions that will surround your business. I call them the 5BizWsâ„¢. After completing the sections, you’ll be on your way to creating a solid business plan. The questions include the following: 1. Who will you be selling to? 2. What will you be selling? 3. When and how will you operate/manage it? 4. Where will you be located? 5. Why will you be profitable? Then there’s the bonus question: How much money will you need? It’s a bonus question because you can’t accurately answer it until the others are researched thoroughly.
Granted, there are dozens of sub-categories and questions, but once you start, you will begin to understand your business concept’s strengths and threats. Additionally, you will be able to anticipate the challenges and account for them early in your process. As the young entrepreneur noted, your plan does not need to be 20 pages. However, with all the questions that need to be addressed, you will find yourself quickly filling those pages up with vital answers.
Lenders Love Blueprints. Your business plan is your road-map; your blueprint. You must show potential lenders, or investors, that you know where you’re going and how you’re going to get there. In truth, life is not like it is on reality TV shows like Shark Tank. According to SCORE.org, a mentorship organization of retired executives and the Small Business Administration, less than 1% of startups receive funding from angel investors. Moreover, bank loan percentages are only slightly higher. So, for those small minority of startups who successfully obtain funds from those sources, you better believe they had a solid business plan. Case in point: when I went to the bank in 2003 for my business loan, I had a business plan for a day spa and salon. I was not a stylist. But my plan was so detailed about how I would manage it, etc. that I was approved for an SBA business loan in less than a month. Thus, I am a loyalist when it comes to the value of a good plan.
Beyond a winning product or service, your business plan is the single most important component for ensuring the future success and profitability of your venture.
Nicole Cober, Esq. is the Managing Partner at Cober Johnson & Romney, a law firm focusing on trademarks, brand licensing and small business consulting. She is a former small biz owner of the award winning chain, Soul…Day Spa and Salon. She is also a Legal Consultant for Washington DC’s NewsChannel 8 and author of soon-to-be released book: “CEO of My Soul: The Dos and Don’ts of Small Bizâ€. Follow her on Twitter @niccober and like her on Facebook @facebook.com/CoberJohnson.