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Question added to topic Starting a BusinessApril 28, 2011

How Do I Use Benchmarking in My Business Plan?

I am writing a business plan on a new business in my market that will offer two distinct services not yet offered here. There are two companies offering these services successfully on another continent (therefore not in competition). If I want to help convince potential investors that this idea is viable, to what extent and how should I use a benchmarking comparison of these successfull companies and consequently shape my plan?

Benchmarking based on available information about similar companies in other markets can be a useful way to add granularity and credibility to your business plan. Depending on how much information on these other examples you have, applying their growth patterns, or ramp-up numbers, or market penetration can be useful.

But be careful as you do this. You should be sensitive to the factors you are considering because they come from a different time and a different market, and are different from your own. Be respectful of these differences, and if at all possible adjust your numbers to reflect them. That kind of adjustment will add to credibility to your plan.

I've seen plans and pitches in which entrepreneurs simply apply somebody else's growth rate or profitability to their own projections. The first thing the audience thinks about, in that case, is how those projections are different. It's a natural reaction, so anticipate it.

So, yes, use results from similar companies to help build your early projections. But do it carefully and with adjustments for your specifics. It will give your plan credibility.

Related: Plan Your Plan: Financial Goals
Related: Let Your 'Story' Frame Your Business Plan

Tim Berry is the president of Palo Alto Software Inc., based in Eugene, Ore., which produces business planning software. He is also the author of 3 Weeks to Startup and The Plan-As-You-Go Business Plan, published by Entrepreneur Press.

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