Your Business Plan Must-Haves Seasoned business pros reveal exactly why your business plan is critical for success and which parts matter most.
Opinions expressed by Entrepreneur contributors are their own.
In their book Write Your Business Plan, the staff of Entrepreneur Media offer an in-depth understanding of what's essential to any business plan, what's appropriate for your venture, and what it takes to ensure success. In this edited excerpt, the authors offer words of wisdom from business plan experts on the key parts of your plan.
What are the most important parts of a business plan? Four experts, who've read hundreds of business plans, weigh in on this critical topic.
"This changes with the stage of the company," says Robert Roeper, managing director of venture capital firm VIMAC. "In a very early-stage company, the key components are the definition of the need/projected market, the buyer and the product or technology that will be used to fulfill the need. Next comes the business model that speculates on the cost to acquire a customer and the anticipated revenue from that customer.
"Then comes a rational review of potential competition," he explains. "Finally is a presentation of the management team that will get you to the next stage of growth. The reason for this order is that, in general, if the potential market isn't big enough, all the other things don't matter, and if the market is big enough but you can't identify the buying chain, then you don't know enough yet to position the product or technology, etc. Bad positioning is epidemic in early stage companies, but it can be corrected."
Donna Maria Coles Johnson, author, speaker, and founder and CEO of the Indie Business Network, thinks it depends on for whom the plan is prepared. "If it's for a venture capitalist, the most important part would be the financials because they want to know how they'll make money and how quickly they'll make money," she says. "Same if you're seeking a bank loan or investors. Also important, no matter who the audience is, is the executive summary because it's often the first thing people read. If the executive summary does not succinctly and enthusiastically convey the business concept, the reader will move on quickly to something else.
"Attention has to be captured quickly and held in order to obtain funding," Johnson notes. "If the plan is geared toward attracting top management to become part of the team, the financials are important. But the executive summary is also important because it's the part of the plan that demonstrates the idea that the management team will be part of a new, exciting, innovative venture with maximum chances of success. Everyone wants to be a part of success!
"Overall, there really is no "most important part,'" Johnson says. "A business plan has to tell a story. It has to flow with a fluidity and consistency throughout. If it doesn't, and even one section falls flat, the entire story can be called into question. Each section should build on the other and refer specifically to the other when appropriate. There must be no inconsistencies that would call your planning and management expertise into question. A business plan should create a synergy, where the whole is greater and more credible than the mere sum of its parts."
Scott Simpson, a former associate at Battery Ventures Associates, thinks there are three important parts of a business plan: the problem statement, the explanation of your solution to the problem and the explanation of your differentiation from your competitors. "The best plans clearly explain the reason for the proposed product or service's existence," he says. "For example, 'My software will allow large manufacturers to integrate with their suppliers, which is something that they cannot do today and is necessary for them going forward.' The explanation of a product or solution should clearly explain exactly what the product, service or business is going to produce or sell. The best plans are as specific as possible."
"Finally," Johnson adds, "explanation of a company's differentiation usually focuses on the competition that will be encountered, the barriers to entry for potential competitors, and the sustainable long-term advantage of the business over other competitors. Some other very important components of a plan include market data and description of the management team. It's crucial to understand exactly what skills each member of your team will bring to the business."
Ronald Peterson, president of Three Arrows Capital, thinks that the most important part of your business plan is the very first paragraph. "Often, that's the only part that most people will ever read, and of that, the opening sentence is the most important portion," he says. "At Three Arrows Capital, we wrestle with that opening for days, and once we have it right, the rest comes far easier. The competition section is extremely important since not only does it demonstrate and give assurance that you have done your homework, it also alerts you to other business models and solutions in your chosen industry that you need to read and consider."
