Tuesday, June 15, 2010

The Four Cornerstones of Every Business Plan

cornerstones By Akira Hirai

The thought of preparing a business plan for the first time can be very intimidating. There are many "moving parts," and it’s easy to get lost in the details.

The task becomes much easier if you think of your plan in terms of four essential cornerstones that serve as the foundation of all business plans: Opportunity, Solution, Execution, and Outcomes.

Pretty much anything that goes into a business plan falls into one of these four categories:

  1. Opportunity: Every successful business exploits an opportunity. Opportunities arise from "problems" that customers are willing to spend money to solve: they want to stay in touch with friends (Facebook and Twitter); they want to eat a tasty Italian meal (Olive Garden); they want to better manage their enterprise data (Oracle); they want to commute to work in a fun but fuel-efficient vehicle (MINI Cooper); they want to get and stay fit and trim (LA Fitness). The Opportunity portion of your business plan delves into the nature of the problem: who experiences the pain; the severity of the pain; the trends affecting the source of pain; how people are currently addressing the pain (both substitutes and competitors); and how much people are willing to spend to alleviate the pain. Broadly speaking, the Opportunity is a description and analysis of your potential market.

  2. Solution: This is your brilliant idea. Exactly what are you introducing into the marketplace that takes advantage of the opportunity you've identified? How does it work, and how does it solve the problem? What are the features and benefits? How will you price it and position it in the market? Have you patented it? How does it stack up against competing solutions to the problem? A lot of first-time entrepreneurs think that a brilliant solution is the most important ingredient in building a successful business, but it's only one of many important elements.

  3. Execution: Execution - the hard task of turning ideas into products that people will buy - is what separates successful entrepreneurs from dreamers. What is your plan for completing the development of your product and getting it ready to market? How will you generate awareness and close sales? How do you manufacture and distribute it? What kind of facilities will you need? What kind of management team will your company require? What does the product cost to manufacture? How will you make money? How will you overcome the regulatory hurdles? What types of business partnerships will you need to forge? What could go wrong, and what can you do to mitigate the risks? How will you carve out a profitable niche and keep competitors at bay? What kinds of variable and fixed expenses will you incur to make this happen? How much investment capital will you need to pull this off?

  4. Outcomes: This is your vision of the future outcomes if things go according to plan. How much of your product will you sell each year over the next five years? How will the inevitable changes in markets, consumer behaviors, and competitive offerings affect outcomes? How much cash and profit will your company generate? What will your balance sheet look like in five years? Can you get there without running out of cash? If your company becomes successful, what are the viable ways for your investors to cash out?

Use these cornerstones to organize your thoughts.

When you sit down to start working on a business plan, grab four blank sheets of paper and write the words Opportunity, Solution, Execution, and Outcomes across the top.

Now, start brainstorming. Get as many ideas down as possible. Don't worry about structuring things into a business plan yet. If one of your sheets looks empty compared to the others, then you have more work to do.

When you're done, put these sheets of paper away for a few days. When you're ready, go back and look for a powerful, compelling story line that links the four sheets together. Next, go through each sheet and cross off the items that don't support the story line.

A business plan, regardless of your target audience, is essentially a narrative that ties these four cornerstones together. Thus, by going through this simple process, you’ve half way to having a well-conceived first draft of your business plan!

P.S. As you work your way through your plan, watch out for the common mistakes described in our article, Why Business Plans Don’t Get Funded.

Do you have comments or suggestions for improving on this methodology? Let us know and add your thoughts below!

Today's guest blog is by Akira Hirai, founder of Cayenne Consulting, a firm that helps entrepreneurs prepare for the fund raising process by developing strategies, business plans, financial forecasts, and presentation materials. His website is http://www.caycon.com.


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3 comments:

  1. Execution is huge in business planning. It is the implementation and tracking of the business plan which make it a success or a document collecting dust. Thanks for the post.

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  2. Thanks for sharing the information, yes these are cornerstone of business. i have small business before 2 months it was in critical situation. I took consultant from Marc Manoff. He advised me wisely. Now my business is in good condition. Want to know about him, see- http://www.onlineprnews.com/news/160034-1312827907-marc-manoff-launches-new-consulting-business-marc-d-manoff-consulting.html

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