Business Model
Make sure you are very specific when it comes to describing your typical customer, your product and exactly how you are going to market the product. “Too many business plans glibly talk about ‘mass media advertising’ without having the faintest idea about the costs.
Be precise about how you are going to get your message to the consumer,” says Martin Feinstein, programme director of the National Business LaunchPad.
It’s also imperative to assess other business models in your industry. “From this you need to extrapolate, devise and fine-tune a practical business model that will work for you,” André Diederichs, SMME specialist at Old Mutual advises.
“Individualise it with your own personal stamp that will differentiate it from others, while keeping in mind that it needs to be workable and not merely an impressive plan in theory.”
Financials
You can outsource your financials if you are not a numbers guru, but that doesn’t mean you can abdicate the responsibility you have to understand what they mean and to ensure that they are accurate and reflect a real, possible business path.
“The high incidence of business failure within the first year points to a serious lack of financial knowledge among most budding entrepreneurs,” says Diederichs. “Cash flow forecasts and financial planning are two key elements in business survival. In fact, most of your time and effort should be spent on the financial model for the business.
Entrepreneurs should understand their finances inside out – those who do may well hold the key to success and prosperity.
To give you a simple example: Take a coffee shop business. A basic calculation shows that is would need to sell 8 000 cups of coffee per month just to break even. In many instances this simple mathematical exercise is not done and the business fails as a result.”
Operational Plan
This is where most plans gloss over the nuts and bolts reality, according to Feinstein.
“Make sure you identify the five top operational success factors for the business (such as keeping spare parts in stock), and explain how you are going to handle each one on a practical level. Remember, things don’t happen by themselves.” Diederichs concurs.
“Your operational plan is merely a comprehensive monthly or daily plan of action that spells out what has to be done in terms of sourcing stock and selling it.”
For an operational plan to be successful, he adds, everyone in the business must know exactly what is expected of them. One way of ensuring this is to have a briefing session in the mornings and a debriefing session after the close of day.
This will help you assess what worked on any given day and what didn’t. It is also an excellent way of getting staff together for motivation and training purposes.”
Marketing Plan
Your marketing plan should include a sales strategy, advertising strategy (pamphlets, signage, media advertising, PR), and a promotional strategy.
Marketing represents a client or customer’s holistic view of your business. It is therefore of paramount importance not to ignore your marketing processes.
“Because media advertising can be very expensive, entrepreneurs should plan carefully,” says Diederichs. “It will affect their business budget, or may prove to be a costly exercise if the wrong media is used. One way to overcome this is to at first only advertise in your local media which is cheaper than regional and national media. But ensure that you reach your target market. Don’t spend loads of money on something that doesn’t generate an income.”
Be different and come up with novel and cost effective ideas that will draw shoppers to your business, he adds. If you lack knowledge in this area, speak to an advertising agency or PR consultancy.
Feinstein advises against big ad campaigns, billboards and radio ads unless you have the money. “Think smart: leaflets, SMS marketing, direct selling. It’s all about getting the message to your prospects, not the entire population of the country.”
Soliciting Constructive Criticism
On asking for constructive criticism and making necessary adjustments, Feinstein is unequivocal: “Yes, yes, yes. A real entrepreneur will always be receptive to a better way of doing things.
Don’t be afraid to copy (legally), there’s nothing really new under the sun.” Discuss your business plans with your family and friends and listen to their advice. You don’t need to take it, but it’s always good to have a sounding board and a different perspective.
Involving a Mentor
A word of caution from Diederichs: “Mentors are great, but too many people use them as a crutch. No-one is going to make it all come together except you. And make sure your mentor has run their own business for at least 20 years before you take their advice.”
Dead in the Water: Don’t Do This…
A smart business plan demonstrates your ability to clearly communicate a unique business concept and growth strategies in a document that gives the funder confidence that you can easily sell this concept to your market. We spoke to two experts who advise that you avoid these common business plan blunders.
- Be accurate, be thorough, be different
André Diederichs, SMME specialist at Old Mutual, sheds light on the areas where many entrepreneurs fall short.
Consider the role of a business plan. It serves as a window through which the entrepreneur allows interested parties a bird’s eye view of the prospective business.
The plan must therefore be an accurate and comprehensive reflection of the business – in fact, it must act as a blueprint of the operational mechanics. With this in mind, here are some of his don’ts:
- Be long-winded and boring. A plan should reflect the energy, insight and excitement of the entrepreneur
- Show limited financial forecasts. This may show a lack of, or limited understanding of the intended venture.
- Give an unprofessional presentation.
- This means you are paying no attention to detail which is necessary in business. For presentation purposes, you may need to employ a professional graphic designer for help.
- Spend too little time on the promotional aspects for the business. In other words, you have little or no idea how you are going to advertise/promote or market your products and services. Your plan merely reflects what others have done in the past and shows no imagination. Your advertising/marketing plan has nothing new to offer and you are not thinking out of the box.
- Display limited marketing intelligence. How can you expect to capture a particular market if you have no idea of what your competitors are doing? Perhaps a headline: What separates my business from the next and then list the differentiating factors showing a novel approach that will give you a competitive edge.
- Show poor profiling of products and services. Your in-depth knowledge of your products should jump off the pages in your business plan.
- Show disregard for your business plan. It should be a dynamic working document and a guideline to managing your business that is regularly revisited and updated
- Don’t cut corners
Charmaine Groves of Old Mutual’s Masisizane Fund advises thoroughness:
- Do the research as it helps you think through all the issues necessary for your business to be successful
- Use a consultant to guide you if you need to, but insist on the consultant transferring skills to you, as you need to understand the key drivers in your business and potential funders will pick up that you do not have a good understanding of your business dynamics if the business plan is written by someone else without your input and understanding
- Network with others in the same industry sector to learn about potential pitfalls
- Find out what the requirements are of the funders that you want to target and ensure that you address those
- Always be honest and transparent. Be clear about the funding the business requires and what it will be used for – don’t inflate the amount required, but don’t under-quote either
- Include any non-financial support that your business will need (financial education, accessing new markets), especially if you are planning to apply to development financing institutions, as most of them provide additional services that you may not have to pay for and that can reduce your business expenses
- Make use of government agencies like SEDA, which have been established to assist you
- The Business Place also provides support and resources to help with business plans and are in most major centres.
- The Terrible Top Ten
Martin Feinstein, programme director of the National Business LaunchPad, lists his worst mistakes that entrepreneurs should avoid when compiling their business plan:
- Overestimating sales in the first year
- Underestimating costs and overheads in the first year
- Confusing the opportunity to sell with the reality of making sales
- Neglecting to accurately price inputs and raw materials
- Planning to buy assets (vehicles, equipment) instead of leasing
- Planning on being profitable in year 1 when in reality it will take longer
- Including too much unnecessary detail that will distract a funder from your core plan
- Not being specific about how much your margin is and where it is
- Going on about job creation and social upliftment when your first priority is to survive
- Spelling mistakes that tell the reader you are sloppy
- Pitch Perfect: Do This…
Giving information is vital but the trick is to tempt possible investors with just enough of the ‘right stuff’ to whet their appetite without overdoing it.
- Win them over with the right elevator pitch
An elevator pitch is a compelling overview of your business.
The pitch should be concise, carefully planned and well-thought out. It must be so clear that your grandmother would understand what the business is about in the time it takes to ride up an elevator (less than two minutes).
“What you are looking for is the essence of the business and importantly the link to why you would want to invest. This would include the link to your ‘fund mandate'”, explains Julia Fourie of HBD Venture Capital.
- Executive summary is key
In the early stages, send a 1-2 page executive summary. The executive summary spells out the nature of the business with the high points only.
This should include your strategy, key competitors, markets you’re targeting, financial projections in summary and a brief description of management backgrounds.
If you’re comfortable, also list some of your customers because that is an important selling point. Investors are used to making decisions based on such information and you should give them no more than that until you’re comfortable with them.
- What the investor wants to hear
Investors want to see your long-term thoughts, even if these are only educated guesses. A strategic plan is a test of your vision and your ability to plan ahead. You need facts to back up your claims.
List all existing and potential competition. Investors will probably know about your competition, so you might as well come clean. Focus on why you’re different, and why you are better than the competition. Outline what comes next.
Make sure you have something else on the drawing board to show continuity. Investors are also looking for passion, commitment, charisma and leadership skills.
- Pitching and presenting the idea
Nothing impresses more than an entrepreneur who is focused and knows his or her business inside out.
Know your products, know your competitors, understand your customer profiles, know your financials – prepare well if you want to sell the strong points of your business to your audience.
Old Mutual’s SMME specialist André Diederichs advises the following:
- Ask family members or friends to comment on your business plan
- Implement any changes and ask a knowledgeable person to edit the copy Remember, nothing says unprofessional more than a business plan full of spelling errors
- Consider using an accountant to help you to compile realistic financial forecasts. Remember, bank managers deal with applications daily and will easily be able to detect any attempts at guessing the financials
- Making the layout clear
On the actual layout and presentation of the plan: “Keep it simple. White A4 paper, a simple 12-point font like Arial, numbered pages and as short as possible.
I have seen fantastic business plans that are all of five pages long, and terrible plans that are 50 pages long. Write it on a ‘need to know’ basis,” advises Martin Feinstein of the National Business LaunchPad.
“The biggest mistake people make is to oversell – they want to tell the whole story in the first meeting. Don’t. Tell just enough of the story to show that you know what you’re talking about and are going to make it work, with or without the investor.
When you’ve pitched enough to intrigue the listener, stop talking and let them think and ask questions. You want to be at an intersection, not going down a one-way street.”
- Getting your plan in front of the right people
Neither financial institution nor private investors will consider investing in your business unless you have a business plan that has the potential of generating profits over long periods of time.
You need to identify these so-called “right people”, says Diederichs. “Perhaps it’s your own bank, as you may already have a relationship with them.
Other organisations that you may consider approaching include Business Partners. You may also approach wealthy people who are interested in new profitable ventures to join you as an equity partner.”
Feinstein offers a simple bit of advice: “Enter business plan competitions. Keep a copy in your briefcase at all times – you never know. Use Facebook and LinkedIn. Use your network. And when you present it, remember that the business is just a tool – they’re buying into you.”
- Keep Your Cards Close to your Chest
Confidentiality agreements, or non-disclosure documents as they are also known, protect sensitive technical or commercial information from disclosure to others.
If information is revealed to another individual or company after a non-disclosure agreement has been signed, the injured party has cause to claim a breach of contract.
The type of information that can be included is virtually unlimited – data, know-how, prototypes, engineering drawings, computer software, test results, tools, and systems and specifications. The purpose of a confidentiality agreement is to protect the idea so the entrepreneur can patent it later; the agreement should cater for that.
Typical things to include in the confidentiality agreement would be the duration of the agreement – in other words, when it expires. Also spell out what a breach of the agreement would be, and what the consequences are – don’t forget to define the parties carefully.