CHAPTER 4
build a powerful business strategy

An entrepreneur tends to bite off a little more than he can chew, hoping he’ll quickly learn how to chew it.

—Roy Ash, cofounder of Litton Industries

ROY ASH WAS right. Confident that they can figure it out as they go along, most entrepreneurs and small-business owners strike out on their own without taking the time to develop a business plan. If you take that approach rather than embracing the process of developing a business plan, you may save a little time, but I guarantee you’ll make more mistakes—potentially costly ones.

The Value of a Business Plan

Every business, large or small, needs a business plan. In fact, every book written on the subject of operating a small business stresses the importance of creating a business plan. What’s missing, however, is the “why” behind the development of a plan. Most of the published materials you’ll find on business planning outline what you need to include in the plan and how it should be presented. But it’s one thing to follow an outline and fill in the blanks and quite another thing to understand both why you are providing all that information and how it is going to affect your business. In my opinion, unless you understand the “why” behind the plan, then filling in the blanks does nothing more than create busywork.

Too many business owners and entrepreneurs think business plans are needed only to attract investors or to get loans. That’s simply not the case. The business plan is an integral part of your business operations.

Despite the many characteristics that distinguish different types of business owners—such as age, ethnic background, experience, gender, location, and industry—there is one thing that all successful business owners and entrepreneurs have in common, and that is a clear vision of where they want their businesses to go. They aren’t afraid to start out by thinking big—and then laying the foundation to get there. Most small businesses don’t fail because their owners are thinking too big; they fail or flounder because they weren’t thinking big enough.

So before you’re into the thick of running your business on a day-to-day basis, consider what it is you really want that business to be when it grows up. Once you get caught up in the daily grind, it’s tough to find the time and energy to create the big vision; so, do that big-vision thinking now.

Where would you like your business to be in five years? What will it look like in ten years? What is it going to take to get to both of those places? What is your exit strategy? That is, what do you want to do with the business when you are ready to retire or move on to something else? Sell it? Pass it on to your heirs? I’ve known business owners who knew from the outset that they wanted to grow the business to a certain level and then sell it within 10 years. Not all of them reached their goals by their target dates; but with a clear vision, most of them came closer to meeting them than did the entrepreneurs who started without a big picture in mind. Having a clear vision will guide you in making the right business decisions throughout your journey. So, this is your chance to fast-forward to the end of the movie, or skip ahead to the last page of the book and create the ending before you write the story.

Think of it as if you’re building a house. You wouldn’t start building the house without knowing what you wanted it to look like. You need to know how many bedrooms you want and how many floors there’ll be. You hire an architect to draw up blueprints for the builders to refer to as they construct the house. Those blueprints guide the construction and specify the methods and materials that meet building codes. Similarly, your business is also a huge investment of time and money: Why would you ever start building it without a plan that reflects what you want it to become?

Another benefit of starting with a big-picture vision for your business is that it’s contagious. When you can see the direction in which your business is heading, you can share that vision with others, and then they, too, will begin to see and believe in your business idea. I met an out-of-work single mom recently who sold her car and her grandmother’s jewelry to launch a new business venture. She told me that, in five years, her company is going to be a $50 million business. And I think she might be right. She has a business plan that outlines precisely how she expects to build to that level. Her vision and her enthusiasm have already attracted a few small investors and some national attention. As she noted, “If you can’t see it and believe it, then no one else can.” Honestly, I can’t explain the reason for a business plan any better than that.

It may sound like I’m harping on the importance of vision, but trust me—it is a crucial step in building a successful business. In short, the difference between a business lacking a vision and one having a vision is clear: In one you are just creating a job for yourself (one that may or may not work out); in the other you are building a sustainable, successful business enterprise. It’s a difference that, unfortunately, many promising start-ups ignore.

Building a Sustainable Business

More and more people today are working as freelancers, consul -tants, and independent contractors, and they refer to what they do as their own businesses. From a technical perspective, they are correct. They aren’t W-2 employees, so they don’t get a steady paycheck from an employer. But if they stop doing the lion’s share of the work, their income stops, too. So, in reality, what they’ve created for themselves is a job, not a business.

A business is an entity that is bigger than one person alone. When you build a business, the business eventually becomes sustainable with or without your daily involvement. As one entrepreneur put it, “A sustainable business makes money for you while you sleep.” Sounds pretty good, doesn’t it?

Take a photographer as an example. There are photographers who build names for themselves and demand large sums of money for their work, based on their reputations. When someone hires them to do a job, they can’t substitute someone else, because it is their personalized work that the person is buying. The same is often true for attorneys with solo or small practices. The clients have a relationship with the attorney, and they trust that attorney’s work; they don’t want someone else representing them. Both the photographer and the attorney are in the same situation: They are their businesses. As a result, it is very difficult, if not impossible, for them to sell their businesses to someone else.

However, a photographer who creates a business process that is not based solely on his or her particular talent, or an attorney who builds a team of associates or partners, does have a business and is much more likely down the road to be able to sell that business as a going concern.

There is nothing wrong with choosing to start an operation that simply provides an income stream for you. That is a personal choice. In fact, countless people today are creating their own “jobs” in order to generate income independently because there are few traditional jobs available. However, you need to understand the consequences of that choice so you can make an educated decision about how you want to build a sustainable organization. There are only so many hours in a day, and there’s only so much one person can deliver. That setup limits your operation’s growth. And what would happen if you got sick and couldn’t work for a while?

When you build a business on the other hand, as I mentioned, it can continue with or without your involvement. Doing so requires that you “scale” the product or service you will deliver to the market. By that I mean you must create a system to deliver your product or service so that it can be taught to others and repeated consistently by others. Although it’s likely that you’ll be the only one doing the work in the early days, as the business grows, you can teach others to do it. That’s an important distinction, and it is what separates a business from other types of operations.

When we launched SBTV.com, for example, I was the only on-camera talent. I wrote and produced the majority of the video content. And for the first few years, people told me I was the business—but I knew better. I never wanted the company to be dependent on me, because that meant that, without me, it could never become a going concern. And I wanted a clear exit strategy in place; I didn’t want to be writing, producing, and reading from a teleprompter forever. I wanted a business that had value, so I could retire or go off to other entrepreneurial ventures—which, as I write this book, is what I am in the process of doing. Once you establish a business that can function successfully without you, you’ve created a valuable asset.

When you go into business on your own—become a small-business owner—you will work longer and harder than you’ve ever worked before. But in my opinion, having a business—not just a job—is a fine reward.

The Path to Sustainability

Teresa and Ian Miller spent 20-plus years in high-level corporate positions with major brands. Teresa was in the technology field and Ian, a Harvard MBA, worked in retail, finance, operations, and distribution. After testing their idea for a high-end pet products business, they decided to leave their paychecks and benefits packages behind and launch Treats Unleashed. While both of them felt they had worked diligently on behalf of their previous employers, they found themselves working many more hours once they were on their own.

“I found myself working from 6 a.m. to midnight to try to get things accomplished,” Teresa said.

Ian added, “For the first six months to a year, you struggle to find a daily routine. When you work for a large corporation, you walk in and pretty much know what your day is going to look like. As an entrepreneur you never know how your day may play out. Things come up and you do something completely different the rest of the day or the week.”

So, think about it carefully. As long as you are working crazy, long, stressful hours, don’t you want something sustainable—something of value that you can sell or pass on to your heirs? You deserve to have something to show for all your hard work. Think about that when you’re getting started in your new business, so you can take the right steps to get to the ending you deserve.

Make Your Business Plan a Process, Not a Task

Procrastination is your enemy. That’s the number one biggest obstacle to writing a business plan. Many small-business owners avoid writing a plan because they don’t know how to do it. It seems to them an overwhelming, intimidating, insurmountable task.

Instead of looking at your business plan as a monstrous task hanging over your head, think of it as a process of discovery. Unless you decide to enter a business-plan competition, your plan isn’t going to be judged, so don’t think of it as an academic challenge. Rest easy. You don’t need a business degree, and the plan doesn’t need to be anything fancy. The key to writing a good business plan is just being sure it makes sense. If it makes sense, you’ve got a winner.

If you invest the effort to march through all the aspects involved in developing a plan, it will equip you to start off on the right track. And the experience of writing your business plan will prove invaluable, because you’ll learn much about your business in the process, which will increase the odds of your success.

Planning, Not Plans

Few people can sit down and write a business plan in a matter of hours or days. It’s a learning process, so tackle it one piece at a time. No one has all the answers in the beginning, and, in fact, it’s helpful to learn what it is you don’t know. By going through the process, you’ll learn how much you don’t know about the business you want to start.

And as you gather the critical information you need for the plan, you’ll have “Aha!” moments. Things that can have a positive impact on your business will come to light: Potential stumbling blocks may appear, and opportunities previously unseen may arise. Just keep an open mind and let the process of discovery guide you.

President Dwight D. Eisenhower once said, “Plans are nothing; planning is everything.” It’s really the process, not the business plan itself, that is important. Think about the process of creating a business plan as doing something that works for you, and not just as more work to be done. When you realize how important the process is for the success of your business, it becomes something you want to do—and do the right way.

An Ongoing Plan

Here’s a question I received from a guest on one of my talk shows: “I wrote a business plan for my company over two years ago, basically to create some structure to follow. We launched the site September 2009. I have been bootstrapping this venture with my own funds, which are now nearly exhausted. The new ideas I have require a bit more capital. So, how do you approach writing a ‘build onto’ business plan since my company already exists?”

This question represents the way many small-business owners view their plans. They write them, then they set them aside and check that “detail” off their lists. That’s a mistake. You’ve written your business plan, but you’re not finished. Oh, no. The first business plan you write is just the beginning. Your plan will evolve over time as you and your business mature. Business plans have been referred to as “water for a thirsty plant.” They keep businesses alive and thriving. Your business plan should be an ongoing part of your business process. You should refer to it regularly and make adjustments as needed.

The initial business plans I wrote for some of my start-ups looked pretty naïve as the businesses grew. What I thought would work early on wasn’t always on target, so as the business matured so did the strategic direction of my business plan. However, the plan gave me a basis from which to start. It provided direction and established goals and measurements. In many respects, the business plan becomes an operating tool for your business. Without these fundamentals, you are flying by the seat of your pants. And while that lack of focus may work for a while, it’s how a lot of businesses crash and burn.

Content Trumps Format

New entrepreneurs can get hung up on the format for their business plan. If they don’t have strong backgrounds in business, they tend to be intimidated by the formats of standard plans and all the seemingly technical business projections that need to be included.

Don’t be intimidated. I’m repeating myself, but I want to emphasize that you don’t need an MBA to write an outstanding business plan. It’s the substance of the plan that’s important, and content trumps format every time. The more succinct your plan is, the better. A plan that rambles on for 50 to 100 pages is evidence of someone who lacks a clear understanding of what his business proposition is and how his business is going to make money.

A banker once told me about a meeting he had with a man who wanted a loan for his business. When the banker asked to see his business plan, the man said he didn’t have one, so the banker told him to come back when he did. The man left and returned later with a business plan written on a brown paper grocery bag. The banker said it was the best business plan he’d ever read, and the man got the money he needed. That’s because the business owner knew how to describe the business opportunity and define exactly what it would need to succeed. Content trumps format.

A brown paper bag may not be your style, of course. There are excellent resources on the Internet to help you write a business plan in a more standard format. Simply do a search for “business plans” and you’ll find templates, articles, and software packages. My recommendation is the Palo Alto Business Plan Pro, which was developed by Tim Berry, author of The Book on Business Planning. In the spirit of full disclosure, I must tell you I am a personal friend of Tim’s, and I blog on his company’s website. But I have yet to find a program that is as user-friendly as this planning software.

Another great resource for help with your business plan is a Small Business Development Center. These centers are located around the country, and they offer assistance for start-up businesses. You can find a nearby location by going to www.asbdc-us.org. Additionally, many local economic development offices provide training and technical assistance for new and growing small businesses.

Some business owners outsource the development of their business plans to a company or individual who specializes in this activity. But unless you are hoping to raise millions in equity capital (i.e., from institutional investors), be careful about hiring someone else to write your plan. Institutional investors often require plans to be presented in a more formal structure. First, these services aren’t cheap. Second, you are the one who is going to have to execute the plan, so you really need to understand it and be intimately involved in its development. If someone else writes your plan for you, what will you have learned from it? Without going through the process yourself, how will you acquire the knowledge you’ll need to be successful? Third, how will you be equipped to modify the plan as adjustments need to be made? Most of the time, plans-for-hire go into a drawer and are never looked at again.

I made the mistake of using one of those services when I was seeking venture capital. The plan the service developed was so complex that it was impossible to print out all the spreadsheets without using a special printer. And I needed a weightlifter to carry them around for me. Plus, only someone with an advanced finance degree could possibly understand all the information. I spent many hours going over and over the plan. But it didn’t take me long to realize that if I, the CEO of the company, couldn’t explain the plan, I couldn’t expect investors to believe in my ability to deliver results. Finally I created a “cheat sheet” that I could use for presentations. It may not have been as fancy as the one the service had created for me, but at least it was easy to understand: It showed how the company could use the funds I was seeking to achieve my goals and provide a substantial return on investment.

As painful as it may seem, the planning process will teach you more about your new business venture than you could possibly imagine. I guarantee it. So hang in there. Your efforts will be rewarded with a much greater chance of success.

What Do You Include in a Business Plan?

In addition to being an entrepreneur, I’m also a journalist, so I think of a business plan as something that answers the questions every cub reporter learns to ask: Who? What? When? Where? How? and Why? If you can answer all of these questions about every aspect of your business, you’ve got it made. What is your business? Where will you sell your product/service? Who are your customers? How, where, and why do they buy? How much money do you need? How much money can you make? Why are you the best person to build the business? Why is there a need for the business? Et cetera.

A business plan covers everything from explaining the nature of your business to outlining its financial projections. The key elements are:

• Executive Summary. This is the most important section of your business plan. The executive summary is a concise overview of the plan along with a description of your company. Even though it’s presented at the beginning of the business plan, don’t try to write the executive summary until after you have completed the rest of the plan. (It is, of course, impossible to write a “summary” of the plan until you know what is in the plan as a whole.) The executive summary is critical, particularly if you are looking for investment capital or debt financing. Often it is the only part of the plan that investors or creditors will read, so it needs to highlight the key elements of the plan.

• Market Analysis. This section illustrates your knowledge of the industry. It should also present general highlights of and conclusions from any market research data you have collected. (The details of your marketing research studies belong in the appendix section of your business plan.)

• Company Description. This section is a general overview of how the different elements of your business will fit together. It includes information about the nature of your business and the primary factors that you believe will make it a success. This is the section where you define the real value your business will bring to the market.

• Organization and Management. This section describes your company’s organizational structure, details the ownership of the company, profiles the management team, and provides the qualifications of the board of directors if you choose to have one. (In small companies, typically the board and the management team are one and the same.)

• Marketing and Sales Strategies. Marketing is the process of creating customers, and customers are the lifeblood of any business. In this section you define your marketing strategy. There is no single approach to a marketing strategy; the strategy should be derived from an ongoing self-evaluation process that’s unique to your company—and include the steps you will take to follow the strategy. (Chapter 6 contains the information you’ll need to create a marketing plan.)

• Service or Product Line. What are you selling? This section describes your service or product, emphasizing its benefits to potential and current customers. Here, you give the big picture. For example, you don’t specify which 89 foods you will carry in your “Gourmet to Go” shop; instead, you explain why busy, two-career couples will prefer shopping in a service-oriented store that records clients’ food preferences and caters even the smallest parties on short notice.

• Funding Needs. This section includes estimates of your startup costs and your ongoing capital requirements. If you’re seeking outside capital, then you must include a funding request. Be specific regarding exactly how you plan to use the funds to grow your business. Failing to define funding needs clearly is a costly mistake that many small-business owners make.

• Financials. In this section you make projections about your company’s future financial performance. The Palo Alto software program I noted earlier—Business Plan Pro—contains formulated spreadsheets to help you with the development of your financials. No need to worry about being a financial whiz kid.

Words of Wisdom

Because there is so much information readily available on the mechanics of preparing a business plan, I plan to focus on the “why” behind the information you need to provide. Once you understand how and why that information is used toward the development of your business, the process of creating the plan becomes easier. So I’ve put together a list of tips to keep you focused on your “why” and assist you in creating your plan.

1. Don’t inflate your idea. It is always better to underpromise and overdeliver, even to yourself. So don’t kid yourself by making your business plan look larger than life. Be realistic with the opportunity you see and the numbers you project. Remember, once the plan is written, you have to deliver those results.

2. Don’t underestimate your start-up costs. A key reason many small firms fail is that they were undercapitalized. Trust me: It always takes more money than you think it’s going to take to get your business off the ground. So give yourself a cushion. Also, don’t forget about your personal income needs. Businesses don’t make money from the first day of operations; it may take several years before you are able to draw a fair salary. You have to be prepared for lean years. As one seasoned entrepreneur noted, “If you are in business for 25 years, plan to lose money in at least seven of those years.”

3. Don’t overestimate how quickly you can grow the business. Zealous start-ups think they can set the world on fire, so they make growth projections that are unrealistic. Even if you’re confident that you can build revenue quickly, create a worst-case scenario and plan accordingly. Typically, business owners find it takes two to three times longer than they estimated to build their businesses. If your plan is built on inflated projections, your business will suffer significantly.

4. Don’t underestimate the competition. Many start-ups fail to properly assess the competition. It’s essential that you understand the competitive landscape. Your plan must provide a comprehensive analysis of your competition and how your business will stand out from the crowd. Don’t lull yourself into believing the product or service you’re offering is unique. And even when there’s no direct competitor for your product or service, customers and clients have other ways and preferences for spending money. Business is all about getting customers to reallocate their limited resources in your direction, so there will always be some competing forces.

5. Be specific and thorough. If you take a naïve or vague approach to your business plan, it will be a disaster. So many business plans are filled with vague descriptions instead of solid, defensible information; those plans have no value to anyone. Do the hard work to dig out the facts and make the plan a truly compelling demonstration of the viability of your business.

Your Elevator Pitch

When I write a business plan, I consider how I could sell that business concept in less than 90 seconds—which is known in the world of sales as an “elevator pitch.” If you can craft a concise and catchy pitch that captures the attention of your audience, you should be able to build your business plan.

An elevator pitch has to be concise. (As the name suggests, you can’t ramble on because there’s not much time between floors.) And it should be easy to understand. Don’t use words that the average person won’t recognize.

Your pitch should get the listener to visualize your business and understand immediately how he or she could profit from it. Stories are powerful tools, so if you can quickly use a story to show how your business will work, you will engage the listener. And, as with any sales pitch, the best elevator pitch is one that’s targeted to its audience, so know who your target customers are and what motivates their buying decisions. At the end of the pitch, if you’ve done a good job, the listener will be eager to learn more.

It’s impossible to write a strong elevator pitch without first having done the necessary background work, as explored in your business plan. You need to have an intimate understanding of what your business is, who your customer is, what makes your business unique, and what your value proposition is.

The Most Important Part

Here’s the harsh reality: If you can’t demonstrate how you’re going to make money in your business, then you are quite simply wasting your time. It’s like walking down the aisle to marry someone when you know things aren’t quite right and thinking that once you’re married, you’ll be able to fix it. Believe me, having gone through an unfortunate first marriage, I can tell you that early doubts don’t get resolved. Problems only get amplified.

Like marriage, like business. You need confidence in the viability of your business before you open the doors. I’ve spent several of these early chapters in this book delving into personality and motivation, as well as personal financial situations. I’ve tried to shed light on the realities of the small-business lifestyle. I’ve shown you how to evaluate your business idea and how to begin defining your business strategy. Now you are at the critical point where you need to decide whether your business idea is going to pay off. Once you’ve made your decision—assuming it’s positive—then proceed with it. Inaction is a decision in and of itself, and that may be your sign not to move ahead. But if you are ready, move on to Part II of this book for more tactical planning steps toward building a successful small business.