Business Plans are worthless and a con

In talking to entrepreneurs the subject of business plans often comes up. While some have excellent plans, others haven’t and feel that business plans are a complete waste of time and just there to line the pockets of consultants.

I think the issue is that the phrase “business plan” has become over used and lost its meaning, conjuring up complicated and costly documents that have no real practical help. Just another form that has to be filled in.

However if you were to ask whether someone has a plan for their business, not a “business plan”, but simply do they have a plan for their business, then most will say yes of course.

Few would imply that they have no idea of what their business is selling, the market it is in and what its aspirations were, even if it’s not written down but just in their heads.

When communicating to potential Investors or applying for a loan however they will want it written down in order to decide whether it is something they are interested in and to filter all the many approaches they receive.

They can’t see or talk to everyone, they need to look at something to decide if the opportunity is in a suitable market area and has sufficient quality that they will then invest time in following up.

That has lead to the structure that we now call a Business Plan. But if you are not applying for funding is there any point in writing down the plan for your business?

Well yes. Because the discipline of having to write down your thoughts for the business is a great way to force you to put in place actions and ideas that will develop your business.

While it’s all in your head it is easy to be fooled that you have this grand plan. Start writing it down and get some detail into the woolly thoughts that you have.

If it is not for funding but only for you, it can be in any format and as long or short as you wish. An action list that goes beyond a few months is a business plan.

So is planning your business worthless? If applying for funding is it unreasonable for the potential Investor to ask for information about the business and its plans in writing so they can read it?

Other resources:
Writing business plans for business angels

Marketing plans

The Business Angel – a hidden treasure of resources

Happy New Year all. Time for reflection and to reinvigorate ourselves. Hope 2014 is a great year for you.

Thought I’d share a little known resource that may be of interest to people. We’ve put in one place good information for both entrepreneurs and Investors including some great tips from active Investors, worth a look…TheBusinessAngel.org

There’s pointers to many other resources as well and if there is anything we’ve missed, let me know, we’ll add it in.

The 5 key things you must do before revealing your great idea

I often get calls from members who are looking for a Business Partner or Investor but are concerned about how much they can reveal of their business idea.

It is a conundrum; because on one hand you need to tell something of your business idea in order to attract a partner or funding, but too much and surely the idea will just be stolen. In my experience this is the 5 actions you must do before telling all:

Determine if your idea is patentable. Generally patents relate to new inventions that are not obvious to anyone with knowledge of the subject and can be used in some sort of industry.

You may need to employ a patent agent in order to see if your idea is patentable. We have more about patent agents in our resource pages.

If it is patentable, you should not tell anyone about it until you have applied for the patent, otherwise the idea could be considered in the public domain.
If it is not patentable, can the design of your product or brand be registered?
Design registration applies to the shape, colour and style of products that aren’t in themselves new ideas but protect your particular design.Again we have an article on our resource pages on this, see Design Registration.
Think about protecting your brand. This is your logo, product names or packaging and any distinguishing ways you have of representing yourself. See How Trademarks Work and this resource has information on Copyrights.
Spotted a gap in the market? Have a novel way of doing business?
Unfortunately there’s no registration that will protect ways of doing business or addressing a new market area.

If you are concerned about discussing your original idea for a business with a potential partner or Investor you could ask them to sign a Non-disclosure Agreement. You can see a NDA example here.
Finally, get first mover advantage. If your great business idea really is good, eventually others will start to copy you. This is inevitable, but by being the first to market you will already have captured some customer’s loyalty and will be ahead of the competition in terms of understanding the market and developing your product or service.
To grab that first mover advantage you must move fast and when you have launched keep innovating, don’t rest on your laurels.

To give a bit of reassurance, in all the time that I have been advising and helping people with business plans and bringing business partners and Investors together I’ve seen no cases where an idea has been stolen.

Generally it is the implementation of the business idea rather than the idea itself which counts. There are a lot of good ideas, but most never get off the drawing board and the ones that are successful are those that are not only acted upon, but are executed brilliantly.

The Time for Growth is now

During the last few years businesses large and small have been fighting to stay afloat, but it looks as though the time for consolidation is over and you should be looking at preparing for growth.

Ditch the budget cuts, retain your staff and seek out growth opportunities wherever they may present themselves. That’s the message being evangelised by accountants, commercial lenders and industry association heads, with a recent roundtable discussion that took place in the City discussing the viability for SMEs of alternative lines of finance such as invoice discounting.

“The business consolidation cycle should have ended in 2010,” stated ICAEW’s Head of Business Simon Alsop at the event, with fellow participants agreeing that Britain’s avoidance of a new recession this year meant businesses should be less averse to risk.

That’s all very well, but whilst small businesses are sensing those all-important green shoots of growth, research has found that as many as 87% of businesses find traditional overdraft facilities restrictive, influencing the move towards the less well-known invoice finance routes.

Indeed, 44% of businesses surveyed said they would be more successful with more flexible, reliable funding. The situation is not new, however up until now widely available information on invoice discounting and related products have been relatively scarce.

It can be a good alternative to other ways of funding growth and now a new breed of lenders are making themselves known to SMEs keen to improve working capital and free up funds for areas such as mergers, acquisitions, international growth and human resource drives.

Deals are as large as they are frequent, with the disaster recovery specialists Prism Network on the receiving end of a £2m invoice finance deal to implement the next stage in its growth strategy, not to mention the £2.5m winging its way to cereals giant Dailycer for further expansion.

So what actually is invoice discounting? Very simply put, it involves providing a lender with recently raised invoices, with the lender then usually able to offer up to 90% of the total value of said invoices immediately. It is seen as an effective way of freeing up money without affecting any existing credit control procedures; a more organic way of growing a business.

The idea of organic growth was raised at the roundtable event, Cashflow Acceleration’s Glenn Blackman pointing to the “far bigger risks” associated with M&A activity, but stressing the need to always seek out growth opportunities ahead of competitors keen to do the same.

With overdraft facilities being slashed by still nervous traditional lenders, the appetite for viable alternatives is greater than ever. It could well be the time to explore the options presented by invoice financing and its associated channels.

Top 8 mistakes when seeking Investment

Investor reading business plan At Company Partners we talk to a lot of Investors and we often get the same observations about what Investors like and don’t like.

Although I normally try and accentuate the positives to be learned, there are valuable lessons from the goofs to be avoided, here’s my top 8 mistakes when seeking an Investor:

You know it all, any advice about your product, strategy or sales projections is actually criticism and must be defended.
The most important thing is to talk in detail about your product or service, you haven’t got figures but the market is begging for it and the sales will be enormous.
There isn’t a business plan, that’s not your expertise, you just want to get in front of an Investor and they will jump at the opportunity.
Mails and any communication with Investors are perfectly all right with typos and all in lower case or “text speak”, it’s your idea not your spelling they should be interested in.
No work has been done to prove the concept, you’ve not the money, expertise or contacts to do so, that’s why you want an Investor.
Although the business hasn’t started yet and has no revenue you want £100k for 20% of the business.
Good news you’ve found a potential Investor, but his demands of equity are unrealistic, after all it’s your baby we’re talking about.
You don’t have any idea how much investment you need, or what it will be used for, you just know you need someone to invest.

Let’s face it, it’s hard to know what is needed or what to avoid when you are seeking investment for the first time and we shouldn’t diminish the hard work entrepreneurs do in looking to grow their business. It helps to learn from others mistakes though.

Joining the digital age – advice for bringing your business online

The way people shop has changed rapidly over the last few years. On-line shopping is booming and consumers are using the internet to research and shop for products more than ever before. But despite this massive shift in how consumers behave, many small retail businesses resist the move towards ecommerce.

This happens for a variety of reasons – for many people taking their business on-line means entering a realm they feel they know nothing about. People are afraid of the costs involved and that they won’t have the expertise to make it work. However, while traditional shops put off the challenge of learning about ecommerce, new SMEs are setting up on-line and taking a significant chunk of market share from long established businesses that used to dominate in their market.

If you own a small or independent retail business and you’ve not made the move online, this piece aims to demystify the process and give you the knowledge you need to feel confident and, hopefully, excited about joining the internet revolution.

Why take your business on-line?

If you are only operating off-line right now, chances are you are missing out on a lot of potential sales and you may even have lost previously loyal customers to competitors in the on-line sphere. Although it may seem daunting, getting your head around moving on-line could be the difference between your business surviving in the long run or gradually becoming unsustainable.

Once you learn the ropes of ecommerce some of the benefits you’ll enjoy include more sales, the ability to serve customers from all over the world, the capacity to engage more regularly with customers and reach a much wider pool of consumers, and the satisfaction of knowing that you’ve stayed at the forefront of the industry where you have built up your expertise.

What do you need to make an on-line business successful?

At its simplest, getting set up in ecommerce requires a website with a shop, the ability to store stock and post it securely to customers, and a good system to stay on top of orders and manage on-line customer service.

If you’ve been running a business off-line for some time you’ll be well aware of the importance of customer service. When you take the business on-line all the same principles apply – great customer service results in loyal customers. This means replying to emails or social media queries quickly, being reliable, offering secure payment and ensuring that customers receive their purchases in great condition and in the time frame you have promised.

One way to organise the running of an on-line business is to use a simple project management system like Trello. You can use this system to keep track of stock, orders and create to do lists.

Setting up a website is also much easier than you might think. There are lots of great services which allow you to build a website without any knowledge of coding. Generally you’ll pay a small fee each month which will allow you to host your website and run a shop from it with genuine ease. Examples include Wix and Big Cartel.

If you’d prefer, you can hire an expert to build a website from scratch for you. If you are going to do this, remember these two tips – choose someone who comes highly recommended to ensure that you’ll get exactly what you need from them, and make sure that you get a content management system (CMS) that will allow you to edit and update the website yourself once it’s finished. If you don’t have a good CMS you’ll have to pay the web developer every time you need to make a change on-site. That is a waste of money when you could be maintaining the website yourself very easily.

If you are having a website built from scratch you will still need to find a suitable payment solution for the shop. Choose a well-known provider such as Barclaycard who offer secure and reliable options for accepting payments which you can read about here.

Take it one step at a time

When you decide to take the plunge and open an online shop, set yourself a realistic time frame to get yourself up and running. Start by getting the website built and regularly updated before you add the shop. Don’t start taking orders until you know you can manage on-line sales in a timely and reliable way. The last thing you want is to mess up your first few orders and damage your reputation on-line.

Once you have the shop operational you can start working on marketing your online business through suitable channels including social media, SEO, paid search and display adverts.

Moving into ecommerce is an important step to keep up with the modern retail landscape, and although it may seem challenging it can be extremely rewarding and very worthwhile. Take as much advice as possible and do plenty of research about what your competitors are already doing on-line so you can learn from their mistakes and successes.

Case study – finding a business partner

With Peer-2-Peer lending growing in popularity, Norman Akram realised that there was an opportunity for a company whose business model protects lenders against bad debt (most Peer-2-Peer loans are unsecured).

A well tried model already existed in the form of pawnbroking and Norman set about developing a website platform for lenders and borrowers to interact with one another, allowing loans to be secured by suitably valued goods.

Although Norman had the concept, he required partners with complimentary skills such as finance, management and marketing.

Having tried other places he turned to Company Partners and joined as a member to look for either a business partner or an Investor for his start-up.

That’s where Richard Luxmore came in. Richard had joined Company Partners as an Investor and had a background in accountancy and management, but was looking for a new and interesting challenge.

After finding each other on the site, they progressed through emails and then Norman and Richard agreed to meet up and look at how they could work together.

How did that meeting go? Well the proof is in the launch now of one of the most innovative and fast growing businesses I’ve seen for awhile; Fundingsecure.com .

There are some lessons to be had from this success.

Do your research upfront. Norman had already gathered accurate statistics and information on competition and the market. When he met Richard, he could present the facts, not just a hopeful idea.
Have a vision of what you want to create. Then when inevitably you have to be flexible in altering aspects of the business you can refer back to that vision to ensure you make the right changes.
Start with a partnership heads of agreement or get something down in writing of how you will work with your business partner, but be prepared to be flexible in changing it as you discover what works.
Build a team of good people around you, be flexible (that word again) with your infrastructure in order to maximise each person’s contribution and to accommodate those good people.
Don’t have high fixed costs, such as premises or cars and do as much as you can yourself. Preparing some external work like web site design before the programmers start and preparing legal documents that the lawyers could then review all help precious start-up funds go further.
For those thinking of a web based business, be aware that offshore web development may seem cheaper, but in a start-up you need to be able to sit down and talk with your developers, Fundingsecure changed from an offshore developer to a local one to ensure communications worked.

If you want to find a business partner like Norman and Richard, have a look at what Company Partners does for its members.

Why ideas don’t get investment.

Investment for a good idea

“I’ve got a great idea; it will make millions, guaranteed. I haven’t got the time myself to pursue it, so I’m looking for someone to take it on. Maybe I could licence the idea, or sell it. I don’t actually want much, I just want to see it made.

“No, I haven’t got round to doing a business plan, not sure where to start on that anyway, I’m more of an ideas person and of course I am a bit careful about telling anyone about it in case they steal the idea.”

Sound familiar to Investors? Any entrepreneur thinking “what’s wrong with wanting to sell an idea?”

Let me give 5 reasons why ideas don’t get investment:

Good ideas are 10 a penny. Everyone you meet in the street or bar, has a good idea.
By themselves ideas have no value. They are not rare, they are very common.
They gain value as you do work proving that an idea will practically and commercially succeed.
You should be able to contribute more to a venture than just the idea, your expertise, skills, background, experience and effort will give an Investor more confidence that the concept will work.
Ideas by themselves are high risk, the highest of risk in fact. Investors have plenty of choice where they can invest their money; they don’t need to take that high risk.

Right, so you’ve got a fantastic idea for a new product or service, it will take some investment to turn the idea into a business, what do you do?

Even with no funds you can do market research. Don’t ask your family or friends, talk to real potential customers, think through your target market (see How to market smarter ), construct a marketing plan. This all shows an Investor that the concept is likely to be viable.

Do work to move your idea forward. Build a prototype product or start a basic service, to prove the idea works in reality.

Get some sales. Even if just a few, or obtain some advance orders, or letters of intent to buy. This more than anything is the big difference between securing funding or not. Not every good idea is a commercial good idea. Showing that customers will hand over their hard earned cash moves the idea from fantasy into an investable business.

Why have a business partner?

Business Partners
Bill Gates and Paul Allen

As you may know, we match entrepreneurs with other like-minded business partners and have done so successfully for many years now.

But I was asked the other day why people seem to prefer working with a business partner rather than splashing out on their own.

After all there are famous solo entrepreneurs aren’t there? Bill Gates, Richard Branson, Steve Jobs, the list goes on. Well, there may be some great entrepreneurs who have never had a partner, but most have.

Bill Gates started Microsoft with Paul Allen, Richard Branson always had a founding partner in each of his ventures, starting Virgin Records with Nik Powell and Virgin Atlantic with Randolph Fields & Alan Hellary. Steve Jobs started Apple with Stephen Wozniak.

In each case though, the roles and responsibilities were split according to the strengths of the individuals, with one of the founders assuming the public face of the company.

Starting a business with a partner is undoubtedly a way of sharing the work load and risk involved. It also allows for a greater coverage of the skills needed, with perhaps one being more comfortable technically and one more at ease with the commercial side.

I wrote recently about the reasons for having a business partner, from feedback that our members passed on.

There may at some stage be reasons why one or other of the partners wants to move on and as in any partnership there can be tensions at times. To give the partnership the best chance of success a partnership agreement should be put in place. This prevents misunderstandings and establishes a strong basis for a good working relationship.

How to write a business plan – the structure of the plan

Last week I looked at the preparation needed to write your business plan, now we are laying out the structure of the plan.

Not all of the following will be needed for every plan and you must decide what to include based on the use that the business plan will be put to. For instance Business Angels will want to see a section on the Management Team, however if the plan is only for you to run the company you could easily leave that section out.

Main sections of a Business Plan:

1. 0 Executive Summary

Normally 2 to 3 pages that clearly states what your business does and summarises the main elements of the plan. If you are looking for investment, the Executive Summary is the first information that Business Angels or banks will want to see. They need to quickly understand your business and its attractiveness before they will ask see the main plan.

Although it comes first in the structure, you will write it last. You can’t summarise what you haven’t yet written.

In the Executive Summary you should state what your companies Objectives or Goals are and even your business’s Mission. Mission Statements are not just the remit of large corporations; they also give direction to fast growing businesses.

Remember the above Exec Summary is done last. First you layout the main Business Plan sections as below.

2.0 Company Summary

Describe where your business is located, is it a start-up or how long it has existed, what services or products does it supply, and to what group of people.

Include in this section who owns the company and the history of the company.

3.0 Products / Services

This is the section most people find the easiest. Everyone enjoys talking about their own products. However apart from describing your products & services do include these essentials:

- What makes your offering different and more attractive than the competition

- Where do you source your raw materials, or service providers from

- How you distribute your product/service What about after sales support

- What about after sales support

4.0 Market Analysis Summary

You will already have some knowledge of your market, but now quantify it. Do some book/web research and get real numbers and statistics. Being able to refer back t0 the sources of your information is vital when talking to Investors, it gives credibility.

Even if not looking for investment, you must base your plan on actual information, not a personal/general impression that may in reality be far from accurate.

Do your own market research, ask people who you believe to be your target customers for information and if they would buy your product. Don’t just ask friends and family.

4.1 Market Segmentation

A key part of your marketing is to sub-divide your potential customers into groups that have some similarity. You haven’t got the resources or funds to market to everyone, so create target groups and you will then be able to decide how best to reach them.

4.2 Target Market Segment Strategy

Look at how understanding the different needs and attitudes of your target demographics may be translated into a strategy.

By having segmented your market, the messages that you give to each of these groups can be very different and delivered in a way that attracts that group of people.

You may also decide to make differing versions of your offering for different segments of your market.

4.3 Industry Analysis

Describe the industry in general and it’s size. Specifically talk about the competition in the industry and how you compare. Describe buying patterns; are sales seasonal for instance, do they depend on other factors, how long is the decision process to buy.

Is there price sensitivity, or is quality and service the most important?

5.0 Strategy and Implementation

5.1 SWOT Analysis

Strength – Weakness – Opportunities – Threats analysis. You may not want to actually include this here. It may be better in a appendix, or kept separate simply as part of the background to understanding your business.

5.2 Competitive Edge

These sections are about implementation, so think about how you will put in place strategies and activity to take advantage of the differences that your products/services have.

5.3 Marketing Strategy

Specify your strategy for reaching your target market and the main actions needed to carry out these strategies. You should include PR, Direct Marketing, advertising, sales calls, customer referrals, special deals/promotions, endorsements, partnerships, sponsorships etc.

Think about your resources, can you afford to advertise a bit, do you have someone who could make sales calls, try getting free PR if possible

You have a great product/service, but no one will buy it unless they know about it. See our resource on making a Marketing Plan and then include the main elements in this business plan.

5.4 Sales Strategy

Will you sell on-line, have your own sales force, franchise or not, will you have distributors, a store, a warehouse? A restaurant, bar or cafe needs premises to sell from. Where and what location, how about “foot-fall” for high street premises.

Will you sell in bulk, or minimum orders, discounts, pricing and loss-leaders, all the nitty-gritty of how sales will be made has to be thought out.

5.4.1 Sales Forecast

The finance section of most business plans includes 3 years of forecast. The first year by month and the next 2 years as separate yearly totals. Some industries may have longer forecast needs, but not normally.

People find this section hard to do, but you have to give it your best estimate. Note down the assumptions that you made in coming to that estimate, so you can justify it. When operating you can compare actuals to forecast and look back and see if any assumptions needs changing.

Sometimes you can get an idea of your likely sales by looking at your competitors, or competing products & services.

6.0 Management Summary

If the plan is only for internal use, you will not need a full biography of the management team of the business, which you will certainly need for Investment purposes. Even if it is a one person start-up, you will need to say something about your background that makes Investors believe that you are capable of being successful with their funds.

There’s no need for a full CV in this section, just a summary, picking out relevant details.

In this section also you can say how the personnel levels will grow over time and what skills or positions will be expanded.

7.0 Financial Plan

As mentioned with the sales forecast, the financials are normally the first year by month and then the next 2 years as a yearly total.

If you have the sales forecast ready, all you need then as preparation are the costs of the business. Typically these are split between fixed costs and variable costs. The putting together of the financial side of the business can be done on a spreadsheet for small businesses but larger concerns will need to use an accountant to translate the forecast and costs into full financials that include a balance sheet, cash flow and Profit & Loss accounts.

Alternatively, there is software around that will guide you through putting all the sections of a plan together and also produce the full financial section. Try this business plan software, we’ve looked at many and this turned out best in our review.

Finance sections to include:

- Important Assumptions

- Break-even Analysis

- Projected Cash Flow

- Sales Forecast

- Projected Profit and Loss

- Projected Balance Sheet

It’s important not to get stuck in any one section of the plan. Do your best and move on, keep momentum going. If possible bounce ideas around with your team, a business partner, or a friend. If you need a Business Partner, Mentor or Investment don’t forget to join Company Partners.

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