Summary
Business plans done well and done early with attention to detail can enable businesses to assess the organization's capital needs more accurately throughout its life cycle. This early “reality check” allows the organization to stave off the capitalization deficit and make wiser spending decisions. When organizations fully understand their capital needs, they don’t have to make “good enough” decisions that frequently lead to duplicate spending on the same item. You know the instances where things are done “good enough for now, and we’ll come back later and do it right when we have more money.” Good enough may be all that is ever done … or you may spend two or more times on the same thing because there isn’t enough money to do it right.
Funding Early-Stage Companies in Tough Economic Times
The Reality of Tight Funding
Under the current economic conditions, saying that funding is tight for early-stage companies is the epitome of understatement. The budget is tight, but it is available for sound ideas with well-thought-out businesses and experienced business people developing them. In the February 2009 issue of Condé Nast Portfolio, Kevin Maney notes that companies launched during tough times are often more purposeful and resilient. They have greater potential for lasting impact compared to businesses started in boom times. Today’s startups must be robust and strategic. Successful ones will raise funds by addressing investors’ questions and refining their business models.
Business plans will be instruments of competitiveness and not academic exercises.
Well-Thought-Out Plans: Beyond Academic Exercises
Avoiding Shortcuts in Business Planning
When funding is tight, it is oh-so-tempting to cut corners and be frugal. However, you don’t want to be pennywise and pound-foolish when writing that all-important document, whether called the “business plan,” “executive summary,” or some other name. Regarding the tool you will use to raise funds, taking shortcuts and not devoting the necessary resources to the process can mean a loss of opportunity and credibility, as well as no funding for your fledgling business.
The Importance of Ownership in Planning
In addition, there’s the temptation of thinking that just anyone can write your business plan for you. That would be like letting any stranger off the street walk in and take care of your child or handing over all of your hard-earned cash to a stranger to take care of it for you. Writing a business plan is about understanding your business idea and potential. How you and your team will do business, make money, compete, operate, develop, and protect your intellectual property. It isn’t an academic or intellectual exercise where some students can go off over a weekend and write your plan for you. Furthermore, take ownership of your business plan when writing it. Developing the concept and understanding the market potential, competition, and all the elements that go into the plan and the business, then whose business does the plan represent?
The Pitfalls of Generic Plans
The Value of the Planning Process
Too often, a plan is just a plan, but not the plan or a business. Writing a business plan is more important than the document that results from the process. Why? Because the process of developing the strategy requires the company to examine all of the details, including its concept and assumptions. It requires identifying its target markets, understanding its competition, and addressing critical questions about how the business will generate revenue.
Furthermore, it guides you in finding the customer, how to reach them, and what it will cost to do business. The deliverables, timelines, and milestones become tangible in the team’s minds. The skills and abilities are identified, and the missing pieces that need to be acquired are revealed, perhaps for the first time.
Risks of Superficial Plans
When a generic plan, rather than your specific plan, is written, and a vague business concept, rather than your actual business, is described, the resulting document lacks critical insights and fails to address key questions that potential investors will ask. Such a plan often contains obvious information gaps, inconsistencies that experienced analysis would expose, and a lack of alignment between the founders’ vision and the written content. Treating a business plan as a mere formality misses a vital chance to deeply analyze and refine how the business will operate, uncovering potential pitfalls and opportunities before real capital is invested. Without thorough market research and robust financial modeling, the plan overlooks critical details, relying on superficial market data and generic, fill-in-the-blank financial projections.
Building Market-Focused Businesses
The Role of In-Depth Analysis
Thorough market research and detailed financial modeling fortify a business plan and the business itself. Experienced professionals scrutinize assumptions to enhance outcomes. Customers and competitors drive dynamic markets that shape success. Projections of revenues, expenses, and cash flows mirror market realities. Setting pricing and forecasting sales volumes generate revenue estimates. Calculating production, resource, and operating costs builds robust cost models. The plan addresses critical questions: What resources are required? What are their costs? When and where will they be sourced? How will they integrate? How will pricing and costs yield profit? Aligning market insights with financial results ensures a strong, actionable plan.
Addressing Undercapitalization Through Planning
The Dangers of Undercapitalization
Assumptions can be challenged. Plans can be changed before the investments are made and become written in infrastructure, cast in contracts, and the burn rate exceeds expectations. Undercapitalization is one of the biggest challenges facing any company; unfortunately, it often stems from companies not fully understanding their financial requirements and the time it takes to raise funds. The underassessment frequently refers to the lack of clarity, depth, and analysis in the earliest versions and efforts to develop the business plan.
Benefits of Early and Detailed Planning
Business plans done well and completed early, with attention to detail, can enable businesses to assess their organization’s capital needs more accurately throughout their cycle. This early “reality check” allows the organization to avoid the capitalization deficit and make more informed spending decisions. When organizations fully understand their capital needs, they don’t have to make “good enough” decisions that frequently lead to duplicate spending on the same item. You know the instances where things are done “good enough for now, and we’ll return later.” Usually, they’re the final effort. Good enough may be all that is ever done.
The Case for Robust Business Plans
Moving Beyond “Good Enough”
Regarding your business plans, wise investment is just that—wise. But “good enough” isn’t at any time, especially in tough economic times. The saying that good ideas get funded may be true, but it doesn’t mean they all succeed. Good ideas don’t always become successful, profitable, or sustainable businesses. The good ideas that become great businesses focus on creating a strong business plan and not being satisfied with “good enough.”
Conclusion
In today’s challenging economic climate, early-stage companies must prioritize robust, well-thought-out business plans to secure funding and build sustainable businesses. By investing in the planning process, engaging deeply with market research, and avoiding shortcuts, entrepreneurs can create plans that attract investors and lay a solid foundation for long-term success.
Copyright ©2009 Lea A. Strickland, F.O.C.U.S. Resource, Inc.
All Rights Reserved
[^1]: Maney, Kevin. “Best of Times,” Condé Nast Portfolio, February 2009. http://www.portfolio.com/news-markets/national-news/portfolio/2009/01/07/New-Economy-Needs-Innovation