A reader asks: "Once I do get started, do I really need a formal business plan?" Our guest expert offers her answer
Editor's note: This is the fourth column of a new series of weekly Q&As in which entrepreneurs featured in the Women Entrepreneurs Special Report answer questions submitted by readers. You can submit a question for consideration here by writing to firstname.lastname@example.org.
I think I'm ready to start my own business, but how can I be sure? And once I do get started, do I really need a formal business plan?
To start, I'll tackle the first part of your question. The way to know if you're ready to be an entrepreneur is to make sure you can provide thorough and compelling answers to some very basic questions.
What do you want to build, produce, and provide? For whom? You need to be as specific as possible—for example, what type of consumer are you aiming for? What characteristics do they share? Where do they live? At the same time, you need to make sure your market is truly a large market—especially if you want to build a large scalable business.
Focus on a market or segment that's too limited, and your business by definition will be equally constrained. Also, consider that if the market around you is large and growing, you will have more of a margin for error—time to recoup or readdress the target and a greater chance of success.
You should also be able to identify a "pain" that your product or service will alleviate. There's truth in the old expression that people will pay more for a pain reliever than for a vitamin.
Another key question to ask yourself is, "Why am I eager to start this business?" This is a question that relates both to the market and to you personally.
You need to be able to answer why you believe there's a need for your product or service, why it's superior to anything else available today, and why you will continue to have a competitive advantage.
Just as important, you also need to know why you want to do this personally. Why are you motivated to start this business? How deep is your passion for it? How far are you willing to go to make it a success? The answer to this part of the "why" question needs to satisfy you fully. You need to be totally convinced that you will succeed. Once you make the commitment, and when investors, friends, and family understand that you're driven to achieve your goal, you will find people when and where you least expect, willing to assist. This leads to the following question:
Assembling a Team
How will you build your product or service? This is the essence of the business plan and operating plan. And don't forget to be able to show exactly how you will get it to market. Often, people nail the first part of this question. For example, they have a new patentable approach for mobile search algorithms, a great development team, and a solid timeline. But they often wrongly assume that if they build it, customers will come.
That's simply not the case. It's critical to think through your "go-to-market" strategy. What sales methods, approaches, and channels will you use? What creative marketing approaches? Do you have alliances you can form with major companies? Do you have targeted strategic buyers? Have you tested your idea with at least 50 key potential buyers?
And then, of course, there's the who question: Who's on your team? Take a hard look at your own skill set. What are your strengths, and what kind of talent would complement your background? Who can you attract to your team? Who will serve on your advisory board?(See BusinessWeek.com, 2/1/07, "Don't Go It Alone: Create an Advisory Board"). Who will attract investors? And is this a business that you want to build and run? Or would you consider hiring a CEO at some point along the way? Is this a "lifestyle" business, or are you ready to scale your idea into the next billion dollar company? These are the critical questions.
Answering these questions is what forms the basis of your business plan—a living document that morphs every few months but nonetheless is a foundation upon which you build. The days of five-year business plans are long gone; but having a clear crisp five-year vision, and then a solid 12-to-18 month operating plan, will keep you in good stead. There are many resources with templates for good business plans. Keep it simple is my motto. And keep it flexible. Check out the Women's Technology Cluster for a wealth of resources.
And if you're ready to think big, it's worth looking into the research of David Thomson, a colleague who decided not to take the entrepreneurial plunge right away (see BusinessWeek.com Video, 1/22/06, "Blueprint to a Billion"). Instead, he decided to find out just what are the attributes of successful ventures. He lists seven criteria that almost all companies share that not only hit $100 million in annual sales but grow exponentially and hit the $1 billion mark. There's sound advice here even for the company still in incubation.
So hold fast to your vision, but develop a plan, and begin with the end in mind. Here's to your success!