The Most Important Business Plan Fits on a Napkin

Are you thinking about starting a business or expanding your current one? All of the experts say you should write a business plan, but is it really necessary?

In the past ten years I’ve written quite a few business plans and each time I learn something new. In my most recent written plan, I learned some lessons the hard way. But those lessons were valuable and today I’m going to put my ego aside and share a little with you so perhaps you can benefit from my mistakes.

When considering a business plan, first you must be crystal clear about its purpose. There are usually two reasons plans are written. The first is to conceptualize and document the business strategy the entrepreneur, partners, and employees will follow to create a successful new business or expansion of an existing one. The second is to get money from investors or banks. I suspect that 95% of business plans are written for the latter reason which can lead to problems.

With a well thought out strategy and business plan, it’s relatively easy to get financing. I recently obtained over $1.5 million of investment and financing with a business plan without too much difficulty. But the problem with my plan, and the majority of plans written to get start-up capital, is that they don’t focus on the strategies necessary to grow the business and earn income.

Business plans for banks and investors follow a typical format that focus on where investment funds will come from, be spent on, and what expected earnings will be. This is the problem. They focus on expected earnings and banks normally require that you forecast your income at least five years into the future. Like predictions on the weather, stocks, or sports, earnings predictions are always wrong.

Anyone making income predictions 5 years into the future with a start-up company is guessing. But if you can convince the reader that your predictions are accurate, you’ll likely get financing, even if you know you’re guessing.

Getting investment money to start your business, and then actually running it, and bringing in money are two very different things. The traditional business plan requires some justification of how you’ll promote your company, but you can get away with boilerplate language that’s in every other business plan.

Something like, business cards, newspaper ads, and TV commercials with corresponding annual costs for each will be sufficient to get your business plan through underwriting.

Underwriters have no clue about marketing, so they will not question your marketing strategy as long as it looks like all the others they’ve seen. But if that really is your marketing plan, you’ll fail, especially in a tough economy.

When considering any new business idea, there is one plan you need to focus on before anything else, and that plan can be written on a napkin in a bar.

Here is a simple marketing plan for an attorney, coach, or other service provider:

Quickly I will outline these steps.

A.      Where will your initial prospects come from? What are your sources of ‘traffic?’ In the service provider example, you may get prospects during speaking engagements at local chamber meetings, direct mail to rented lists of the right people, organic search engine traffic to your web site, yellow page ads, or networking events with properly crafted business cards. These are a very few of many sources of getting in front of prospects.

B.      Step B is your free offer or other ethical bribe to give your prospects a place to go to join your marketing funnel. Without having an irresistible place to send them that’s non-threatening, you’re wasting your marketing time and money. And forget about branding, because that’s a waste of time.

C.      For all the prospects who visit your Step B, they may then go through a web squeeze page or one-on-one sales presentation where you ultimately offer them your product in Step D.

D.      In this example, your entry priced product product, or service that allows the prospect to get their feet wet.

E.       For the buyers of Step D, the next step is to graduate them up to your high priced product or service.

F.       For each prospect that does not purchase in Steps C, D or E, they are added to your multi-step follow-up sequence to continue to provide them with valuable information and the benefits of your services.

G.     Finally, each of your happy customers should be part of a structured referral program that directs their friends back to Step B

If you can conceptualize a marketing funnel for your business and you decide to move forward with it, you eventually need to measure and track your statistics. 

For example, if you give a consistent speech to local community groups, you may find that every time you speak to a group of 30 people, on average 10 people take you up on your free offer. Of those 10 people, 3 of them buy your entry priced product and 1 of those upgrades to your high priced product.

Then if you want 10 new high priced product clients per month, now you know that all you have to do is speak to 300 people every month. Then you need to figure out the same math with all of your other traffic sources and find which are providing the best return on investment.

This is a crash course on creating a direct response marketing plan. This basic planning done on a “cocktail napkin” should be the absolute first part of any business planning. If you can’t come up with a formula and system of where your customers will come from and the process they go through, then there is no point digging deeper into any other parts of the business plan.

It’s important to calculate expenses and all of the other parts of traditional business plans, but the basic process I described above is the most important and often most neglected.

This is admittedly a simple overview and when I work with private clients we create far more detailed plans. If these concepts are foreign to you, stick around and I will cover them in more detail later.

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