Business Plan Series: Part 2 – Market Analysis

In my previous post I discussed the basics of framing your plan and how to set it up.

Moving forward, I would like to take more of the startup/entrepreneur/VC type of plan approach and start with the market analysis. This is because if you started with the corporate overview there wouldn’t be a whole lot to talk about at this point and if there was and there were prior rounds of funding I might start with that. If you are doing something really different you need to give it context and tell the story of why you should exist. I will of course cover the Corporate Overview section later.

You will also notice that I skipped the Executive Summary. Since it is a summary of everything I will talk about this last once we have covered all of the sections.

There are some basic things you should try and answer with the market analysis:

  • Do you have a market?
  • Is there a viable niche that makes sense to focus on first?
  • Does your product or service fill a need or solve a problem?
  • Can you appeal to cross-segments within your market by highlighting different aspects of your product?
  • How should you price your product or service?
  • Who are your potential customers? What are the various customer profiles?
  • How will you deliver your product to the customer?

I break down the Market Analysis into four sub-sections:

  1. Market Overview – describe the market you are in or the market you are planning to enter: product coverage area, environment, additional product area if necessary and potential customers.
  2. Market Background – This provides historical data (i.e., market size, demographics, psychographics), needs and trends; buying patterns; preferences and market growth
  3. Market Challenges – Here is where you analyze data and focus on the unique issues that create the challenges and problems you see could be solved.
  4. Market Opportunity – This is where you used data in the previous to explore the problems and expose the opportunities that exist to discuss the opportunities to be solved.

NOTE: Remember to properly cite your sources of information within the body of your Market Analysis as you write it. You and other readers of your business plan will need to know the sources of the statistics or opinions that you’ve gathered from others. This is important that they see that the basis for your analysis comes from well known sources.

NEXT TIME: COMPANY OVERVIEW - After you have explained how compelling the problems and needs are, you will need to pitch who you are and what you do.

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Business Plan Series: Part 1 – Framing your plan

First, let me start by saying that by the time you are done with your business plan your first draft will look completely different than the one you share with everyone.

There are a few different forms that your business plan will take:

Business Plan Type #1 – Business Plan for You
Essentially a data dump with headings, this is the one that gathers your thoughts and gives you peace of mind if you are a “J” on the Myers Briggs. I always think that these should be written first because it is essentially a knowledge dump and since there is no audience but you there are no limitations.

Page Range: NONE

Business Plan Type #2 – Business Plan for Internal Strategy and Operations
I call this type of plan the “roadmap plan”. Think of this a providing your company and board with a look inside your brain and the brains of your management team. This type of plan is about alignment and communication of vision. It goes into deeper depth of product roadmaps, long term operations and greater performance planning. This means that the products and services section along with the competitive and operations sections will go a level deeper.

Page Range: About 60 pages but it depends on the maturity of the business so it could be longer.

Business Plan Type #3 – Business Plan for Investors and Raising Capital
This plan is what I call the “money plan” and many VC’s will say that they don’t read them, most see the value in them and all say that the exercise is necessary and important to address any issues that may arise in due diligence. Just because investors may not read them doesn’t mean you don’t have to do them. While this may be true for more experienced investors and an executive summary is good enough, you can bet that those on the the committee who need to be convinced to approve the investment will want to read it and the associates at the firm will be reviewing it in detail and putting their “quant jock” hats to run the numbers to see if something weird pops up.

Granted, this type of business plan is half sales pitch/half business strategy and it must communicate that not only is there a market for your products/services but that there is a HUGE need for your product, it is scalable with the right investment, you have an A-team to execute and that you will be able to exit for a large amount that will see a double digit return on their investment.

Page Range: About 15-30 pages depending on how developed the business is and how complex the product/service offering is that you are providing.

SO WHAT SECTION DO YOU START WITH?
Because each version of the plan has a different audience you will want to start it differently. Granted, the Executive Summary comes first but for an operational business plan it is good to start with the company summary to establish the vision and mission for internal reader. They want to have context and see how you are going to execute on the vision and plan you have placed in front of them.

For investor focused business plans you need to start with the problem which means that you need to talk about the market and the analysis you have done to conclude there are problems which will lead to the next section about how you will solve them. So start with Market Analysis. You might need to educate some investors on your market so don’t assume they know your business or sector.

WHAT ELSE GOES IN THERE?
There are many different books and resources with their own format, I don’t prescribe to one but I would include, not in any particular order, the following to start with:

  • Market Analysis
  • Management Team
  • Competitive Analysis
  • Operations
  • Implementation Plan
  • Products and Services
  • Marketing and Sales Strategy
  • Technology and R&D
  • Financial Plan and Projections
  • Funding Requirements and Exit Strategy

Making this a team exercise
I have found personally that when you are a lone entrepreneur, you have no one to do this with but yourself. As you add people to the management team and advisors get more involved they become critical to bring in different expertise and perspectives to make the plan complete and presentable. If the team is established, I find that this is the best way to have an off-site strategy meeting. You should have each one of your management team take a crack at writing the plan or improving on the previous one. Publish an outline they have to stick to but other than that, they are on their own. It will be interesting to share and extract the points that everyone likes and can debate about. You are the ultimate and final decision make but this is far better than having people work in a vacuum in their departmental silo.

Also, hire a third party to run the session, gather notes and lead the session. You don’t want to be doing two jobs and participating is far more important than managing the meeting.

NEXT TIME: We discuss “Market Analysis”. Most plans need to detail the situation, the problems and the market potential.

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Leadership Lessons: When the CEO is synonymous with the brand

There are different types of CEO’s out there. Some are the operational types who crunch the numbers, those who are sales people at heart, those who are visionaries who guide a company in new directions and many more variations of these major archetypes.

Then there are what I call “luminaries”.

Luminaries are those leaders that are identified with their companies so much that their name is pretty much a synonym for their company. Some examples are:
– Bill Gates – Microsoft
– Richard Branson – Virgin Group
– Jack Welch – GE
– Steve Jobs and Apple

The last one there, Steve Jobs, is of particular focus in light of the emerging stock options scandal. When someone who is so closely identified with the brand and is responsible for its growth and innovation and recent rebirth can there be any type of succession planning.

Analysts from Bloomberg to Piper Jaffray think that the stock would immediately drop 25-33% if Mr. Jobs were to leave. That is about $20 billion in market value as of this writing (yikes!).

So as an entrepreneur, you work hard every day to evangelize your ideas, promote your company, lead your team and make your company a success. What you can learn from this?

1.) Evangelize but don’t act like God – You love your company, your people and your products. We get it. Stay humble because it takes one wrong move to knock you down the ladder. The more you think you are a God the more people will be convinced you are the devil.

2.) Share the spotlight and reward others publicly
– Remember that you are not the center of the universe and many smart people in the company helped you get there. If you reward them publicly people will be more familiar with other people especially if they are in the succession plan. Plus spreading the love makes you appear to be the benevolent leader.

3.) Implement a succession plan - This is not to tell people that you are leaving, but rather that you are mortal and will leave one day so there must be a smooth transition. This makes people confident that the company will not suffer abrupt changes when you exit and will get people in place when the change does come.

So for the entrepreneur’s out there. What are you doing to ensure you don’t run the same risk?

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