A Careful Look Into How to Go About Your Business Plan
Facts are stubborn, but statistics are more pliable. – Mark Twain
The entire exercise of putting together a business plan is calculation – and I’m not just talking about financials. Every aspect, from defining your business concept through to forecasting the numbers, is derived from your estimations. The better your estimations, the more likely your plan will represent what is achievable.
While you may be tempted to start your business plan process elsewhere, the first and most important calculations – once you have defined your business concept – are those that relate to your target market and industry.
By having a strong awareness and knowledge of your market and industry, you enable yourself to make more precise estimations and decisions. Market research is the basis for every component of your business plan, because that data practically affects everything about your business.
A thorough awareness of the existing providers helps you establish benchmarks and expectations, as well as identify strengths, weaknesses, opportunities and risks. And the more you know about your competitors, the better you will be able to assess the feasibility of your business concept.
The problem with template business planning is that it doesn’t offer much stimulation in the form of asking yourself vital questions about your business. You may be excited about your business concept. But without any research to back up and refine your business concept, that excitement is merely an emotion caused by your opinion.
The Business Plan Process
Opinion is that exercise of the human will which helps us to make a decision without information. – John Erskine
In a nutshell, developing a business plan follows this pattern of phases:
What Each Stage Represents in the Business Planning Process
- Your business concept provides the focus for your data gathering efforts
- The data you collect tells you what exists (or doesn’t) within your intended markets and industry and helps you refine your business concept
- Your refined business concept gives you an accurate foundation on which to gauge interest and need for your product or service through testing
- The test results provide you with factual ‘on the ground’ data to validate your initial market research
- This combined data becomes the core of your business plan formulation
- A well-researched and believable plan can be crafted into a persuasive document with relative ease and presented to key people (management, lenders, investors, etc.)
What Information Do You Need and Where Do You Get It?
Where to get and gather information is often the most challenging aspect of researching your market and industry. For entrepreneurs and companies with deep pockets, reputable market research agencies can lessen the burden of work. They can also bring more objectivity into the research since they are skilled in identifying and removing potential biases when surveying the market. And they don’t have a vested interest in influencing the outcome of the research – whereas the entrepreneur would be naturally more inclined to expect positive findings.
The amount of available and reliable data will depend on which country you are planning to build or expand your business into. For example, where I live, market research has only begun to take its place of importance in business strategy over the past decade, and it’s still quite immature relative to Western economies. Add state corruption to the mix and you can start to see how government sources may not be very trustworthy. Again, this is changing due to global economic demands and the role the Internet plays in the collection and provision of data. And market research agencies and associations have an obvious financial interest in placing their own industry in the spotlight of the business community.
For many small businesses, hiring an agency may not be an easy option because of the cost factor. Fortunately, other options exist, especially thanks to technology and the Internet – and you can more or less conduct the research on your own.
Market research is a huge topic on its own, so I don’t want to go into all of the various methods into detail here. I’ve written separate, more detailed articles about market research planning and how to conduct market research which you can read up on).
Let’s just say – as a former market research consultant myself – that I’m a huge fan of surveying and polling your target market and competition. But even before you embark on conducting surveys, start with what market data is available now. There’s only so much you can ask consumers and existing competitors.
Here are some initial sources for gathering useful information to develop your business plan:
- Government Statistics
- Ministries/Departments of Labor
- Government Revenue Agencies
- City Councils
- Trade Associations/Trade Boards
- Industry publications
- Local Chambers of Commerce
- Small Business Associations/Networks
- Real Estate Agencies
- Local and Online Libraries
- Existing Industry Research and Reports
- Market Research Consultants and Agencies
- Executive Search Firms/Headhunters
Then you can start to formulate your questions to ask people directly involved in your industry:
- Sales Reps/Distributors
- Owners/Managers of Related Businesses
It used to be that recent meant 2 – 5 year old data. But now that the Internet has taken its place in most countries, you can find more recent and relevant data.
Be Careful With Data…
Do not put your faith in what statistics say until you have carefully considered what they do not say. – William W. Watt
You may find lots of information about your market and industry, and that’s wonderful. At the same time, you do need to exercise caution when using statistical data. Let me explain.
Your business is most likely going to be focused on a specific target market and demographic. This demographic can and does change, not only in terms of the obvious factors like population, but also in terms of behavior. The easiest example of this is the shift in purchasing behavior towards online shopping. People didn’t shop online in the 1980s. They do now.
Other important factors like inflation and currency changes can distort your conclusions. I always encourage my clients to focus on units of sale or hours of service rather than on dollars and cents.
Assessing Your Findings and Refining Your Concept
First get your facts; then you can distort them at your leisure. – Mark Twain
The point of researching and gathering information about your business is to validate your business concept. Your initial business concept is really your own perception of the market and industry, based on your personal experiences and encounters (or lack of). Research is connects your business concept and with the reality on the ground.