What Are the First Steps for Writing a Business Plan? Here’s how to get started.

A business plan is a comprehensive document that outlines a company’s core objectives, strategies for achieving them, and the expected financial performance over a certain period. At its core, a business plan should articulate the essence of the business – what it aims to do, how it plans to succeed, and the steps needed to get there.

Writing a business plan can sometimes seem like a monumental task, but it’s a crucial exercise for startups as well as existing businesses. It allows the entrepreneur to step back and critically assess the functional aspects of their business in a structured manner, ensuring that they are not just reacting to daily operational demands but are working proactively towards their long-term objectives.

Here’s how to get started:

Market Research

1. Industry Analysis

In the preliminary stages of crafting a business plan, conducting a thorough industry analysis is paramount to understanding the sector in which you plan to operate. Industry analysis involves scrutinizing the market size, growth rate, trends, and the broader economic factors affecting the sector.

To kick off, gather data on the overall health and direction of the industry. Investigate historical growth rates and expert forecasts to construct a clear image of where the industry might be headed. This isn’t just a cursory glance; dive into the impact of technological advancements, regulatory changes, and social trends on your industry.

You should also examine the industry’s barrier to entry. For example, if you’re contemplating starting a business in an industry that requires significant capital investment or specialized knowledge, you need to realize that these factors can be significant hindrances to new entrants.

Another vital aspect is the supply chain. Evaluate its robustness and identify potential vulnerabilities. For instance, a business that depends heavily on international suppliers might face risks related to trade tensions or currency fluctuations.

Assess the industry’s typical profit margins and key success factors (KSFs). These are the elements that are crucial for a business to excel in this sector. They can range from having a strong brand presence to possessing proprietary technology or achieving economies of scale.

2. Target Market Identification

Once the landscape of the industry is understood, zoom in on the target market. Your target market is the specific group of people or businesses who are the most likely to buy your product or service. Understanding them is critical to shaping your business offerings, marketing strategies, and competitive approach.

Start by segmenting the market based on various criteria such as demographics, psychographics, behavior, and geography. If you’re selling retirement planning services, your demographic segment might include people aged 50 and above. For a new smartphone app, you might target tech-savvy young adults in urban areas.

After identifying these segments, analyze their needs, buying habits, and how they make purchasing decisions. Use surveys, focus groups, and secondary data to collect these insights. You want to know, for instance, if your target customer prefers shopping online or in-person, and what factors – price, quality, brand, convenience – influence their buying choices the most.

Crucially, estimate the size of the target market. If you’re targeting a niche market, it might be small but willing to pay a premium for specialized products or services. For broader markets, you might face more competition but have a larger pool of potential customers.

3. Competitor Analysis

Understanding the competition is equally foundational. A good competitor analysis identifies direct and indirect competitors and analyzes their strengths and weaknesses relative to your proposed business.

Begin by listing who your competitors are. Scrutinize their market share, growth trajectory, customer base, and product or service offerings. Look for patterns in how they operate, what marketing tactics they use, and where they seem to be investing their resources.

Deeply analyze their unique selling propositions (USPs) and weaknesses. A competitor might be dominating in pricing but maybe they lack in customer service. Another might have an impressive product range but a weaker online presence. Underscore what they are doing well and where there are gaps that your business could potentially fill.

Learn about how they interact with customers and how customers perceive them. This could be achieved through reading online reviews, social media analysis, and even speaking directly to customers.

After this extensive competitor analysis, you should strive to pinpoint market gaps or areas of unmet needs that your business could address, thus carving a space for your new entry into the industry.

4. SWOT Analysis

SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats.

Strengths: These are the areas where your business can outperform competitors or exceed expectations within the market. Consider aspects such as unique competencies, intellectual property, resources, assets, or relationships that provide you with an advantage.

For instance, your business might have proprietary technology that competitors lack or a strategic partnership that gives you superior distribution channels. It might be as simple as a location central to your target market or a team with exceptional experience and credentials.

Weaknesses: Conversely, weaknesses are the areas where your business lacks or could be outperformed. It’s important to be honest and realistic about these areas so that they can be addressed. Weaknesses might include insufficient capital, a lack of established brand recognition, or gaps in your team’s expertise.

Acknowledging these weaknesses early will enable you to make strategic decisions to either improve these areas or mitigate risks. For example, if you’re not strong in digital marketing, you might hire an expert or collaborate with a firm that specializes in this area.

Opportunities: Opportunities are external factors that you can capitalize on to grow your business or get ahead of the competition. These could include market trends, economic shifts, regulatory changes, or technological advancements.

For example, a shift towards remote work presents opportunities for businesses offering virtual communication tools or home office equipment. Similarly, if there’s a growing concern for environmental sustainability in your industry, there’s a chance to innovate with eco-friendly products or practices.

Threats: These are external elements that could pose challenges or risks to your business. These often include new competitors entering the market, changes in consumer behavior, regulatory changes, or economic downturns.

It’s crucial to identify these potential threats so you can devise strategies to avoid or overcome them. For example, if an economic downturn is expected, you might shore up your cash reserves or diversify your income streams.

Determining Your Business Model

Determining your business model involves specifying how your business will make money. This should articulate the core aspects of how your business will operate, including what products or services you’ll offer, how you’ll deliver them, your revenue streams, pricing strategy, and your cost structure.

To build an effective business model, you should integrate insights from your market research. This means understanding what value you are providing to your target market, how you’re different from competitors, and how you can effectively reach and serve your customers.

You could have a subscription model, a freemium model, direct sales, e-commerce, affiliate, or an advertising-based model, among others. Assess each option’s viability and alignment with your business’s strengths and market opportunities.

Once you’ve concluded these initial steps and encapsulated all these findings into a detailed, logical, and researched business plan, you’ll have a comprehensive roadmap and a strong foundation to guide your venture and to attract potential investors or partners. Remember that your business plan is not only a tool for understanding your business but also a canvas to communicate your vision effectively to others.

Ready for the next step? Read the Elements of a Business Plan