Business Plan: an overview of the structure – part one
Table of Contents
The Business Plan is a fundamental document for a startup and has both an internal and an external value. Obviously, the structure to be adopted is not carved in stone, but let’s see the one recommended, so as not to forget to deal with all the essential points.
But first of all, when can a startup make the business plan?
The answer is simple: when the startup, or a temporary organization in the “research” phase, becomes, quoting Steve Blank, a permanent organization designed to execute a scalable and repeatable business model, it is possible to plan and implement what is established in the plans. At this point, you can measure, improve and refine an already known and validated business model, which can be in some way schematized and represented with the business plan that can be very useful to attract investors.
The topic of startup financing is among the most important not so much in the constitution phase, but to face the transition from a startup that is experimenting to a company that has found its product market-fit, and from here to the scale-up, up to become a successful multinational. Startups, due to their nature, “burn cash” and even when they start to have a good income, they may need capital injections to consolidate and “scale up”.
Business Plan: the recommended structure
Below, we propose a structure divided into macro-categories:
- Executive Summary
- Business Model
- Market and competitors’ analysis
- Marketing plan
- Operational plan
- Financial Plan
- Proposal to investors
- Environmental impact
In this first article on the Business Plan, we will see the first 4 points. Another article on the remaining ones will follow.
The Executive Summary section
The Executive Summary is one of the most important parts of the Business Plan, the one that describes the company’s business, how it operates and how it stands out from the others. It is the first part that must capture the reader’s interest to keep reading.
It is a description of the entrepreneurial project highlighting the innovative or distinctive character with respect to existing products/services on the market, the history of the company, the mission, the business goals, the strategies, the organization and structure of the entrepreneurial activity, the expected costs, the required funding, and the intended use of the same. In other words, it is the introductory part of the business plan, in which the different parts are summarized and explained to provide a clear idea of the entire business. The section consists of the description of the business idea and must be concise and, at the same time, must deal with all the products or services that are intended to be put on the market. In this part, it is necessary to illustrate what the idea consists of, what its origin is, how you intend to carry it forward and with whom you want to implement it. You need to describe the product or service you want to sell, illustrating its characteristics, production processes and what is “innovative” about it. “Innovative” does not necessarily mean “new product”. They are two similar concepts, but still not the same thing. You can have “Product Innovation”, but also “Process Innovation” to specify that it is the production process that is “innovative”.
Finally, it is also useful to make a comparison with the prices and costs of the competition. The greater the precision in specifying these data, the greater the credibility of the business plan because it demonstrates an in-depth knowledge of the productive aspects of the business and the behaviour of competitors, on which the forecasts of sales volumes are based.
Every new or innovative business idea has strengths and weaknesses. To describe the aspects of the business, you can rely on the so-called “SWOT Analysis “. The Business Plan must specify what are the strengths and weaknesses of the business idea.
- Strengths: when describing the strengths of the idea, you must use emphasis, highlight them and make them stand out because they are “strengths”.
- Weaknesses: it is also important to talk about the weaknesses, i.e., those aspects that can hinder the success of the initiative, to demonstrate that you are fully aware of the idea, the statements and the actions taken.
Obviously, when you expose the weaknesses of the idea, you should also talk about “how” you planned to face and solve them. The Business Plan is also useful for defining solutions.
In the descriptive part of the Business Plan, it is necessary to provide information (also approximate) on the production costs, on the sale price and on the expected revenues based on the expected sales volumes, also specifying the minimum volumes to obtain the break-even (point of balance between revenues and costs).
The assessment of the maximum production capacity that can be reached with the organizational structure that is planned to be implemented is also very important.
All aspects, briefly described in the executive summary, must be specified in detail in the economic-financial plan, which is the “technical part” of the business plan.
The execution of financial calculations is extremely important to:
- verify the “feasibility of the plan”, that is, if the business idea “works” both from an economic and a financial point of view;
- be able to provide reliable and convincing information in this first part of the plan, to maximize the chances of obtaining funding.
The Business Model section
In this section, it is essential to describe which is the Business Model chosen for your startup. We recommend the Business Model Canvas, but let’s get to the heart of the matter and clarify what is a Business Model.
The business model describes the logic according to which an organization creates, distributes and collects value. In other words, it is the set of organizational and strategic solutions through which the company acquires a competitive advantage.
In particular, the business model:
- Provides the guidelines with which the company converts innovation into value acquisition without disregarding an adequate strategy capable of providing a competitive advantage over the competition (thus tracing a direction for your followers);
- Defines an organization that allows you to share knowledge within the company and enhance its human resources by promoting the ideal condition to encourage innovation;
- Identifies the relationships of interaction and cooperation with suppliers and customers (market) enhancing their choices (of model and/or business);
- Establishes the methodologies and tools to critically and continuously analyse the results obtained by its business model by comparing them with those of competitors.
The business model is one of the main tools available for management to interpret and manage the internal and external dynamics of the company.
The process of building and modifying a business model is also called business model innovation and it is part of the business strategy.
Both in theory and in practice, the term business model is used to describe a wide range of formal and informal aspects that represent the central aspects of the company’s production activity.
We often wonder how small startups can become dangerous for large multinational giants, how they manage to attacks markets that seemed untouchable until a decade ago. It is not because of better products, or at least not only. Today, those who manage to win on the market are those who have been able to rethink and innovate the logic with which they create and offer value to their customers.
Innovate and create value with the Business Model
In short, whoever succeeds in innovating the business model of his company wins the market.
Innovating your business model means understanding and rethinking the company at a higher level and observing all processes (production, distribution, commercial and so on) as a whole and in their synergies. It also means having a structural vision, able to open the eyes, on the untapped opportunities and on the branches to be cut.
Quoting Alexander Osterwalder, creator of the Business Model Canvas:
“The Business Model describes the logic with which an organization creates, distributes and captures value”.
A company creates value for its customers and then it helps them to:
- perform an important task
- fulfill a wish
- solve a problem
Regardless of what your field of business is, to be successful you need to create value for your customers. And it is precisely for this reason that the first document you need, the one that will help you in strategic planning, is a map of your Business Model – not the Business Plan, which you can correctly decline only after understanding and validating your business model.
We have seen that a key concept of every Business Model is the value offered, but how is value measured? The value perceived by the customer is given by the difference between benefits received and costs incurred.
Maintaining a high-quality standard and applying an affordable final price is, for example, one of the best ways to increase perceived value.
Why should you innovate your business model?
The business model is the operating system of a company, unlike the individual processes that represent its programs and applications. It represents the upstream logical structure that defines the relationships and behaviour of each individual element, and which allows to work in a fluid, optimized and productive way.
Business Model innovation is an operation to do when:
- New threats arise from the outside (for example new competitors)
- New needs arise that require different support (for example new potential customers)
- The system is overloaded and operations are slow and not very fluid (for example reduced margins)
As you can see, innovating your company’s business model is a necessary operation over time in order not to risk becoming obsolete and losing its competitiveness.
The Business Model Canvas is the main Business Design tool used to innovate the Business Model of companies.
A focus on the Business Model Canvas
The Business Model Canvas was proposed by Alexander Osterwalder in his first work, Business Model Ontology (2004), and then developed by Osterwalder, Yves Pigneur and Alan Smith together with a community of 470 experts in 45 countries around the world. This led to the publication of the book “Business Model Generation”, world best seller translated into 30 languages.
Today, the Business Model Canvas is recognized as an international standard. It is taught in the best business schools in the world, including Stanford and Berkeley University.
The Business Model Canvas is a strategic Business Design tool that uses visual language to create and develop innovative, high-value business models. It allows you to visually represent the way in which a company creates, distributes and captures value for its customers.
Why should you use the Business Model Canvas?
Thanks to the intuition of Alexander Osterwalder, this model has revolutionized the way of representing a Business Model.
With the Business Model Canvas, everyone has the opportunity to understand complex elements that affect the operation of an entire company, in a simple and extremely intuitive way. This happens because the canvas is based on a visual language that is quick to learn and accessible beyond the professional background: this allows maximum alignment between the people involved and, at the same time, represents the great communicative advantage of the Business Model Canvas.
How to use the Business Model Canvas?
The Business Model Canvas can be printed in large size to facilitate teamwork. In fact, people can draw and discuss the elements of the new business model with post-its and markers. Thanks to this dynamic and participatory approach, everyone’s expression is facilitated in a completely natural way, which, for example, occurs less easily in contexts of analysis and planning.
The Business Model Canvas promotes understanding, discussion and analysis of the business and, at the same time, creativity and sharing.
The Business Model Canvas, simple and clear to expose, was conceived by Alexander Osterwalder in his degree thesis. Alexander came from the world of information technology and, when he went into economics, he decided to make the creation of the business model clearer and more immediate, by adopting a visual and organizational technique, widely used in programming. Later, his graduation became a book that we recommend to everyone.
In a very simple and intuitive way, the method divides the model into 9 important aspects to be taken into account in the business model, including costs and revenues.
The 9 sections of the Business Model Canvas
Below, we see briefly what are the 9 elements of the Business Model Canvas:
- key partners: the partners and suppliers you work with and who help you create and distribute value.
- key activities: all the fundamental operations of your business that allow you to create value using key resources.
- key resources: they are used to make the business model work and include human resources, equipment, machinery, factories or outlets, software, patent and copyrights, and financial resources of various kinds.
- value propositions: the added value of your proposal compared to that of your competitors with respect to the customer segment you have chosen to best meet their needs.
- customer relationship: it identifies the means to better communicate with existing and potential customers. This relationship is highly dependent on the marketing strategy chosen.
- channels: they are the means through which you offer your product or service, from communication and marketing strategies to sales and distribution.
- customer segments: i.e., the group or groups of users to whom you offer your product or service.
- cost structure: to analyse the volume and type of costs you have to incur, related to the activities you carry out.
- revenue streams: the earning obtained from the sale of the products or services provided.
Conclusions on the Business Model
The primary objective of a company or commercial activity answers this question: how do we make money?
Answering this question introduces the concept of “business model”.
In particular, a business model defines:
- What a company offers to the market in terms of product or services
- What is the added value that the company provides to its customers
- Who are the customers to whom it is addressed and how to reach them (choice of distribution channel)
- What resources are needed
- It is necessary to establish collaborative relationships with partners
- What are the costs that the company has to bear
- What is the expected turnover from carrying out the business activity
The definition of the business model is the starting point in the conception of a business idea, but it is also useful for redesigning the way in which an already established company carries out its business.
There is a widespread false belief that the starting point for conceiving a business idea is to write a business plan.
The business plan is an important element in the business creation phase, it is a document that explains in detail how you intend to create the business model. For example:
- what you want to achieve;
- how much time is necessary;
- how much money is needed.
This can only be developed after having clear in mind the business model and the competitive strategy that the company intends to adopt.
Business Plan: the section of the market and competitors’ analysis
The specific reason why the business idea was born must be described, indicating the production, commercial and financial reasons that led to the decision to undertake the initiative, and the expected productive effects following its implementation.
An in-depth analysis of the market must be included in the section, indicating the positioning of the company with respect to the main direct and indirect competitors, listing and analysing in a clear prospectus all the present, or potential, players who could take away market shares from the target of the company, highlighting their strengths and weaknesses and the possible presence of barriers to entry (legal, economic, or technological).
The market analysis must focus on the description of the product/service marketing process and on the pricing plans following the identification of the customer group.
The validity of any project in terms of potential and prospects can only be understood after a careful analysis of the reference market.
Business Plan: the section of the Marketing Plan
In this part, the marketing plan, a strategic positioning matrix and an analysis on the advertising campaign must be described. Even the best product in the world could fail if its existence is not disclosed.
The commercial strategies that must be implemented by the company must be described and must identify the marketing levers (product, positioning, price system, distribution channels, financial policy, commercial organization, commercial policy) that allow the company to achieve a competitive advantage.
The Marketing Plan is just a part of the Business Plan because it deals only with the operational definition of the strategic actions, defined in the Business Plan, and its monitoring. The Business Plan, on the other hand, exposes the business model of the company and its vision and mission and also contains all the economic and financial details relating not only to marketing, but to all the business costs, to demonstrate the company’s profitability over time and its financial sustainability. The Business Plan contains many other details also related to the organizational and corporate structure of the company and also demonstrates the operational feasibility of the product and service offered, providing all the technical specifications and related tests.
The Digital Marketing Plan is, in turn, just a part of the Marketing Plan because it deals only with the operational definition of the marketing plan on digital channels. The Marketing Plan is a broader document because it integrates digital strategies with the rest of the marketing that can also be offline.
The Marketing Plan is the set of operations that derive from the marketing strategy designed to promote a company or a product. In other words, the marketing plan formalizes everything that has been analysed in the strategy, transforming it into an operational action plan. It is a planning document with which companies define their marketing strategy on an annual basis for the products and brands already present in the company portfolio or is created when starting a new business, a startup. It must contain a detailed program of activities to be carried out to achieve one or more specific objectives in a given period of time.
The horizon of the detailed marketing plan can be annual but, depending on the objectives set and the market situation, it is possible to use the same model in the longer term. Obviously, when the marketing plan is incorporated into the Business Plan, the same time horizon adopted in the Business Plan must be maintained.
The marketing plan serves to identify all the key variables of a marketing action:
- the market or reference markets;
- the target audience with the related needs to be satisfied;
- detailed analysis of the competitors, with their strengths and weaknesses, and how to stand out from them;
- the product or service and the competitive advantage;
- the most suitable distribution and communication channels, identifying the shortest way to reach potential customers and communicate with them;
- cost analysis by minimizing the investment;
- organization and planning of all activities in order to obtain the best possible result with the minimum use of resources and time, obtaining a satisfying return.
As we said previously, the digital marketing plan is not a tool that replaces the marketing plan, but rather a tool that supports and completes it, integrating the digital strategy with the offline one.
In the digital age, the marketing plan needs a change of mentality. Companies must invest sufficient time and budget in multi-channel activities that are always active or continue to maximize visibility and conversion across the entire customer lifecycle. For example, it is necessary to continuously target and exploit the full potential of customers looking for products, retargeting them and feeding them with relevant content to engage and encourage them to purchase. The purpose of a marketing plan is to identify the most relevant activities and channels, integrating them into your strategy to engage a growing number of users, leads and potential customers, and thus to achieve the company’s goals. The best marketing plans today include all the interaction activities with the contact along the customer journey up to the retention marketing activities. An effective marketing plan makes any campaign functional, using online and offline communication tools in an integrated way. Assuming that in startups or small businesses it is difficult to find it (when it exists), stating that a marketing plan should be used for the purpose of maximizing the acquisition of new customers is absolutely an understatement. The Marketing plan must be designed considering specific objectives throughout the potential customer’s entire customer journey. For example, marketing plans must absolutely maintain a high level of brand awareness in the market and strategically consider the placing on the market of new products or services (product marketing).
Defining specific objectives for a campaign will determine the plan’s use and the most effective marketing channels to complete them.
How do you create a successful digital marketing plan?
Your digital marketing plan must take into account SEO, analytics, web positioning and social media, with clear objectives, precise metrics and an effective strategic plan.
Putting digital marketing action in motion without a previously defined plan or strategy could lead to failure.
When you develop a digital marketing plan, you need to include components such as determining your Buyer Persona, business goals and an appropriate value proposition.
A digital marketing plan is a document that contains the planning of your digital marketing campaigns or actions. In this document, the following aspects are detailed:
- Business objectives in the short, medium and long term.
- Strategies for achieving digital goals.
- The channels to use.
- Action and development plans.
- Investments and budgets.
It is up to the Marketing Manager to create the digital marketing plan, with the support of the whole team, made up of experts in SEO, SEM, social media, Brand, Product Manager, etc. The team has the task of proposing, step by step, adjustments and optimizations, highlighting for example the non-feasibility of certain operations at a strategic or operational level and proposing improvements. When it is approved, the Digital Marketing Plan becomes the Bible to consult and follow to carry out all activities with criteria.
The Operational Marketing Plan is generally divided into the sections shown below, and each section, in order to be developed, requires one or more analysis to be performed:
- Vision and Mission
- Strategy, Goals and Tactics
- Analysis of the environment and SWOT Analysis
- The 7 P of Marketing Mix
- KPIs and Monitoring
To conclude, creating a Marketing Plan is not easy and requires specific skills.
A Marketing Plan created with the wrong assumptions can lead to economic and image disasters for a company and, even to the bankruptcy.
The main reasons for the failure of a plan are:
- a lot of important information are missing, and the analysis are not complete
- there is no correlation between objectives and KPIs
- there is no correlation between the strategy and the tactics used to achieve the strategy
In this first article, given the vastness of the topics to be treated to give an overall view of the essential parts that can’t be missing in the Business Plan, we wanted to focus on the first 4 sections. Don’t miss the next article to get a complete view of the topic!
If you want to learn more about this topic, we recommend that you also visit the page Start your startup.