Did you know that in the United States, the number of new businesses that fail and close down within two (2) years of operations is around 20%? That means 1 out of 5 new businesses do not survive in those two years!
This data is from the U.S. Bureau of Labor Statistics (BLS), which also estimates that only 25% of new businesses are able to last for 15 years or more.
These are scary statistics indeed for entrepreneurs, but with the right planning, business agility, and innovative strategies, new businesses do stand a chance of succeeding long-term. One way to reduce the risk of failure is to create a Business Plan.
What is a Business Plan?
A business plan is a document that explains the company’s plan, strategies, and tactics on how to achieve its business objectives. This basic definition shows why a business plan is important: it’s your go-to guide on what to do to make your business successful.
If you’re a fan of the TV show Shark Tank, you probably have heard multiple times from the Sharks that if you “build a better mousetrap,” customers will start flocking to your business.
A good “mousetrap” (or product), of course, is essential, but you also need a good plan to make your customers aware of the product, convince them to purchase and use it, and delight them to the point that they become your ambassadors to other people.
A well-conceived and carefully thought-out business plan, therefore, is critical to any business. But here’s the thing. A business plan shouldn’t be very, very lengthy. More so, you shouldn’t be allotting hundreds of hours just to complete it. Doing so will just waste resources better spent on more productive things in the business.
Why Business Plans shouldn’t be very long
Writing a “traditional” business plan is, without a doubt, going to be time-consuming.
I remember back in college, we were asked to write a business plan for our proposed company. Our teacher back then, an old-school prof who’s more fond of theory than practice, gave us this instruction: the business plan we must submit should be at least 100 pages long.
Yup, we had that mandate to actually write a very long business plan. It took us the entire semester — four months to be exact — to write the business plan for our proposed company.
Imagine if we were instead asked to set up and operate the business in those four months. We could have made money then and probably became millionaires now. LOL.
We got a grade of 1.0 in the course (1.0 is the highest score in our university), but we doubt our teacher read every page of our submitted 126-pager business plan (yup, we wrote 126 pages of business plan!). Because who would bother to read such voluminous document? As Steve Blank ingeniously puts it, a business plan is “a document that investors make you write that they don’t read.”
In my opinion, business plans shouldn’t be very long because just like the actual business, they should be dynamic — meaning, even if already completed, business plans should be regularly reviewed, revisited, and revised depending on the new context of the company, industry, and competition.
There’s the rub: a lengthy and detailed written plan is excruciatingly difficult to change and an unchanged, stagnant business plan is certainly useless. What was planned two or three years ago might no longer be applicable this year.
The value of a business plan lies in its ability to document the current status of the company and to prepare for its expected future.
So how do we write a business plan that is relevant, dynamic, useful and readable?
Writing a Business Plan using the Lean Canvas
My proposal is to use the Lean Canvas instead to document the business plan. The Lean Canvas is a 1-page business plan template that succinctly summarizes everything one has to know about the business, without having to read dozens or hundreds of pages of information.
We were always told that we only have 30 seconds in a metaphorical elevator ride to convince an investor to invest in our business. The 1-pager Lean Canvas could be an effective and powerful tool to achieve that.
Take a look at the Lean Canvas template below; its compact and condensed format can easily help anyone have a basic understanding of the business just by looking at this 1-page document.
Lean Canvas vs. Business Model Canvas
The Lean Canvas is a framework designed by Ash Maurya which was actually adapted from a popular framework called the Business Model Canvas, created by Alex Osterwalder.
The Business Model Canvas is an existing tool more applicable in designing new business models for a new enterprise or to map out and revise existing business models of existing businesses. Here’s the Business Model Canvas template.
Looking at the two templates, the Lean Canvas pretty much looks like the Business Model Canvas, but with some slight variations.
Both use nine (9) blocks or sections which summarize the important parts of a business typically explained in extensive detail in a traditional business plan. Several blocks in the Business Model Canvas, though, were changed and modified in the Lean Canvas to suit the needs or requirements of a new enterprise.
Here’s a summary comparing and contrasting the Business Model Canvas and Lean Canvas, two similar but still distinct frameworks.
Focus. The Business Model Canvas is more strategic in nature evaluating the overall business rather than just a single product, while the Lean Canvas is more problem- and customer-focused. The Business Model Canvas is very useful to create new business models and to revise or redesign current business models, while the Lean Canvas is more appropriate for a startup or emerging enterprise to plan its immediate future.
Target Audience. The official website of the Business Model Canvas states that the canvas is “a tool for visionaries, game changers, and challengers, while according to Ash Maurya, creator of the Lean Canvas, this framework is primarily “designed for entrepreneurs, not consultants, customers, advisors, or investors.”
Boxes and Content. Both frameworks use nine (9) boxes to fill in, but their content differs in four (4) boxes. The Business Model Canvas requires users to complete these nine (9) boxes in the template:
- Customer Segments
- Value Propositions
- Channels
- Customer Relationships
- Revenue Streams
- Key Resources
- Key Activities
- Key Partnerships
- Cost Structure
How to Use the Business Model Canvas template
If you want to know how to complete the boxes in the Business Model Canvas, check out their video tutorial below.
The Lean Canvas, meanwhile, also requires users to complete nine (9) boxes, but four (4) boxes from the Business Model Canvas have been changed. The sections or content boxes in the Lean Canvas template are as follows.
- Problem
- Customer Segments
- Unique Value Proposition
- Solution
- Key Metrics
- Channels
- Cost Structure
- Revenue Streams
- Unfair Advantage
In the Lean Canvas, boxes for Key Partners, Key Activities, Key Resources, and Customer Relationships originally from the Business Model Canvas were replaced by the boxes of Problem, Solution, Key Metrics, and Unfair Advantage. Here’s a blog article from creator Ash Maurya explaining why he chose to replace those boxes.
How to Complete the Lean Canvas Template
Here’s a detailed tutorial video on how to use the Lean Canvas, from the framework’s creator himself. But if you prefer a more concise and easy-to-follow guide, skip to the latter section where you can see a sample complete Lean Canvas for Facebook.
Customer Segments
To use the Lean Canvas, start with the “Customer Segments” block, which can be completed alongside the related block of “Problem”.
In the case of Facebook, during its early days, it addressed the customer segment of “college students, specifically, Harvard University students”. Founder Mark Zuckerberg initially developed Facebook to become a new platform for communication among college students starting from his own community in Harvard University. After gaining enough traction in Harvard, Facebook then branched out to other Ivy League universities and, ultimately, to the general public worldwide.
Problem
Facebook initially addressed the problem faced by Harvard students, that is, the existing university’s online network then was “limited in functionality and not fun”. In addition, the Facebook founders discovered that their customer segment, college students, are looking for a way to “communicate online in a social manner”.
Under the “Problem” box is a sub-section called “Existing Alternatives”. Here, you should identify the direct or biggest competitors of your business that address the same problem and target the same customer segments as your business. For Facebook back then, the existing alternatives were “Friendster, Hi5, and MySpace”.
Unique Value Proposition
The next suggested box to complete is the “Unique Value Proposition” box. The Unique Value Proposition identifies what your business or product offers that makes it better versus the “existing alternatives” in addressing the “problem” of the “customer segments”.
In the case of Facebook’s early days, this was the “exclusivity for Harvard students”. Back then, only Harvard students were allowed to join Facebook. This promise of exclusivity made them stand out from competitors such as MySpace or Friendster which did not offer this value proposition.
Under Unique Value Proposition is a sub-section called “High-Level Concept”. This is your one-sentence pitch, using widely-known analogies, that can help your audiences easily understand the product offering. For example, “Convoy” in the USA is marketed as “Uber for Trucks” (although take note that Uber itself has a similar offering called “Uber Freight”), similar to “Transportify” in the Philippines which is called the “Uber for lipat-bahay or for cargo delivery”.
If it’s difficult to come up with a high-level concept for your product, perhaps because your business model is radically new or different, then just using a slogan is enough. For example, before the existence of the shared economy in the hospitality industry, Airbnb probably found it difficult to look for an appropriate analogy. Airbnb’s high-level concept then could have simply been “Anyone can be a host or accommodation provider.”
During Facebook’s early years, Friendster was the more popular social networking site. Facebook’s high-level concept, therefore, was “Friendster for college students”.
Solution
To address the problem of its chosen customer segment, Facebook offered a solution: “a platform for social communication where Harvard students can chat, post their status or activities on their timeline, and share photos, etc.” Your solution should preferably just be a single-minded proposition, meaning, focusing on a single important benefit that will solve the customer’s pain or problem.
Unfair Advantage
The Unfair Advantage is simply what your product offers that cannot be easily copied or imitated by competitors.
For Facebook, this was the “virality effect because of the Like and Share function” which other social media networks back then did not offer. The person-to-person interaction, in the form of Likes, Shares, and Comments, can make a photo or post go viral, leading more people to register and use the site. This was the “unfair advantage” or key differentiator that convinced most social media users back then to switch to Facebook.
Key Metrics
Key Metrics are the specific performance measures or numbers that will tell you if the business is doing well. These should be your business targets or goals that you hope to achieve within a certain period.
For Facebook, during their early years, their key success metrics were Daily Active Users (DAU) and Monthly Active Users (MAU). They certainly had specific numerical targets so in your own Lean Canvas, include these numerical targets too. For some businesses, the revenue goal could simply be used as primary key metric.
Channels
Channels are simply the paths you’ll use to reach customers. These include your distribution channels and marketing channels.
Examples of distribution channels are physical stores, online shopping stores, direct delivery, and other channels you will use to ensure your products can be bought or accessed by the customers. Marketing channels, meanwhile, include TV, radio, print, or online advertisements that you will use to promote your products.
Facebook did not advertise yet during their early days; they benefited from word-of-mouth channels, specifically, Harvard students who were already members of Facebook . They became ambassadors of the company and referred Facebook to their other friends in Harvard and in other universities.
Cost Structure
In the Cost Structure box, identify the company’s major costs, both fixed and variable. For Facebook, major initial costs likely included development costs, hosting, and payroll of staff, among others.
Revenue Streams
The Revenue Streams identify the possible sources of income of the company. For Facebook, advertisements on the social networking site was the main source of revenue back then and even now.
Sample Business Plan for Facebook using Lean Canvas
Here you can see an example of a “business plan” for Facebook, using the abridged and streamlined framework of the Lean Canvas. Unlike traditional business plans, this business plan template is concise (just 1 page), easy to use (since there are only 9 boxes to fill out), and dynamic (you can easily change any part or component anytime).
How easy is it to fill out the Lean Canvas? Watch this video for a guide on how to fill out the Lean Canvas of Facebook. You’ll then have an idea how to use the Lean Canvas tool for your own business.
Business Plan for Investors, Partners, and Internal Use
Does this mean that the Lean Canvas is the best business plan template to use, while a traditional business plan (with detailed sections and lengthy pages) is outdated and useless? No, of course not.
The look and content of a business plan typically change depending on the target audience or who’s going to use it. The Lean Canvas may be useful in most instances (because it gives a succinct and overall picture of the business) but some audiences still ask for the usual business plan with itemized and comprehensive information. This is their way of testing you if you have indeed planned for all possible major risks and issues that the business might face.
For example, if you’ll be talking to a potential investor or venture capitalist, your business plan should focus more on the Financials — detailing revenue projections, cash burn rate, landed costs or product costs, and break-even period, among others.
Investors are rarely concerned with the nitty-gritty details of your Operations or Human Resources strategy. Why? Because financial figures are the things that are of priority to them.
They want to know if the business is worth investing, so they will need to assess if your business can be profitable in the future. They will also evaluate if you have the ability to produce them an acceptable ROI or Return on Investment. So be ready to defend your numbers to convince them of the viability and profitability potential of your venture.
Here’s an interesting video clip from the UK TV show Dragon’s Den (similar to Shark Tank in the U.S) which highlights why you, as the business owner, should be very knowledgable of the company’s financials especially if you’re talking to potential investors. The owner of a fusion restaurant had a difficult time explaining the business to the Dragons who described him as having a “confusing business plan”.
Meanwhile, if you’ll be talking to a possible technology partner or logistics supplier, they are usually more interested on the Operations side of the business. Prepare to explain your company’s Value Chain. The business plan should include details about the business systems and processes and how the partner could fill a void or weakness in Operations.
Here’s a clip of the founder of Coconut Girl healthy ice cream sandwiches who pitched on Shark Tank looking for a partner who will “do the logistics and operations” for the business so she can “get back to what I’m good at, which is the sales and marketing.”
Internally, a business plan is very useful because it becomes the company’s bible documenting everything from Marketing to Operations to Human Resources and Financials. Compared to other business plans distributed for use by third parties, internal business plans can be expected to be much more detailed.
They are eventually used as basis and starting points for manuals to be created for various internal processes of the company. They may also contain proprietary and confidential information, so make sure to keep this business plan away from prying eyes.
Free Business Plan Templates
Are you looking for a sample business plans which you can use as reference for your business?
You’re in luck, because we’ve got three sample business plans intended for small businesses, which you can download for free courtesy of the U.S. Small Business Administration (SBA). These may not necessarily be the most appropriate business plan template for your type of business, but we know that you can use them as guide and starting point.
Parts of a Business Plan
Below we discuss the parts of a traditional business plan. Traditional business plans are still commonly used worldwide because these are the ones taught in school and required in most business subjects.
Traditional business plans follow a certain standard structure and each section is written in lengthy detail. If you want to know how and what to write in the business plan, check out these contents of a traditional business plan.
1. Executive Summary. Explain here briefly what the business is and how it will be successful. Although this is typically the first page of a Business Plan, this is usually the last or one of the last pages to be completed. This is because you’ll need to finish the other parts first, such as the Marketing Plan, Operations Plan, and Financial Plan, in order to find out the essential things that will make your business successful.
2. Organization and Management. This section talks about the legal structure of the business, who’s in charge of the company, and the organizational chart. In the Philippines, the legal structure of a company could be a Corporation, Partnership, Sole Proprietorship, Cooperative, or One Person Corporation (OPC). The “Management” part talks about the officers and managers (CEO, VPs, Heads, etc.) and their credentials as leaders of the business. The “organizational chart” may be included to show how the company is divided into divisions or departments.
3. The Product. Describe here the product or service you are offering. Also explain why this solves or addresses the customer’s problem. In this section, briefly discuss the Target Market or Customer Segments, Value Proposition of your product, overview of the Size of the Market, list of Competitors, and your Competitive Advantage over competitors.
4. Marketing Plan. This section is one of the three core components of the business plan (along with Operations Plan and Financial Plan). The Marketing Plan includes detailed discussion of the Marketing 4Ps (Product, Price, Place, and Promotion) plus market and competitive analyses. This section usually comprises of:
- Computation of Size of the Market or Total Addressable Market (TAM)
- Customer Analysis (e.g., Needs, Behavior, Mindset, 24-Hour Clock, Truth / Motivation / Tension, Demographics and Psychographic Segmentation)
- Analysis of the Competition and Value Proposition of each Competitor
- Product Strategy (e.g., Branding, Packaging, Product Details, etc.)
- Price Strategy (e.g., Actual Prices of products to be sold, etc.)
- Place Strategy (e.g., Distribution Channels, Go-to-market strategy, etc.)
- Promotions Strategy (e.g., Integrated Marketing Communications (IMC), etc.)
5. Operations Plan. This section provides details on how the business will operate. It typically includes a detailed discussion of the company’s Value Chain processes, such as:
- Procurement (where and how the raw materials needed for production will be sourced)
- Manufacturing (location of the facility where products will be produced and details of manufacturing operations process)
- Warehousing and Storage (location of the warehousing or storage facility where raw materials and finished goods will be kept)
- Logistics and Distribution (how the finished goods will be delivered to distributors or to end-customers)
- After-Sales Service (customer service support and other after-sales service operations)
6. Financial Plan. This section deals with all relevant financial computations and analysis about the business. The Financial Plan typically includes:
- Funding or Budget Source (e.g., contributions from owners, investments by angel investors or venture capitalists, donations from family, friends, or crowdfunding donors, etc.)
- Financial Statements Forecast or Projections (usually 3-years forecast of the Income Statement, Balance Sheet, and Statement of Cash Flows)
- Analysis of Financial Ratios (e.g., Break-even Analysis, Return on Investment (ROI), Return on Equity (ROE), Payback Period, Debt Ratio, Net Present Value (NPV), etc.)
7. Appendices and Exhibits. The appendix and exhibit section provides supporting documentation and materials not yet included in the main body of the business plan. This could include:
- Product photos
- Marketing collaterals
- Photos of manufacturing facility, warehouse, production equipment, delivery trucks, etc.
- Resumes or CVs of management and officers
- Details of market research and consumer studies
- Legal documents (permits, licenses, patents, etc.)
- Contracts entered into by the company
How long should the business plan be? There really is no best answer to this question, but in terms of number of pages, a business plan may range from 30 to 100 pages. The three (3) core sections — Marketing Plan, Operations Plan, and Financial Plan — could each have an average of 20 pages, so that’s already 60 pages.
A good tip to follow would be to include only the things that you or your target audience would want to see and read in the business plan. Since this is no longer an academic project to be graded by the teacher, there is no need to write a very long business plan that no one will read (remember our 126-page business plan?).
Download Sample Business Plan
Want to see how a business plan looks like? Here’s a sample abridged business plan for a small business engaged in the consulting business, available for free download from the U.S. government agency, Small Business Administration (SBA).
[embeddoc url=”https://www.pinoymoneytalk.com/wp-content/uploads/2020/09/Sample-Business-Plan-Template-for-Consulting-Company.pdf” viewer=”google”]Here’s another business plan template that can be used by a small business operating in the toy industry. This was again sourced from the U.S. SBA and available for free download below.
[embeddoc url=”https://www.pinoymoneytalk.com/wp-content/uploads/2020/09/Sample-Business-Plan-Template-for-Small-Business-Kids-Toy-Business.pdf” viewer=”google”]Business Plan Template using Lean Startup
As explained in the earlier sections, the entrepreneur may also choose to write a streamlined and condensed business plan, following the Lean Startup theory or Lean Canvas framework.
You may download below a sample of a lean startup business plan template prepared and provided by the U.S. SBA.
[embeddoc url=”https://www.pinoymoneytalk.com/wp-content/uploads/2020/09/Sample-Lean-Startup-Business-Plan-Toy-Company.pdf” viewer=”google”]At this point, let me reiterate that the tool or framework you will use to create a business plan is not as critical as the actual plan. It is possible to succeed with a plan handwritten on a napkin or price of paper and without having to follow a business framework or template.
The more important thing to have is an actual, well thought-out plan to win in the market and to delight customers. Rephrasing a popular quote in business: “If you fail to plan, then you’re planning to fail.”