When I was working on my masters in business, we had to write a lot of startup business plans. It all felt very hypothetical, so I had trouble seeing that writing a business plan was how to start a business effectively. It seemed like an exercise in writing, numbers and organization. When I actually became self employed and really learned how to start a business, however, I realized how useful a business plan can be, if you make it relevant.
Business Plans Get A Bad Rap
If I ask someone, “do you have a business plan?” more times than not, the answer is “no.” But if I ask them my handy-dandy questions, I can usually tell if they have a business plan their heads. I realized that it wasn’t the plan I objected to, it was the idea of forcing someone to write 30 pages of stuff that they might never read again. Or that changes so frequently, it becomes irrelevant within 6 months.
Most people have done a business plan; they just don’t realize it. When I work with businesses, I typically ask questions that tell me how solid their plan is, regardless of whether it’s written down or not. I mean, it’s not like people don’t want to know their business’s strengths, weaknesses, opportunities and threats (or a SWOT analysis). The more you bring everything out into the open, the better chance you have of improving.
How to Start a Business (or Assess It) with 8 Questions
There are people who could do entire courses on just one of my eight “business plan” questions. My questions aren’t meant to solve a person’s ambiguity over an area of their business; the question is the starting point to ascertain how solid the plan is in that area, and where they might need some work.
1. Who do you serve and what do you do for them?
I admit, target markets are always evolving. What I am looking for is: how clear are you not on the future opportunity, not on potential or direction or who you feel like you should be serving…but right now—to make a living—who is your most common client and what are you charging them for?
2. Why go to you and not someone else?
There are always two levels to the discussion of competition: what do you offer that other people don’t? And: how are you as a unique individual providing this service or thing that no one else can duplicate? For me, I am differentiated because I don’t sell products—but lots of people can copy that. So the second-level reason people come to me is that I have a laid-back, down-to-earth, non-judgmental, anti-financial-services-establishment vibe about me. Some people think I am the weirdest financial person on the planet. That’s sort of what I’m going for. So what’s your second-level super power when it comes to differentiating yourself from the competition?
3. How will you generate leads?
Let me be clear: social media might be lead generation, but fundamentally, it’s an awareness tactic. An actual lead is someone who contacts you and has expressed interest in your service. If you do an extremely good job of marketing, lead generation gets easier over time. For years, before getting online, I acquired leads solely through referrals. So the question always is, what is the activity that you will engage in to get specific, individual warm bodies in the door? You can’t just sit back and wait for people in the beginning.
4. What do you do for marketing and how much time do you spend on it each week?
Whenever I start up a business (I’m on my 3rd), I plan on spending at least a day per week on marketing. Most people need to formalize this process a bit more; create a checklist they work through every week, study the effectiveness of what they are doing, etc. The important thing here is to separate socializing and surfing from marketing.
5. How do you make money, and how did you arrive at that model?
I find a lot of startups charge below market because they lack confidence. Regardless of what your “ideal” income is, you need to do the math so you know your plan is viable within 2 years. You need to account for all of your expenses, plus taxes, plus savings and then work out what you need to be charging, based on seeing a realistic number of people per week (and most service professionals over-estimate the number of billable hours they’ll be able to fill).
6. What are some lump sum or capital costs you’ll need to cover in the next 2 years?
Another thing people need to build into their profit model is funding for an updated website, a new laptop and other equipment you need to run your business. In addition to setting aside taxes, I try to set aside ongoing business savings for these sorts of expenses.
7. How will you know when you need take on more capacity and what would that look like?
Expansion discussions usually break down to: when can I afford someone to help me? And my question sometimes is, can you do less work by raising your prices first? Or, can you create a separate revenue stream that pays for the extra help?
8. How are you using credit and debt in your business?
It’s not a bad thing to build credit in the name of your business if you have a business form and tax id number separate than your social security number (otherwise, it’s just considered personal credit). When people ask me how much they should use credit during startup, I always give them this rule of thumb: only incur as much debt as you can make monthly payments on without the business income, and won’t mind continuing to do so for several years. Granted, I have run into businesses (such as medical professionals) who are practically handed a massive line of credit as soon as they decide to open a practice, but most of us have to prove business income before getting that kind of leverage.
Actions This Week
Review your business. What areas from the list were crystal clear and what areas need some work? You might like to take a day and brainstorm ways to be more effective in one of these areas.
Perform your own SWOT. What are your business’s Strengths? Weaknesses? Opportunities and Threats? This is another great way to gain some clarity on some issues you probably already know, but maybe have deferred solving.
Identify a Quarterly Agenda. I like splitting my business in to 4 Quarterly Agendas – it helps me stay focused on what I want most for that quarter. So based on your business self-assessment and a SWOT analysis, you should probably have a good idea on what your agenda should be for the next 3-6 months.
P.S. As an entrepreneur, you might like my Profit Clarity workbook – you get download that for free here.