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May 16, 2005

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SO YOUR DREAMS OF BECOMING a tiki bar owner are finally coming true. You've built your hut, settled on a name, picked out bamboo barstools and are now hiring a staff. You've got a to-do list that's longer than a rush-hour traffic jam.

Why take the time to write a business plan now?

Because regardless of whether you're launching a local watering hole or a sophisticated computer consulting firm, without a good business plan you're not really in business, says Joseph Hadzima, a senior lecturer at MIT's Entrepreneurship Center. You might think a business plan is something of an academic exercise, a formality that's necessary only if you're trying to round up outside funding. That's certainly one reason why you need a business plan — but it's not the most important one, he says.

Assembling a business plan forces an entrepreneur to think hard about the core aspects of a business — its value to customers, its competition, and the factors that will affect its financial performance over the long haul. In other words, even if a business idea seems like a winner at first, writing up a good plan might help an entrepreneur sort out for himself whether the business has a real shot at survival. And ultimately, a good, flexible plan can help the owner manage the business once it gets off the ground.

While there's no set way to write a business plan, most of them follow a similar formula. At a minimum, business plans typically include four elements: an executive summary, a market analysis, a detailed company description along with strategies and timelines, and financials. Here are some tips to get you started with each.

The Executive Summary: Your Business...In a Nutshell.

A business plan is basically a sales pitch — especially its opening statement, the executive summary. As an entrepreneur, you probably make pitches all the time — to partners, prospective employees, skeptical investors, suppliers, vendors and, of course, customers. ("Good entrepreneurs are basically salespeople," says Hadzima. "You're always selling something.") While you wouldn't want to make the same pitch to everyone you deal with, they'd probably all be interested to hear a concise overview of the company — its history, its unique aspects, its long- and short-term goals. That's exactly what you'll serve up in the executive summary.

An executive summary can be one paragraph or a few paragraphs long, and although it comes first in the lineup, it might be the last thing you write. It's meant to be a concise roundup of the major points you'll make in the rest of the plan. Some things to consider include: the company's mission statement; the names of the founders and the date they founded the business; a description of the main products or services you'll be selling; a summary of financials or market data; and plans for the future.

Because the executive summary is like a resume — it's the catchy, concise opening volley that gets people interested — it must absolutely dazzle. You must emphasize your particular skills for running this type of business, and why now is the best time to start it. Hadzima likens the executive summary to a job application, or even an "elevator pitch" — so named because, when visiting a venture-capital firm, an entrepreneur might have just the span of a quick elevator ride to pitch a business idea to venture capitalists. (There's now a business-plan competition called the Elevator Pitch).

Not sure what we mean? Click here for a simple, five-paragraph executive summary for an artificial-flower business.

The Market Analysis: Time to Size Up the Competition

A business plan must include a "market analysis," or a look at the size and scope of the audience you'll be targeting and the companies that are already filling that niche. Even if you've invented what you believe to be a new product, it's never a good idea to claim that you don't have any competition, says Tim Berry, an adjunct professor at the University of Oregon and the president of Palo Alto Software, a company that develops software products to help people write business plans. Claiming no competition usually means you haven't done your homework.

Click here for some samples of formal business plans.

Try to estimate the number of customers you would have based on how many your competition has. Some questions to answer: Who already buys similar products? What kinds of companies produce them? Will some people who currently use the other product switch to yours? Will your product be appealing to people of a certain age, gender or geographic region?

The formal name for all this figuring is called market research, and it doesn't take an MBA to conduct it, says Berry. Of course, if you have the money, you can hire a market-research firm to gather the information for you. But you can usually kick it off with a few phone calls or some Web research. If you're competing against local businesses, chances are you know the tastes, values and buying habits of people in your area better than outsiders might.

Hadzima says you shouldn't be intimidated if, after taking a look at potential competitors, you see a crowd of companies, large or small. "Competition is usually a good sign," he says. "It validates that there's a market for what you want to be selling.

For an example of good market analysis, check out the way this health club — which planned to launch gyms in corporate environments — sized up both the fitness market and its specific competition.

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