How to Write a Business Plan: Step One
Okay, you’re ready to put your idea into action and now it’s time to write a business plan, right?
For years and years, we have been taught that before we can start our business, we must have a business plan. In entrepreneurship, what are we planning for anyway?
Do we plan how the business will look?
What we actually plan is the search for the business model, and once we find one that’s when we start to execute on it.
The shape we give our idea and how we evolve that idea is when we start spending money, investing in our business, and so on.
So, what is a business model?
Well, it turns out that nearly everyone has a different mental model on what actually is a business model.
Thankfully, there is a template we can use to help guide us through the process of developing an appropriate model for our business.
Andrew Osterwalder developed the Business Model Canvas as a tool to help simplify the process.
Business Model Canvas
The Business Model Canvas is a visual chart that lays out the nine building blocks of a business. If you’re an entrepreneur, you can use this canvas to move your idea forward. If you’re a current business owner, you can use this canvas to document and/or review your current business model.
While it’s important to think through all nine areas, I see a lot of entrepreneurs, startups, small business owners and college students misunderstand the Value Proposition and Customer Segments sections.
Andrew Osterwalder and his colleagues that developed the canvas recognized this too and wrote a second book on these two topics alone called Value Proposition Design.
According to Osterwalder, a company’s value proposition is what distinguishes it from its competitors.
In other words, what personal problem are you solving for your customers?
In even simpler terms, what pain are you relieving for the people that buy your product or service? What gains are they achieving by purchasing from you?
When we dig a little deeper, we see that our value proposition is more than the “features” of our products and services. Our offering serves a purpose, and if you are not where you want to be in your business, go back and ask yourself “what pain am I relieving and what gains are my customers receiving from my business?”
Who is your ideal customer?
How old are they? Where do the live? What is their average household income? Where do they get their news and information from? Who do they trust for information involving your services and products?
To build an effective business model, you must identify who you are trying to serve.
In my last post in this series, “Who is Your Target Market and What Are You Saying to Them,” I talked about one of the most common mistakes I see small business owners make and that is to employ a mass marketing strategy where they cast a wide net to try and capture everybody.
If you’ve ever seen a Coca-Cola ad, that is an example of a mass marketing strategy. But, what most people don’t know is that even Coke segments their various sets of customers based on their different needs and attributes to ensure their product and message is resonating with those needs.
When you are thinking about your ideal customer, think about what the customer’s “job” is, e.g. what do they do and how does your product or service help them do it better and make their life easier.
Value Proposition + Customer Segments = Customer Relationship
Businesses survive and thrive on their relationship with their customers. Now that you know your value proposition and understand your ideal client’s pains and aspirations, think about what your relationship with your customers looks like.
When thinking about this relationship, ask yourself:
- How will the business get new customers?
- How will the business keep customers purchasing or using its services?
- How will the business grow its revenue from its current customers?
Answering these three questions will help you identify what type of relationship that you want to create over the long-term.
So, if you are just starting out, before you embark on developing a 20-40 page business plan that is replete with executive summaries, charts, graphs, forecasts, start by working through the Business Model Canvas.
If you are a long-time business owner and your sales are not where you would like them to be, take a few moments to walk through the Canvas and see if there is any where you can improve.
If you have any questions about the Business Model Canvas or Value Proposition Canvas, please send me an email.