A COUPLE of readers who are heading home to Zimbabwe to start their own businesses have written emails asking me for guidance on preparing plans for their projects.
A business plan, like a fingerprint, should be unique and should carry ideas that reflect your business DNA. It ought to be comprehensive, yet concise, thoroughly balanced and focused on risk and reward.
When doing your plan, you should make it interesting to read not hide the message behind technical jargon. The business plan must reflect the management team's personality. The value of the plan is not just on raising money but should be a GPS to guide the execution of your project.
A few years ago, consultants with the team ethic of African wild dogs virtually pillaged a South African government-funded programme through mass production of a slew of business plans. This programme was paying consultants to produce business plans for SMEs and overnight it became an industry. Most of them simply used the same template and changed the names of the companies and voila, an invoice was generated.
In this article, I will only look at two sections: your market idea and the executive summary. They say bankers and investors take a certain pride in being sophisticated, sceptical and cynical. They will try very hard to find a fundamental fault in your business proposition so that it can be trashed. A business plan is a selling document, designed to persuade the disinterested reader to risk substantial sums of money and the first person it should convince is you.
You need to describe where your industry is in its development cycle such as growth or mature phase, and then set out the key pressures which are influencing all the businesses in that industry. What are the critical success factors for an operator in your industry? Are there major barriers to entry, either of a commercial, technological, financial or regulatory nature? What sort of profile do you and the business have in the industry? Is the industry cyclical? If the past has been successful how are you associated with it? If it has included failures, what is the difference now?
The big opportunity here is to demonstrate a high level of insight and a strategic approach to match by using graphs or other illustrations to raise the quality of your presentation. Wherever possible in this section, quote independent sources to give credibility to your conclusions.
Give an idea of the current size of the industry. Who are the major participants (Competitors, Market leaders, Suppliers) in the industry? What are the key success factors in your industry? What do published forecasts say about the future growth and profile of the industry? What legislation or environmental trends affect your industry? What barriers to entry exist? How do macroeconomic issues affect the industry?
Unless a market exists for your goods and services, then your business will not succeed. It is important to demonstrate that a market exists and that you understand the market forces influencing your business. The investors need to understand your market position and market share, the defensibility of this position and who your competitors are. Describe the strategies your competitors are employing and indicate how these strategies differ from yours and why. Again, the issues you feature should be those that provide a context for success.
Set out your marketing plan and relate it to market position, target markets, pricing policy and any other key issues. Demonstrate why this plan will be successful and allow you to meet your sales or gross margin targets. Do not make any unsupported claims with a lethal dose of over-optimism and vague by saying you'll increase sales by a few percent and keep costs down without backing it up. You must show what the competitive edge of the business is.
Show that a market exists for your products or services; that you understand market forces and have the abilities and resources to supply effectively. Offer a realistic estimate of potential market share based on sound assumptions. Give a concise, realistic appraisal of the competition - use charts if they will get the information across more effectively (including SWOT analyses). Do not disparage your competitors unjustifiably; just show how you can achieve sales goals despite the competition. Who are your customers? (Individuals? Manufacturers? End users?). Where are they located geographically? How sensitive are they to price, quality and service?
Explain the crucial differences and unique attributes of your product which may be obvious to you, but hard to grasp for the uninitiated. Your product description should be clear and lively. If you do need to include volumes of detailed technical information, provide it in an appendix. Show the edge your product or service possesses in a highly competitive environment, the things that will make your product especially attractive. The product is a means to provide excellent returns on an investment.
What needs does your product fulfil and how does it relate to the market place? What features make your product unique? (Cost? Technology? Versatility?). Is it patented or copyrighted? How is your product perceived in the industry? Compare prices of competing product. How fully developed is it? (Working model? In production? In use?). What needs to be done next? Are there opportunities to expand the product line? What impact will branding have on the success of the product? How much will the branding cost - is it a worthwhile investment? How do competitive products on the market compare in quality and features with your product?
Most people recommend that you write the executive plan after you have completed the business plan. The executive summary is probably more important to your cause than all the other sections put together. An executive summary should be short, punchy, jargon free and get the readers weren't excited, by highlighting the key opportunities and risks of the proposed business.
It should comprise an assessment of those issues which you believe are important to the future success of the business such as market pressures, competitive advantages, risks including political risk.
You are expected to have the vision to differentiate wood from trees. It must demonstrate you understand and can handle the risks present in your business and market place.
Tafirenyika L. Makunike is the managing partner of Napachem cc (www.nepachem.co.za), an enterprise development and consulting company