Business Plan to an Organization

Looking before you leap: The value of an effective business plan for an organization

Writing an effective business plan is not simply beneficial in terms of generating start-up capital. Ideally, it should focus the mind of the organizer of the enterprise and enable him or her to envision where the business is ‘going’ in the near and far future. First and foremost, it is essential to clarify the purpose of a business, as well as to stimulate the interest and confidence of angel investors or banks offering loans. “Without it, you are likely to come unstuck and lost along the way, as you will forget what you have learnt from people through research, training and networking — all essential activities when starting out” (the value of a business plan, 2010, Starting Out). “The real value of creating a business plan is not in having the finished product in hand; rather, the value lies in the process of researching and thinking about your business in a systematic way. The act of planning helps you to think things through thoroughly, study and research if you are not sure of the facts, and look at your ideas critically. It takes time now, but avoids costly, perhaps disastrous, mistakes later” (Business plan for starting out, 2010, Score).

As well as generating quantitative data, hard numbers about potential consumer demand and the ability to generate revenue while estimating costs of production, the business plan can be an important psychological reality check for the potential business owner. Having a good idea is not enough. The idea must be profitable enough relative to output costs and sustainable in the long-term as well as the short-term. Of course, in terms of getting ‘in the black,’ supply and demand in the short run is critical. An organization that is able to capitalize upon a recent trend can generate investor confidence and create an impression that it is an organization worthy of interest.

However, a dramatic upsurge in initial consumer demand in the target market is not enough — an organization must build a long-standing base. For example, recently there was a ‘cupcake craze’ in New York City, spawned by the popularity of the Magnolia Bakery popularized in the series Sex in the City. However, quickly the trend began to wane, although beginning a bakery is an extremely expensive and costly endeavour. Many enterprises fail because a fad does not become a long-term trend, as was manifest in the dot.com boom and bust. Exterior macro factors, such as a recession, can also impact a business. The downswing in the housing industry decimated the fortunes of many construction companies and the subsequent credit crisis caused many luxury businesses that sold products that were not strict necessities to fail (including boutique bakeries). All restaurants require trained staff and expensive outlays of equipment and legal costs to be declared sanitary enough to serve the public. A bakery might not be able to open until after the craze has long abated, in other words. So a spike in short-term demand for the organization’s core or specialty product does not always result in a sustainable business structure. Additionally, businesses must anticipate seasonal shifts in demand when allocating and anticipating costs. A toy company cannot assume that the revenue it enjoys after a Christmas marketing a ‘hot toy’ will be sustained all year ’round.

In terms of taking a long-term view, a business should treat its employees in an ethical fashion. If employees are treated in a respectful manner, they are likely to perform better and show more loyalty to the organization. Additionally, if a company is found to be exploiting its employees, as was the case of Nike and the ‘sweatshop’-type conditions of its offshore operations, this negative publicity can deter individuals from buying from the company. Employee costs in the long and short-term, in terms of compensating employees for overtime and giving them reasonable benefits, must also be included in the business plan. Also, the possibility of stock options, should the company incorporate, is another issue that might need to be addressed. Regardless, business success and ethics are far more complex than a rapacious idea that ‘greed is good.’ Entity structure should also be referenced in a business plan, along with long-range planning. A business must anticipate lean as well as plentiful times, and plan accordingly for expected downturns as well as upturns. Effective market research is vital and estimated demand may be based both on previous demand cycles specific to the organization and to the macro economic environment.

Building a sustained competitive advantage in the marketplace is a core aspect of market planning, and requires accurate information about the business’ target audience. When preparing a business plan for potential investors or to solicit a loan from a bank, a business organization must show through its marketing strategy how it will convince the target consumer that it conveys value to them, versus existing competitors. Marketing positioning, such as positioning the organization in a general vs. A specific fashion, or as a high-quality or low-price product is part of what is known as a 4P analysis: product, price, promotion, and placement. All 4Ps should be addressed in the business plan: what is the product, how much will it cost (will it be a low-price Dollar Store or a high-end Nieman Marcus or something in between); how it will be positioned or promoted in relation to competitors (as an ethical and ‘crunchy’ Urban Outfitters vs. A middle-end professional Anne Taylor clothing store); and how it will be placed or distributed (direct-to-consumer online or in a department ‘mall store,’ for example). Positioning will also affect the organizational structure in terms of how many employees are needed, and if a single or joint proprietorship, incorporation, or an LCC is best suited to the nature of the emerging enterprise.

References

Business plan for starting out, 2010, Score Retrieved September 4, 2010 at www.score.org/…/Business%20Plan%20for%20Startup%20Business.doc

The value of a business plan. (2010). Striding Out. Retrieved September 4, 2010 at http://www.stridingout.co.uk/business-planning/the-value-of-a-business-plan.html