Young entrepreneurs often forget an important step before launching a startup: creating their business plan.
Implementing a website itself is trivial – everyone can spin off a Wix or Weebly website in a matter of minutes and publish it live. Even with a rough business plan drafted quicky upfront.
The question is – What do you have to offer and is there a market demand?
Top 20 Business Reasons Why Startups Fail
CB Insights came up with a list of the 20 main reasons why startups fail:
Let’s focus on the first two reasons:
- No market need (42%).
- Ran out of cash (29%).
Lack of a product-market fit is the reason why nearly half of all startups fail.
How to Validate Your Business Idea
Validating your business idea is practically the most important thing you need to do before starting a company — and this is where creating the business plan comes handy.
Successful businesses are profitable organizations charging for products or services. They have certain expenses – payroll, tools, hardware, probably an office space or a warehouse – you name it.
In order to break even and start growing, they need to ensure that there are viable and profitable business opportunities. In other words, someone has to pay for all the work.
There are different ways to conduct proper market research and design a business plan with appropriate and realistic goals and targets. Some of them are more financially-oriented and traditional while others let you tap into your own strengths and exploit them for success.
4 Personalized Goals For Business Plan Success
Daniel DiPiazza suggests a plan including 4 personalized goals for success (published on Entrepreneur). Here’s a condensed overview of my tips based on the main direction for creating a business plan provided by Daniel.
- Hobbies and skills you’re already good at. Tap into your strengths related to things you know well and haven’t put into practice to make a living. It could be a second language as a translator or editor, some leadership skills, or anything else.
- Things you’ve done for work. If you were already employed and paid for a certain type of work, someone had to pay for it. Consider a form of consulting or building a product (your idea) which automates a process and saves money. Anything related to your previous job and how it might help a large set of clients would be helpful.
- Things people ask you for. That’s a great evaluation of demand. You want to be in a position of selling a product that is actively asked for. Browse your inbox or look up forums and groups online for common problems that people struggle with.
- Things you want to learn. Entrepreneurs may still be successful even if they have limited experience in a certain area – as long as they are eager to learn. This would motivate you to spend the time to catch up with the field. If the startup works, that’s great – otherwise, at least you’ll end up with a valuable set of skills that may open new career opportunities.
In a nutshell, you can tap into your own pool of ideas, former experience, and things you’d love to do for a living.
Successful startup owners often start with a familiar niche. This ensures the commitment to the purpose of the business. It helps you achieve more in a shorter amount of time. It keeps you up and running while overcoming obstacles.
You will understand the industry better and utilize your network. Research would take less time. And you will be more persistent during the rough months while
5 Actionable Strategies While Creating a Business Plan
Peter Economy of Inc. Magazine suggests a more practical and actionable, high-end approach on Inc.:
- Step into the right zone. Define your vision, look for the right type of problems, consider what sort of challenges have you faced previously that are worth solving.
- Know your competition. No business idea is completely unique. You will unlikely create a completely new category (which is rare and extremely expensive). As long as you understand the business needs, figure out who sells similar products or services, how they market themselves, who they sell to and what portion of that market you can aim for.
- Learn about your chosen business model. Even if you were a practitioner, that doesn’t mean that your work as a founder would include everything that you’ve done previously. Study the leading roles in that field, what markets are worth investing in, how prospects consume information and what they expect from a product (and its presentation).
- Check sustainability. Certain business models require a significant investment upfront. Large corporations can even afford to sell at loss for years until they capture a significant portion of a given market. Understanding your expenses and your profit opportunities is extremely important.
- Associate with a marketing professional. That goes without saying, but marketing and sales are paramount for a new business. If you’re a proficient marketer yourself, you may be able to pull it off. Otherwise, consider a partnership with a marketing or business development co-founder or hire someone who can focus on that full-time.
Note the overlap with the first list of strategies. Familiarity with your industry will really ease your pain while creating your own business plan.
Starting a brand new business in a new niche is tough.
You deal with a different target audience. You probably sell to consumers instead of businesses. Your ideal buyer persona has different traits. The market could be local instead of international.
Not to mention that every business has its own quirks and loopholes. Knowing them from the inside-out can be notable leverage.
Checklist: 8 Practical Steps to Validating Your Business Idea
Noah Parsons has contributed to Bplans with a detailed list of 8 practical strategies to evaluate a business model and prepare for your new startup:
- Start by documenting your key assumptions about your business. Make notes of everything you believe is true in your niche. Compile stats, industry studies, notes, quotes. Attend events and talk to other industry professionals. Read interviews, books written by industry leaders. Use your own common sense combined with public data in order to validate your assumptions.
- Talk to your potential customers. Validating your business plan is best done in practice. Talk to prospects in person at events. Email some with a short quiz and ask them to help you understand the niche better. Discuss your solution and figure out if it’s something worth paying for in the first place.
- Show your prospective customers a prototype of your product, if you have one. You have a website and an idea in place. If you can, prepare some test accounts for people to try your product firsthand. Discussing your potential solution is one thing, but sharing a trial version that one can actually test and apply in practice is invaluable.
- Figure out what people are willing to pay. Again, a sustainable business revolves around profitability. If your cost per account is $20 and the lifetime value of a customer is $15, that’s not a profitable model. Especially for SaaS or any sort of solution that includes ongoing costs or expensive support fees. Talk to prospects openly. Try to assess a problem and how much customers lose without using your solution.
- Find people who think your idea sucks. Critics are your best friends. Being able to identify prospects who think that your idea isn’t worth it may point you to various problems that can be solved in order to design a better solution. Most people would rather not use a product than spend the time to share their feedback – so never ignore those who are happy to give you actionable tips.
- Find out how much money it is going to take to launch your business. Bootstrapping the business isn’t free, either. It will take a while until the business gets traction even if you find your product-market fit. This is why the second most common reason for failing startups is the lack of capital. If you can sustain the startup process and the first months until you land your first customers, go for it. Otherwise, consider loans from friends, credit cards, or anything else that might help get you moving forward.
- Start as small as possible. Investing in office spaces, expensive ads, billboards at events is probably a lost cause. Think about zero-budget marketing and activities that rely primarily on your time (instead of budget). In the early days, you have more time than cash, so it’s smarter to find opportunities that require time rather than investments that won’t repay soon (and may sink the business).
- Stay flexible. Regardless of your initial idea, be open to suggestions, ideas, customer feedback. Businesses evolve with time. Your initial assumptions may require fine tuning or more radical changes. Make sure that your foundation allows for change and enhancements over time in order to stay competitive and introduce new features to your clients.
Read the last point again.
Flexibility is what most entrepreneurs lack when they start their venture.
They focus on what they know and seems worthy of pursing. But that’s often far from ideal.
You may be familiar with the industry – and that’s fine. And you probably have tried some of your competitors’ products.
What Makes a Business Plan Successful?
And what makes a business successful often hides in the tiny details. Customer support. User experience. Brand awareness.
This is why Fundera has covered the complete scope of writing a business plan, starting from the Executive summary, covering the Product development plan, up to the sensitive matter of financial projections.
Investing in any of those areas may immediately increase your conversion rate or a customer’s lifetime value.
Once you’ve done the research, sit down, and think carefully whether the idea is viable or not.
Look up the numbers again. 42% failure for startups that couldn’t find the product-market fit. 29% for lack of capital.
Being able to overcome those problems will increase your odds of success as an aspiring entrepreneur.
What is your main obstacle while creating a business plan for your new startup? Check out the rest of my business strategy guide for more help.