Do you think a business plan is important for starting a small business?

[bizz]

It's interesting that I hear about the importance of a business plan within this forum but it's not mentioned much if at all in Tim's book. I can understand the importance of having a plan laid down and followed, but how detailed and extensive should it be? For instance, if my goal is to get into the field of supplements, run tests on my website so see what the markets like within my niche, and check prices on manufacturing, how long should my business plan be, and what should it include? The current list of mental tasks to be preformed at this preliminary stage would only fill about a page on a plan..

Do you think a business plan is important for starting a small business?

[The American Dream]

I have written one or two business plans in my time (and have read 10 times more) and have come to some conclusions.
The big 40 page business plan written before you start (the one they teach in the classical business books) is not worth the hassle. As soon as you start the company you learn that half the things you thought were wrong and you need to change the plan.

Something super useful is to WRITE DOWN a few of the major points about why you think there is a business opportunity.

In 3 or 4 pages I try and write down...

The Pain (Problem)
What is the problem that a certain group of people are having. i.e. "Lots of people have websites, but if the server house burned down, they would lose all their work".

The Solution (Idea)
How can you solve the pain? i.e. "I propose an easy way to let people back-up their websites onto their computer using software".

Target Market
Who will you sell it to? A lot of work has to go in here. Try and define your broad market first to see if there is scope to make big money here and then try and define an initial target market.
Your initial target market should be a subset of the broad market that you really know about, what they think, how they act etc. Think if they are willing, ready and able to pay.

"Everyone who has a website" is a useless market definition.
"The 700 people every month who sign up as a new client to MySharedHosting.org" is a better initial target market definition.

The Competition
Who else is offering similar services? Also, what are the substitutes?
Look at what the competitors are offering, write it down and then state why someone would buy from you and not them.
i.e. "My service has only 2 simple steps while the competitor has 5."

If you find yourself writing that you are going to be the low cost competitor, I would think again very hard. A race to the bottom does no-one any favours.

Revenue Model
How are you going to generate cash and how much is it going to be. Are you going to make money by selling ads or a service? How much will you get from each sale, does that cover the cost of customer acquisition and providing the service?
This can be the make or break part. Think about how you could lease your product rather than just sell it once, yearly subscriptions, re-sales etc.
Work out what the estimated lifetime spend of a customer would be i.e. the average customer buys $20 of widgets 5 times over a number of years and then fades away. The lifetime spend for that customer is $100.

Marketing Model
How are you going to let people know about your great new company? Do you know what it will cost to get 100 people to your website? How much does it cost to advertise in the local newspaper etc.
This is tightly aligned to the revenue model above. For example, if you know that on average each customer will spend $100 and you get profit of $60, then you can afford to spend up to $30 in sales and marketing to get that customer.


Production Model
Who is going to make this? Do you need any special tools or expertise? Can you do it yourself, or is a trip to eLance in order? What will be the cost of production, both initially and ongoing?
Don't just think in terms of $, think in terms of time and impact on your life as well.

Distribution Model
How are you going to get the product out to your customers? Is it a digital download after they pay with Paypal or is it a dropshipper or do you pack it up and send it yourself. What does it cost to actually get your product to the consumer, could you offer multiple delivery or overnight shipping to compete better or would this be a drain on resources?

Automation Model
Lets throw this in too. This is the 4hww after all!!! How can you free yourself from this company if you want to. This is much better decided before you start.

Keep on tweaking each area until they stop contradicting each other and you can see the path towards success. When I have an idea, I generally think about it for a week or two, have a Google around and then spend a day using this template. At the end of they day, the idea is way better than it was at the start and I actually know roughly what to do to get it started.
Then you take a deep breath and go for it

[sunny]

Its very important to write a business plan. It will help you know what to do and how how to do it better.what come first or last.