The Business Plan: Part two - "What's the Big Idea?"

At the core of every business start-up is an idea: it’s either a product or service never before available or, an improved, not-so-new product or service

If you have seen the movie, “The Social Network”, you learned how a worldwide communications phenomenon, now worth billions, was born in a university dorm room. All it took was a grasp of internet technology, a knack for writing software, a laptop and a few hundred bucks for server time. How difficult could that be? From the invention of fire and the wheel, every era of human evolution has brought forward new or improved products that made fame and fortune for their inventors. Yours could be the Next Big Thing.

More often, entrepreneurs have found ways of improving existing products or, improvements to familiar services. In doing so, the entrepreneur “differentiates” his or her business from others in the market. There will be more to say about differentiation later.

Whether it is a new or improved Thing or a new or improved Service, the market must understand the product and how it will improve their lives, and be willing to pay for it.

If you have been watching ‘The Dragon’s Den”, or similar television programs, would-be inventors and entrepreneurs bring their ideas and proposals before a panel of hard-nosed marquee business men and women, in the hope of winning financial support and mentoring for their new business. While they make better reality TV than accurate portrayal of business practice, these programs show us an endless stream of new and not-so-new ideas advanced by entrepreneurs of every description. One of the lessons learned from watching a few episodes of the business version of “Take a Chance” is the appalling amount of time and money invested by some entrepreneurs in products and ideas that have no future. It makes the point that every Big Idea needs to answer the challenged: “is there a real business there and how will it generate a sustainable profit?”

Many first-time entrepreneurs have worked in a business as a manager or assistant to a business owner. They have learned the business, studied the owner, and perhaps, established a relationship with customers. The understudy begins to think, “if this were my business, I could do a much better job". I would make improvements in the product or service, I would treat my employees better and I would avoid the mistakes made by the present owner. I could start a business like this. I could be the boss and do it my way”. This is the “I want to be the boss” reason for starting a new business.

A variant of the desire to be the boss is the Better-Widget reason. Toiling away in the Widget organization is a bright, budding entrepreneur who thinks he/she can design, build and market a better Widget.   Decision-makers above his/her pay grade have quashed suggestions about improvements to the existing product. This is the “I want to make a better Widget and be the boss” reason for a new start-up.

A much less frequent start-up is the brilliant new product or service that no one has ever before conceived. The idea is unique, it is a thing or a service that everyone needs and that customers will happily exchange for money. This could be the real “Next Big Thing” provided the entrepreneur has the finances and business acumen to secure an ironclad patent, guide the product or service through the development and marketing stages and maximize revenue and profit, before a competitor develops a new version of the idea that draws away market share.

New businesses are born from ideas. The idea becomes an obsession and the entrepreneur thinks, “I could do that”. From that point, to the point where the entrepreneur is actually doing “that” is what the business plan is all about. How do we get from here to there; how do we make it happen? And, when we get “there” what do we get?

The assistant manager, toiling under the Luddite boss, will have to figure out how to raise the capital to either buy out the present owner or, start a new business, taking on his employer as a competitor.

The frustrated Widget designer will have to raise the funds to buy the existing widget manufacturer or start a new company to make a better Widget, making sure, along the way, not to get sued for patent or copyright infringement.

The holder of the unique “Next Big Idea” has none of these challenges. All he/she has to do is raise the capital to bring the “thing” to market, with no proof that the market even exists.

One thing that all three have in common is the need for money, lots of it. More often than not, the new entrepreneur has little or no money. That means convincing others that the business has so much merit, they are willing to risk their own capital, either in the way of loans or direct investment, in the venture.

Most business plans are written with the potential investor or lender in mind. When a would-be entrepreneur walks into The Dragons’ Den, he/she is presenting the business plan. While the exchange between the entrepreneur and the potential investor or lender might be less theatrical than The Dragons’ Den, the questions will be just as direct. While it may be a first-time experience for the entrepreneur, experienced lenders and investors have heard new-business pitches many times before. The business plan needs to withstand the closest scrutiny and answer all of the tough questions. If it can’t be done on paper, it won’t get done in real time.

I promised another word on “differentiation”. The ambitious assistant manager and the frustrated Widget designer dream about differentiating their business from their existing employers. If both succeed in launching their own businesses, they will be faced with the challenge of convincing the public that their products are sufficiently different to draw business away from the existing providers.

The inventor of The Next Big Thing, has already differentiated his product because it is truly a new Thing. The challenge here will be in convincing the public, who may not realize they really need this new Thing, and may not have given much thought about spending their hard-earned dollars to buy It.

If we think about existing business sectors: fast-food restaurants, automobile manufacturers, banks, airlines, cellular phones and devices, televisions and other consumer electronics, all are trying to convince the consumer to buy their particular product because it is different, it is better and it has more value than its competitors. Your business idea will be faced with the same marketing challenge, as a start-up and for every day thereafter: how will you convince the consumer that he needs your product and why he/she should buy your product, rather than your competitor’s.

Whether your dream is simply “to be the boss” or to change the business landscape in your part of the world, your Business Plan must answer the questions,

                What is the Product or idea?

                Who is the customer?

                Why do they need your product?

                How will you convince the customer to buy your product?

                Who is your competition and why would they like to put you out of business?

                Is it a business or is it just a serious (and potentially expensive) hobby?

                Can we make a profit?

                How much money do you need and where are you going to get it?

While the money issue appears at the end of the list, it’s never too soon to talk about money. After all, if you don’t have the money to start a business or, haven’t a hope of raising it, there’s not a lot of point in spending time developing a business plan.

In the Part 3, we’ll talk about “The Money Issue”

Dave Hands
small-business-consulting
www.small-busines-consulting.ca

 

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