IT is 2015, and once again you feel a burning desire to place both feet firmly on the first rung of the financial independence ladder. But is the timing right?

Well, over the years your first instinct has been to remain a paid employee, for while the salary is small, it is regular. But 2014 represented an inflection point career-wise as you finally woke up to the reality that even as you found aspects of your job engaging, you have always wondered if you will ever be appreciated for your admittedly significant organisational contribution.

This spurred you to actively discuss the matter with your connections and as a risk mitigation response, you have built up a financial runway amounting to two years’ living expenses to tide you over the difficult business start-up period.

Besides, you observe that despite cutting back drastically on impulsive and discretionary spending, you still have to resort to prior savings to make ends meet. So, you conclude that should things remain as they are, your savings will be depleted anyway, thus depriving you of the opportunity to stem the gradual and bruising slippage into financial insecurity.

Against this background, you resolve to start your own business venture, resigning yourself to the prospect that the hours of toil will be longer and that several weeks could be spent in a fruitless search for customers.

Out of an abundance of caution, you seek the sage counsel of a seasoned management consultant on how to coherently formulate and articulate a business proposition.

During a face-to-face consultation you are informed that although a large body of literature exists on the subject of new venture planning, experience shows that many budding entrepreneurs approach the issue with a certain degree of trepidation.

Indeed, they often find it tempting to forgo this step and instead hasten to assemble the nuts and bolts of rolling out their business. But many have typically had to return to this necessary stage to capture their ideas and sharpen their pitch to prospective customers, partners and investors.

With this in mind, your management consultant expands on the salient features of the business planning process. Three main themes are explored, the reasons for creating a strategic business plan, its contents and its use as a tool for attracting financing.

Reasons for creating a

strategic business plan

A business plan is usually necessary to explain the purpose of the business, present a specified and coherent vision, outline the strategies required to achieve the vision and identify the supporting resources (human, physical and financial).

It is important to identify a need for a product or service, pinpointing what is deficient about current market offerings (if they exist) and showing how you intend to be unique in satisfying that need.

A specified and coherent vision is a visualisation of the business at a future date, say, five years hence, giving a bird’s-eye view of its values, customer value proposition, size, desired market share and other milestones.

Next, it is essential to define the mix of strategic activities that will be crucial in moving the business toward its vision.

This phase requires considerable discipline and is best distilled in a proven management framework as you seek to guard against “vision creep” that could end up taking you to an unintended destination.

The contents of a strategic business plan

A business plan consists of eight interrelated sections and an appendix. It contains an executive summary, a company description, a market analysis, and sections on organisation and management, service or product offering, marketing and sales, the funding request and financial projections.

As this is a new business venture, you will have limited information to work with (no actual market share or profit margin data). Nevertheless, you should display rigour in identifying a need in the target market that your idea will be able to successfully and profitably satisfy.

The executive summary encapsulates the purpose of your business, its vision and the arguments supporting your business idea (including evidence that the idea has gained traction with purchases by several early-adopting customers). Accordingly, this section represents the first significant strategic tool in your communication pitch to an investor, potential partner, supplier and key start-up recruits. For this reason, it is recommended you adopt the “all-together-now” approach and write the executive summary last.

The company description describes the nature of your business venture, the target market and the gaps you intend to plug with a compelling customer value proposition that is preferably inimitable (unique) – in order to have a sustainable competitive advantage.

The market analysis delves into the industry and market you propose entering, describing its size, segments, players, seasonal trends, growth rate, life cycle and existing and planned products or services and their attributes.

Be sure to include research findings such as customer demographics, specific customer need for the services you intend to offer, and the ways those needs are currently met and by whom. Systematic mapping of customer needs against existing market offerings helps identify those needs enabling you to single out uncontested possibilities that are ripe for exploitation. Who knows, you might even discover a nascent segment where customers pay a premium price and profit margins are way above average.

Follow this up with an evidence-based projection of the share of the target market you are seeking to garner and by when.

Even if you intend to compete on service quality and convenience, it is still necessary to incorporate information on your pricing approach: cost-plus, value-based, differential pricing of the same service in separate geographical customer segments, etc. This will have implications for projected gross margin and is an essential ingredient for financial projections.

It will also be necessary to include a competitive analysis, illustrating the extent of competitive rivalry, the barriers to entry, relative bargaining power of customers and suppliers (as this could force players to engage in price and/or margin discounting) and the threat from substitute service offerings (particularly if the offering is undifferentiated).

To complete the market analysis, you should add a road map for compliance with government and other regulations, highlighting the estimated cost implications for your business.

The organisation & management section gives the organisational structure, legal structure and ownership, key management personnel’s skills profile and achievements and the board of directors. As a new business venture pursuing an emergent strategy, it is prudent to settle for a malleable structure and organisational chart that are very responsive to changes in the environment and reflect your entrepreneurial learning and growth as time progresses.

For legal structure, you have the choice of registering the business at the Companies Office of Jamaica as a Sole Trader (for $2,500), a Partnership consisting of between two and six persons ($2,500), a Partnership comprised of between six and 20 persons ($5,000) and as either a Partnership (Corporation) or Trade Name (Corporation), each costing $3,000.

You will also list the beneficial owners, their individual share of the equity in the company and their intended role in its affairs.

Demonstrating that you and other members of the management team possess all the skills, qualifications and experience required to strategically drive the business toward achieving its vision is a sure way to secure a vote of confidence from investors, prospective customers and other stakeholders.

At start-up, it might suffice to enlist the cooperation of an experienced and reputable business person to act as mentor until you achieve the scale to warrant appointing a board of directors.

The service or product offering section showcases your offering and its contribution to your customer value proposition. Here, it is very helpful to show how – from the customer’s point of view – your proposed offering delivers greater value in terms of quality, authenticity, reliability, functionality, convenience, price, confidentiality (critical with regard to professional services) and customer experience (especially important for a service offering).

Briefly discuss where your product is located in the product life cycle: Is it at the proof of concept phase or better yet at the post-developmental stage, with notice of copyright already given and attendant trademarks and patents either filed or awaiting filing?

You should also mention if in developing the product or service you had reason to have shared proprietary information (formulation, source code, first-adopter customer list, pricing model, etc) with anyone and if you have bolstered your intellectual property rights with the safeguard of a Non-Disclosure Agreement (NDA).

If possible, it would also be useful to indicate what you have gleaned from the public domain about potential or current competitors’ research and development activities and if they pose a competitive threat to your own venture. What risk mitigation initiatives have you put in place?

Do you have a question on corporate strategy, entrepreneurship or innovation? Then write to: ‘Ask Your Management Consultant’ via philipruddy@hotmail.com. Please include a contact email address.