Writing a Business Plan: Table of Contents

As you start writing the business plan, it’s important to remember that despite what the people back in business school think, there really isn’t a single correct way of doing this. This section will outline some of the more common elements of a business plan, and one possible way of arranging them, but keep in mind that not all such plans will look like this, and if there’s a segment that doesn’t make sense to you then you don’t have to include it. The other thing to keep in mind is that the people reading it probably want to know why you expect to make a profit doing this – enough of one to not only survive but repay whatever money you’re trying to borrow from them. As you write the plan, try to imagine what you would want to know if you were sitting on the other side of the desk – if it was your money, and some unspeakably clever person wanted to borrow some of it…

The Executive Summary is the first piece you will present, but it’s the last one you’ll write. As you might expect from the name, this section summarizes the rest of the business plan, and may be the only part some people will actually read in its entirety. Consequently, you need to work through all of the details in each section before you select the key points to put in the summary. There’s no point to going into lengthy explanations of anything here; you can leave all of the diagrams, charts, graphs, patents and technical explanations for the parts that specify those things. At the same time, you need enough space to get your points across – count on two or three pages unless yours is a very simple undertaking…

The Operations or Management section is usually next, and it outlines what your new company will actually do (as discussed in our last segment). You’ll want to discuss what your inputs are going to require (raw materials, energy, intellectual properties, etc.), what your outputs will be, the hours and days you intend to operate, and how many people you will employ, and what their specialties are. Don’t worry about the costs or salaries involved; you’ll get to that later. What we’re looking for here is an overview of how the company will go about its daily (and monthly/yearly) operations; how many people, doing what tasks at how many workstations, producing how much product out of how much raw material. Take all of the time and length you need to get your point across, but unless your audience needs the step-by-step details of every manufacturing process for some reason, you don’t have to get into that much detail…

The Marketing Plan should take into account how you expect to reach potential customers; this can include advertising in any number of media, bidding on contracts, attending trade shows, direct mail or direct email advertising, or any number of other things. Some of these are relatively simple – if you expect that one out of every 500 people you spam will end up buying your product, and you need at least 1,000 sales each month to break even, you need to explain how you will reach 500,000 people with spam email each month (not impossible, but it won’t just happen by itself, either). Some of them will be more speculative, but in all cases make sure that you can back up your assumptions…

The Environmental Analysis covers all of the details about your industry and the community in which you intend to operate. This will include the numbers and relative positions of the competition, but it should also consider issues like local taxes and permit costs, size and composition of the workforce from which you will draw your employees, climate, customer demographics, cultural traditions, and anything else that might impact your operations. Keep in mind that no one has ever been able to account for everything that might fit into this category, and you probably won’t be the first, but take a good look at the things you’d want to know about a new business and its environment…

Budget and Future Projections: this section is actually two basic pieces; a written description and a spreadsheet or chart covering all of your expenses. If possible, you want to include your first year’s operations costs and project what your costs over the next few years will be. Some people like to combine income (and assets) with costs in order to create a balance sheet, but this isn’t strictly necessary; a lot of that information is going to be speculative, and your investors already know this…

Finally, you may want to include Supplementary or Miscellaneous information: product descriptions, packaging designs, patent documentations, licenses or contracts, pictures of your product (or anything else you think might be helpful), resumes of the key personnel who will be working for you, expert opinions, government awards, royal appointments, or any other documents that might help to establish your credentials. Of course, none of this is necessary – in fact, none of these sections is required by anybody, and if you tried you could almost certainly find sources that would contradict everything I’ve just written…

I’m not sure how many of them would just give this advice to you for free in a blog, though…

Is it Really the Thought?

A while back I was talking with a few friends about how one might explain various customs to someone who was either so sheltered that they’d never experienced any, or so poorly socialized that they couldn’t understand things that you and I would take for granted. Fictional characters like this have been popular for years, since they present multiple opportunities to have another character explain various complexities of the plot to them (and thereby to the audience), as well as offering comic relief possibilities as they try to cope with familiar (to us) situations that they find baffling. But what occurred to me is that sometimes the social conventions we’ve gotten used to are so counter-intuitive that they actually cause problems even for people who are familiar with them. So I thought it might be fun to explain a few of these ideas to someone who has no grasp of them to begin with. To protect his anonymity (and since he’s a fictional character and I don’t have access to his copyright) I’ll just refer to him as Dr. S…

MPB: Good morning, Dr. S, and thank you for joining us.

Dr. S: I’m glad to be here.

MPB: I thought we might begin this discussion with a familiar platitude, “It’s the thought that counts,” which I understand you consider confusing and illogical.

Dr. S: Yes; that’s a good one. If it is actually the thought that counts in obtaining a present for someone, why do you need to proceed beyond the thought? Is it more important to produce tangible evidence of your thought, or is this maxim simply wrong to begin with?

MPB: Well, as is often the case, I believe that this statement and the associated custom are using the word “thought” as a convenient shorthand for a more complex convention. Consider, if you will, the steps required to purchase a gift for someone: First, you must identify something that the recipient might actually want or enjoy. Second, you must determine that your idea is feasible, practical, and affordable, all of which will vary not only with the gift concept but also with your budget and your ability to obtain specific classes of gift. Third, you must determine that your idea is appropriate to the recipient, the occasion, and the social conventions to which they (not you) conform. It serves no purpose to select a gift that implies your desire for a romantic relationship with the recipient if you have no such desire, or for that matter to identify an ideal gift which can’t be obtained or which you cannot afford.

Dr. S.: But there are thousands, if not millions, of gift-giving sites on the Internet. Is this process really that difficult?

MPB: That would depend entirely on how well you know the recipient, of course – and on how well you understand the social, political, financial and even religious context of the occasion and your relationship with the recipient. But even in very simple cases, it is clear that all of these considerations will require thought, as will the research (whether Internet, library, key informant, or expert opinion) needed to resolve the issue.

Dr. S. (raises one eyebrow): This is certainly the case. So “the thought” represents the effort to identify an acceptable gift, rather than merely selecting something at random?

MPB: You might be surprised how many people select a gift by simply picking up whatever is on the checkout counter at the supermarket. But that raises a fourth point: Once you have made your selection, you must identify where such an item can be obtained, and how to travel to that place. If your recipient would most like to receive a box of oranges, and you happen to have an orange tree in your garden, this will be relatively easy; if the item you have selected is available only from a brick-and-mortar retailer that does not have an outlet in your community, this will take quite a bit more effort. But in any case, you will have to devote at least some thought to obtaining the gift, wrapping it, transporting it, storing it, and possibly even hiding it, in the case where the recipient lives with you or is a frequent visitor.

Dr. S.: That does seem rather involved.

MPB: It is frequently more difficult than the actual purchase. However, all of this still misses the main point, which is that of why you are doing all of this in the first place.

Dr. S.: I’m not sure I follow.

MPB: Regardless of how close you might be to the recipient, it would still be far easier to ignore the occasion and not do anything. You could simply declare a philosophical aversion to the occasion, or to the commercialization of celebratory events in the first place, and refuse to participate. However, you have instead considered that the recipient’s happiness is important enough to you that you have chosen to incur this cost and inconvenience in the first place. You have, literally, “thought” enough of them, and about them, to attempt the process in the first place and try to find something they would enjoy receiving in the second place.

Dr. S.: So it is the importance of making the attempt, and of expending the required thought in order to solve the various problems and complete the exercise, that is actually important?

MPB: Exactly. The statement that it is “the thought that counts” is an acknowledgement of your making the attempt, and of the recipient’s importance to you. If your effort to find an ideal (or even acceptable) offering falls short, this is far less important than the fact that you made the attempt in the first place…

Lost Opportunities

I had occasion to do business with one of the national jewelry retailers this past week – although there may have been a difference of opinion on that. I needed a small repair taken care of, and while this company is primarily into selling things (and airing really sappy television commercials), their directory listings indicate that they do, in fact, handle repairs. Since you’re reading about these events here you probably already realize that the situation did not end well, but what makes this case unusual is that it didn’t have to. There was a way they could have resolved the situation to my satisfaction without any cost to themselves, but they didn’t try. In fact, they didn’t even ask. Now, instead of an occasional low-end customer, what they’ve got is a consumer who will never do business with them again – and who will tell at least two dozen people (plus anybody who reads this blog) about the episode. That isn’t much by itself – but if you do it enough times it will start to add up…

The story began simply enough. I had some repair work I needed a jeweler to take care of, and there was a mall near where I was going that day that had a couple of national retail jewelry chains in it; I checked and one of them claimed to do repairs, so I went to see them. The project I needed wasn’t very complicated, and the clerk I spoke with gave me an informal estimate of $20 and a week to ten days, but had to send the item off to their central workshop to get a formal quote; she said someone would call me back by the end of the week. When no one called me by Sunday, I called them on Monday and asked for the quote – which turned out to be $80 and 25 working days (about six weeks at this time of year). Needless to say, I was a bit underwhelmed…

I might have gone with twice the informal estimate, and two weeks would have been all right, but four times the cost and six times the time didn’t sit well with me. I pointed this out to the person manning the phone at the store, and she suggested that since it was only an “informal” estimate they had their backside covered (which they did) and that if I paid them the 400% increase I would, at least, get my repair done. I told them to forget it and just have the workshop sent my property back. When I went in to pick it up I asked to speak with the manager on duty, who apologized for the situation and told me that her guess was that their repair people had assumed that I wanted something much more complex (and expensive) than what I actually requested, and that’s why the estimate was so high. When I pointed out that I’d never asked for any such thing, that the work order didn’t say any such thing, and that the price was absurd given what I actually did want, she apologized again and then ended the conversation…

Now, I wasn’t thundering at them, calling them bad names, or threatening legal action (civil or criminal); I was polite all the way through, and never raised my voice in the slightest. Moreover, there was a way they could have resolved the whole situation without any cost; in fact, I would have paid them. All they had to do was complete the original job I’d asked them to do, at or around the original price. In fact, if they’d gotten anywhere close to the original estimates, I’d have paid for the work, and if they’d taken care of the assignment in a timely fashion I might even have done business with them again. I don’t expect people or companies to be perfect, but I do expect managers to solve problems and make things right when they go wrong – and this one couldn’t be bothered to try…

I’m not going to post the company or the location, because as previously noted, I’m not really the litigious type; if you’re interested in knowing the details leave me a comment here and I’ll get back to you. I’m just going to note that this company lost a customer today; not just for a small repair project but for any future transaction any member of my household might ever have done with them. And if they keep losing opportunities to make friends and gain customers, they’re not going to like the result…

Stop Insulting the Pond Scum

Last month in this space I commented on the dust-up between the American Cancer Society and the atheist groups that were claiming they hadn’t been allowed to donate money because they were/are atheists. At the time, I strongly implied that this was a publicity stunt on the part of the atheists, staged entirely for the purpose of gaining media attention (and name recognition) because people these days are only too willing to think the worst of any large organization if it allows them to feel superior to someone. At the time I felt (and suggested here) that this was reprehensible because it might influence people to withhold donations, not just from the ACS, but from cancer research in general, ultimately harming everyone who might ever suffer from cancer – a group which would, one assumes, include atheists as well as everybody else. As annoying as this might be, however, it pales before cases of people actually stealing money under the guise of raising funds for charity, such as the case that turned up in Washington State last week…

You can pick up the story from the local television station’s website if you want to, but the basic facts are that an outfit in Everett, Washington calling itself the Breast Cancer Prevention Fund has raised around $17 million over the last six years, of which they’ve spent $3.5 million on their stated services and another $3 million on overhead. The remaining $10,500,000 has all been paid to the telemarketing firm that does all of the fundraising for the non-profit – which would be bad enough, frankly, but the telemarketing company is owned by the same man who runs the non-profit group. Without auditing the telemarketing company’s books I can’t tell you for sure how much the owner is pocketing, but telemarketing is very high-margin business; all you need is a bunch of telephones and a group of people who are willing to make phone calls and read a script for minimum wage. But regardless of how much margin the telemarketing company is making, this so-called “charity” is utilizing just a hair over 20% of its donations to fulfill its actual mission – and that makes it a scam…

Now, as the linked article points out, there is no law against this type of operation in Washington State, and I’m not aware of any Federal law against running really crappy non-profit groups. Such a law would be impractical anyway, and I’d almost certainly have to turn in some of our former clients from the consulting company days if it did exist. But it’s unusual to find an operation where 80% of the donations are going to benefit the head of the agency, and it’s hard to see this as anything other than using people’s emotions about cancer research and screening to scam them out of money. It’s one of the lowest things you will ever see; calling such people scum is an insult to scum. What’s even worse, though, is that not only are these donations going into some crook’s home improvements instead of cancer research, but also this type of scam makes people less likely to donate to legitimate organizations like the ACS – or dozens of local agencies fighting the same fight…

Last month I suggested that it was self-serving of the atheists to pick a fight with the ACS just to get free publicity; those (obviously bogus) claims won’t really hurt the Society, but I resent anybody who draws support away from a worthwhile organization just to avoid having to pay their own PR costs. This week’s case illustrates how important accountability is in the non-profit sector. I’m not saying the ACS is staffed entirely by saints and angels (certainly they’ve never claimed any such thing), but they will make their utilization statistics available to you – and to anyone else who asks. So let me urge you once again to ask questions, look up the numbers, and make intelligent choices about who should get your money, and don’t let anyone else (even me) tell you where your donations should go…

Another Beautiful Idea…

Over the years, one of my catch phrases has gradually become “There’s another beautiful idea, ruined by people.” It’s a take-off on an old “Bloom County” punch line about a beautiful theory being slain by an ugly fact, but it’s actually getting better legs every year I read about concepts that are beautiful in theory, but can never work for as long as people insist on remaining people. There’s a reason that Communism has never really worked on a large scale, for example; it’s the same reason that people cheat on their income taxes, that public officials use their power and influence for personal gain, and that some academics take advantage of the tenure system to harass (sexually and otherwise) vulnerable students, even though they know (and will sometimes even admit) that these things are wrong. And you’d be hard pressed to find a better example than what is happening to the Occupy movement lately…

I’m not commenting here about the ideals of the movement – although I will probably post about the platform represented by the “99% Declaration” we’ve been hearing about online at some future point. The basic ideas behind OWS, including the corruption of our government by financial interests and the resulting dramatic financial inequality in this country are hard to argue with (since they can be supported with hard data), and the outrage that people feel over some of the worst excesses are completely justified. In particular, the fact that small businesspeople can’t get loans regardless of how solid their credit might be, while giant companies that have nearly destroyed our whole way of life can repeatedly get Federal bailouts, or the idea of “job creators” paying no taxes on million-dollar incomes while simultaneously sending millions of jobs overseas, are enough to make any reasonable person want to pick up a protest sign and march in the streets. Unfortunately, trying to move beyond that pure ideal seems to be causing some problems…

The obvious manifestation is the increasing crime we’re seeing in and around the OWS encampments themselves. There’s no way of telling exactly how much of it has been inflated (or just made up out of the whole cloth) by news media, but there have been enough reports of homeless people using the encampments to get free food and shelter, local criminals stealing things from the protesters (and others) and then hiding out in the camps, and (over the past week) drug overdoses, suicides and shootings that I think we can probably conclude that the people associated with OWS are a microcosm of the United States as a whole. By itself this shouldn’t be a problem; it’s predictable that someone will take advantage of anything offered for free, that crime will happen anywhere it can, and that people who are sufficiently invested in their cause to camp out in cold-weather cities in November will include people who will either get violent or abuse whatever substances they use to get through the day. These are the things that people do, after all…

And therein lies the problem. In an ideal world, people wouldn’t try to take advantage of a popular grassroots movement for their own personal gain, but in an ideal world people wouldn’t be using their power and influence to get our national government to do things that make no financial, legal, practical, strategic or democratic sense. As of this morning, every far-right group in the country is using these events to denounce the OWS movement and all of the local governments that would just love to order all of protesters occupying their towns to go home are using these issues as justification for doing so – and anyone with an elementary grasp of strategy, history or psychology could have predicted these reactions. Real social change is possible, and the will of the people can be translated into tangible reforms. But expecting people not to take advantage of the situation just because they can is every bit as naïve as the opposition to the movement claims it is, and runs the risk of overshadowing the determination, commitment and idealism of the protesters with the side effects of a faith in human nature not supported by the facts…

The Ethics of Job Fairs

A few weeks ago I attended the Business Job Fair at Michigan State, and as I was on my way home I started wondering about the ethics of such an event. On the face of it these things are pure altruism, or at most enlightened self-interest: the more MSU graduates who get jobs right out of school, the better the school looks to both prospective students and prospective donors, and the better it will do. But even if the school’s motivates are pure as the driven snow (and at any major university these days I would not bet money on that), some of the shenanigans that go on in these events don’t appear to be, and some of them are outright fraud. I thought we should probably take a closer look…

First, let’s establish the obvious. Even today, when every major company has an employment page on their website, some people will attract interest at a job fair, and some of them will still get job offers right on the spot. Granted that most of these people will have engineering degrees (or, at Michigan State, Supply Chain and Logistics degrees), we can’t really say that the job fair is a waste of time or money for everyone involved. In fact, even people who are not actively recruited at the job fair may learn about a company that they would like to work for, or discover a potential employer in their community that they had never realized was present. And we should not discount the intellectual and emotional benefits; some people do gain valuable practice in pitching themselves to employers, some get help with their resumes (or learn that they need to make one), some people learn that jeans and a dress shirt isn’t really “business dress” as such, and some people undoubtedly feel better about their frustrating job search for handing out a dozen resumes…

That said, I think we are justified in asking if a job fair is entirely a good thing. Some companies are only going to be trolling for suckers who will buy product from them and attempt to resell it (and think this constitutes a job), while others are going to be running actual Ponzi schemes (or MLM operations that look just like one) or trying to convince young and inexperienced people that working on commission really is an easy way to make lots of money. Some companies are going to hold out offers of jobs that require a year-long training cycle on which you bring in millions for the company but are paid barely minimum wage, and some are going to offer “internships” in which you will be paid nothing in return for duties that will teach you nothing about their industry or the jobs in it. And if some people will take heart at dropping off dozens of resumes, others will surely lose it on being told “sorry; we haven’t got anything for an applicant like you” dozens of additional times…

What makes this a question of ethics is that all of the people involved, except for the applicants themselves, know that this is largely a collection of smoke and mirrors, and that only a small fraction of the people who attend will gain anything by doing so. Job fairs that charge for admission are pushing this envelope the farthest, but even a relatively benign sponsor like Michigan State knows that they are improving their own image at the expense of a non-zero number of participants who will be harmed in some way by attending. So I have to ask: given all of the false pretenses and outright lies handed out at a job fair, can we reasonably participate in such activities? Does the advantage to the percentage of people (whatever that actually is) who get jobs at such an even outweigh the harm done to people who don’t, or who wind up being scammed out of their money, their dignity, or years of their lives? Should we refuse to take part in such events and force employers to come up with reasonable channels for obtaining jobs, or can we just assume that the participants are adults, and can make their own choices?

It’s worth thinking about…

Writing a Business Plan: Just the Facts, Please

Now that you’ve completed the conceptual development of your new business, you’re ready to start working on some of the more tangible aspects. A business plan will need to consider several different but closely-related aspects, including what you are actually going to do, how many employees (and what kind) are you going to hire, how will you gain customers, and what is all of this going to cost? Naturally, all of the conceptual information you’ve already gathered is going to need to go in, too, including the environmental and competitor data, but if you’ve been following along through our last five installments, you’ve already compiled all of that. In this section we’re going to consider the nuts and bolts you will need to put the rest of your plan together…

First off, we need to consider what you’re actually planning to do. If you’re opening a restaurant, for example, you’ll need to determine how many tables you’re going to have (how many customers you expect to serve at one time), which will drive how many waiters you’re going to need, how many kitchen personnel you’re going to need, how many food-runners, busboys, bartenders and so on. If you’re planning on covering more than eight hours each day, or if you need to rotate personnel after busy periods (e.g. after the lunch rush) you will need to schedule multiple shifts, which will mean hiring and training additional personnel. You will also need to account for how much food you need to keep on hand each day, how much it will cost, and how much storing it will cost (will you need refrigerators, freezers, air-tight storage canisters, etc); how much will heating and air conditioning cost, what licenses and permits will you need (and what do they cost), how much will linens (and laundry services) cost, and so on. I’m not saying this is simple; I’m saying it’s necessary in order to proceed…

Service and manufacturing businesses work much the same way; in each case you will need to determine how much work you expect to do each day (or each shift, if you’re working more than one) and how many people it will take to do all of those things. You will also need to know what tools or equipment those people will need, and how much space they will require to work in. If you use parts or supplies you will need to estimate how many of each you need to have on hand, what you will need to store them, and how much all of it will cost. If you’re not familiar with these details – or if you’ve never worked in the industry before – it might be worth it to hire a consultant who is familiar with these details; there are a lot of businesses that have counter-intuitive aspects to their operations. But with the right knowledge and the right help, all of these numbers can be obtained with reasonable certainty…

How you communicate them is a matter of personal style, of course. You will probably want to begin with where and when you with commence business; this will identify who your customers are, who your competition is, and how you expect to establish an operational advantage. Number of shifts and the amount of work you intend to do on each shift will establish your personnel requirements; an analysis of comparable jobs in the area will tell you what your payroll expenses will be like, and an analysis of output (e.g. how much you get done each shift) and margin will tell you how much money you can expect to make. If you add up all of the costs you’ve identified and subtract them from the gross you’re expecting to make, you can get an idea of how profitable you expect the business to be. And an analysis of who your customers are and where they get their information should give you an idea of how to reach them…

Now, once you’ve assembled all of this information you’re ready to start writing the individual parts of the business plan. We will cover each of them in detail over the next few installments, but keep in mind that nothing you write on a business plan is ever final; these sections will continue to change as your knowledge of the situation improves. Eventually your business plan will become the company’s operations plan, and the differences between your current operations and what you want them to be will become your growth plan. Combined with your projections for the future (budget and operations), this will eventually become the basis for your company’s strategic plan – but that’s a discussion for another day…