Developing a business idea can be a lot of fun and excitement. But it can also be a lot of toil and tears when it comes to writing it up in a business plan. I wish I would talk from real experience, from actually starting a business myself. But actually, I talk from another kind of experience, an imagination game (well, it’s not so much a game as it is an assignment for my studies but anyway).
One of my modules requires me to work in a group to develop a business idea finalised with writing up a business plan and proposal. The creative brainstorming part was great: we looked at problems in the world, at our vision and values, at our impact on society and so on. We had a pretty good idea at the start but we ended up with this complex mammoth of a concept that seemed to tick all of the USPs on the market. And we were quite excited about this idea, until we started writing up our business plan.
As a group, we delegated responsibilities and we had some fun attributing ourselves roles such as CEO, COO or CFO. Funnily enough, I was assigned the CFO part (I’m not great at finances but somehow I ended up being the one who knew a fair amount of information around this area in comparison so I said to myself: sure, let’s get out of my comfort zone).
My role in the team was to look at financial viability and risk management frameworks. Little did I know when I took up the role that I would basically play the big bad wolf. I was the person that, 2 hours into research, messaged everyone and pesimistically said: ok, we need to rethink everything, this is not a viable solution financially. We’re in bankruptcy before starting.
Of course, I stopped myself for a second and wondered if this business should be about making money or, instead, if the service should be about bringing something better in the community. But, to start of, it wasn’t even about making a lower profit, it was about not breaking even. Financial lesson number one when starting a new business: you need to (at least) break even.
Then I meditated on the profit making nature of businesses and realised the following:
1. All successful businesses are profit making. Not making profit means your sales are declining, which further means you might not be able to cover your costs in the future and that you die out as a business.
2. It is how businesses use this profit that is endorsed or not endorsed by general public: keeping your profits, reinvesting your profits, donating your profits etc.
3. Whilst bringing value in the community and being unique as a business are important, being financially viable is the number one criteria that a new start up should take into consideration especially if they want to look at funding (loans, investors, capital venture etc).
4. Our initial idea and the problem we really wanted to solve required less resources and was more financially viable than the complex concept we ended up with when we tried to be the most unique on the market and “solve all the problems” with one solution.
5. It’s better to keep it simple and solve one problem at a time if it means maintaining financial viability.
6. Your business needs to make significant amounts of money at least on paper, since everyone knows thousands of other factors from trends to environmental influence can impact your actual results. I’m not talking about exorbitant profits, I’m talking about a forecast revenue that allows for covering costs and growth (reinvesting, expanding, reacquiring assets, hiring more people etc).
7. Your vision, mission and values are of paramount importance, but they only become reality via financial sustainability.
In conclusion, a good checklist for writing a business plan would be: find a problem or a gap in the market (in a product, in a sector, in a process); find an innovative solution or an alternative; align that with your vision and values and; then adapt, redraft, remodel until it becomes something that is self-sustaining on the market (by bringing revenue back into the company).
Image source from here.