October 10, 2004

When do you need to write the business plan?

"Business plans should be the last thing you do, not the first. The common wisdom seems to go like this: 'I've got a great idea, so I guess I better write a business plan'. Wrong," says Jeff Cornwall, the Jack C. Massey Chair in Entrepreneurship at Belmont University in Nashville, Tennessee.

According to him, entrepreneurs should get the following elements in place before sitting down to write the biz plan;


Research the market to make sure that there is really a market. Try to figure out what a customer might pay for what you want to sell. And look carefully at all of the competition to see if that market is already being nicely taken care of. And by the way, there is always competition, no matter what you try to tell me to the contrary. If the market potential is marginal, go on to your next idea.

Examine what it will cost to provide the service or make the product. Compare this cost to what you figured out you think you can charge in the previous step. If there is enough profit, keep going forward. Enough can be a difficult standard to nail down. But I like to see at least a 50% profit margin at this early stage. (Of you can't calculate profit margin, take an accounting class somewhere to learn how--you need to know the "language of business"). If there is not enough margin in your idea, give it up and go on to your next one.

Make sure you know what you're getting into. Lifestyle issues matter. Know the hours and the investment a business requires before jumping in. Make sure it is something that builds from your experiences in some way, and is something you can be passionate about. There will be some long days and weeks and even months, so do something that excites you and can carry you through these low points. If your hear can't be in this deal, go on to your next idea.


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