Finally! How do I write a business plan for a small business in 2021 in a way that is actually useful!
According to Fundera a small business has up to 1,500 employees and a maximum of $38.5 million in average annual receipts. Even large businesses can benefit from answering the question: How do I write a business plan for a small business that actually helps?
What's wrong with the conventional business plan? You most likely do NOT have a business plan in place. Don't feel bad, many people struggle to find the actual value in taking the time to put one in place. A great business plan should be a practical guide to driving growth and profitability. If every section doesn't accomplish that goal, then it's not very useful.
Typical Business Plan Template
Let's compare the "traditional" business plan with a "modern" small business plan more relevant to market demands in 2021.
According to the SBA, the traditional business plan is composed of the following:
- Executive Summary
- Company Description
- Products and Services
- Marketing Plan
- Operational Plan
- Management and Organization
- Financial Plan
This traditional structure of a business plan is based on a presumptive assessment of your potential business direction. According to author Scott Adams, systems beat goals any day of the week.
With a clear roadmap your business can accomplish its plan. Don't settle for a business statement when you could more easily create an actionable planning exercise. The question becomes, How do I write a business plan for a small business?
Modern Small Business Plan Template for 2021
That's great, a traditional business plan is not very helpful... how do write a business plan that works in today's marketplace? Note: A business plan doesn't need to be 1,000 words in order to be effective. Having a concise reference guide can be far more useful for steering your small business growth over the next few years.
Internet marketing and product market fit are no longer optional and will be essential to achieving growth. A modern business plan in 2021 is composed of the following sections:
- Company Controversy Statement
- Core Value Offering
- Plan to Engage in Conversation
- Estimated Ratio of Revenue vs Costs
- Organizational Growth Chart (As-Is, 1 Year, 5 Years)
- Plan to Measure Success
Customer-Driven Business Plan
Small Businesses must be customer focused and designed to listen. If you are not engaging your audience and properly serving your customer, your business will not grow. They must also focus on their core value, and secure investments with actual traction (not just projections).
Without the natural explosive growth from product market fit, our business will need to compensate with high marketing costs. Seeing a lack of growth from referrals by existing customers is a clear symptom of bad fit.
Now, let's dive into each section!
Company Controversy Statement
Peter Thiel asks "What important truth do very people agree with you on?" - https://fs.blog/2015/11/the-single-best-interview-question-you-can-ask/ He then asserts that any successful business must have an essential controversial truth. The way to ask what your company's essential truth is, is what important truth, do very few people agree with you on? In order for you to present yourself to a market, you must first need to differentiate yourself from others in your market space. Without a controversy statement, you will have no differentiating factor.
Even if you say my business doesn't need a differentiating factor because I'm an accounting firm and I'm just like the other accounting firms. When taking this type of Red Ocean Strategy, there still must be a market differentiator like cost, accessibility, or some other competitive benchmark.
Your Red Ocean differentiator might sound like:
- "We are more locally accessible" turns into the controversy "People expect this product more locally accessible than is currently offered"
- "Our services cost less" turns into "Customers believe these services are too expensive"
- "Better customer experience" becomes "customers are not re-engaging in this market due to bad experiences with our competitors"
Even if you have a weaker differentiator, it is still important to turn that differentiation into a controversy statement. This statement will become a flagship of your business communication strategy.
Strong Contrarian Position
Examples of stronger controversy statements are:
- Five Guys → "a solid burger beats menu diversity"
- AirBnB → "people are willing let strangers sleep in the beach house"
- Walmart → "customers will always go to the lowest prices for the same product"
- Amazon → "reducing transactional friction drives sales"
In a service based industry like an Accounting or Law Firm, your contrarian truth may be:
- CPA clients want simple returns over maximized tax savings
- Clients expect hotel-level service from their Attorney
These contrarian statements may only be tangentially related to your business, for example:
- Nobody wants to engage in online marketing
- College hinders job preparedness
- Yoko Ono was a faithful wife and didn't break up the Beatles
- Stocks will never make you wealthy
- We don't lose weight from sweating
There is some reason that you in particular decided to start a business. When answering "How do I write a business plan for a small business" start with your original motivation. What did you believe you could deliver that others couldn't and why?
Answer: Many people believe ____________, but the truth is _______________.
Core Value (Minimum Remarkable Value)
Many small businesses fail to focus on their core competency. Tune your business plan to only 1 core solution. Each core offering should be looked at as a separate business with its own profitability, marketing strategy, and operational metrics. Don't hide behind the kitchen sink.
If you are an Accountant that mainly files 1040s, then focus only on that. A litigation attorney that gets most enjoyment and revenue from Fiduciary Litigation should "sell the mill" and only focus on that. Do you sell both decks and hot tubs? Pick your best offering and focus your plan on that.
Once you describe the least your business can offer for a remarkable value, re-frame it in terms of your controversy statement. This way you can make sure they are aligned with each other.
When your business is tuned to one core solution, communicating with your customers and acting on meaningful feedback you will find product market fit. Product market fit is known as an unmistakable explosive natural growth driven by your existing customer base.
If the core value offering of your small business does not resonate with your customers, you will find yourself compensating. This comes in the form of investing too much money in outbound marketing or valuable time in inbound marketing.
Keep Multiple Core Values Separated
For multiple core solutions, each core offering should be planned as if it's a separate business. These separate values should be defined with their own profit and loss, margins, marketing strategy, operational metrics and key performance indicators. Every product should successfully stand on its own. When solving the dilemma of "How do I write a business plan for a small business" make it practical. There is no need to over-engineer this plan.
Lack of confidence in your core business value can lead to "selling the kitchen sink" or offering everything under the sun. For example, Attorneys as general practitioners will most likely fail at achieving desirable growth. Build confidence in your business's core value in order to clearly communicate what your business has to offer to the market.
Answer: We offer _________________, because the truth is _______________.
Plan to Engage in Conversation
With a well-defined Core Value Statement, talk directly to your potential and existing customers to gauge interest. Would you continue having a conversation with a person that seems bored? Probably not. On the other hand, are you going to continue a conversation if they seem excited? Absolutely. You will clearly move to where the excitement is. Exciting conversation topics should eventually extend into your marketing strategy. This conversational flow will continue into SEO and social media and can be measured by tangible results in your Key Performance Indicators.
Your marketing communications should simply be a way of having and measuring a conversation with your target audience.
You will most like not find the holy grail of marketing language and stop, because it will change as the world changes. The recent pandemic for example has drastically changed people's expectations of business.
Answer: We ______________________ to actively communicate with our target audience.
Answer: Our customers are encouraged to ______________________ in order to tell us how they feel about ______________________.
Financial Estimations of Revenue vs Costs
Grandiose estimations to wow banks and investors is a losing strategy. They really want to see your profit margin ratio and if you have "traction". Traction is the current growth rate of new and returning customers.
Revenue - The Least Relative Cost to Deliver Core Value = Profit
Profit / The Least Relative Cost to Deliver Core Value = Return on Investment (ROI)
Start by clearly defining the least amount of cost required to deliver your core value. Then based on your current realistic expectations, write down how much revenue would you anticipate related to that cost. Financial Estimations are an important aspect of "How do I write a business plan for a small business". It can help you cut through more detailed financial complexity.
For example, if it costs me $2000 to make 1000 teddy bears and I expect to sell those teddy bears at $5 each then I expect 1000 x $5 = $5,000 of revenue and a cost of $200 that relative cost per revenue.
Teddy Bear Profit = $5,000 - $2000 = $3,000
Profit Margin = $3,000 / $5,000 = 60%
Teddy Bear ROI = $3,000 / $2000 = 1.5
Practical Use of knowing your ROI
Now that you know your estimated ROI for Teddy Bears, look at your current trending sales. For the last 3 quarters we increased sales by 5% and last quarter sold 52,000 Teddy Bears in total. This means we can reasonably expect to sell 52,000 × 1.05 = 54,600 Teddy Bears next quarter resulting in 52,000 X $5 = $260,000 is sales with a 60% profit margin netting $156,000.
This gives you an instantly useful picture on two fronts. First, how much work requires what net profit? 52,000 is a TON of Teddy Bears, can you talk to your customers and determine how to increase prices without increasing costs? If you have a 1.5 ROI, that means for every 1 dollar you put in, you get $0.50 back out. Is there a way to spend more dollars in to produce more returns out? Can you demonstrate with evidence how outside capital could be confident their injected investments would produce such a return?
A) What were my total costs related to my core product last year?
B) How much revenue did my core value offering produce last year?
C) Profit of Core Business Value = B / A
D) Profit Margin = C / A
E) ROI = C / B
Our product / service ______________ sold an average number of ________________ transactions over the last 3 quarters.
We expect to have a net profit of ___________ for the next quarter.
Technology to Scale and Maintain Profitability
Everything ultimately revolves around your net income, how much revenue you make really doesn't matter apart from vanity.
Now that you have established your profitability ratio, it's likely that Human Resources will be your largest controllable expense. To reduce this cost think about where your team spends the most resource hours and make a plan to implement a mitigating technology immediately.
How can we prevent the cost of human resources from consuming all profitability? The answer is basic technology applied non-critical tasks.
For example: A manufacturer focused on improving robotics to automate their critical business functions. They failed to notice expensive middle management resources spending too much time in meetings which may have more effective at reducing costs.
With advanced robots comes increase equipment costs and specialized maintenance labor which may exceed the cost of your current labor force. On the other hand, management's inability to effectively collaborate between departments and physical locations require time draining meeting and top heavy staffing costs.
Improve on Non-Critical Behaviors
Technology can't solve everything, but it comes to human resources technology is one of the first placed to look for scalable improvements. When thinking about how to write a business plan for a small business, make sure our plan for growth won't kill our financial assumptions.
A simple case is when your team walks across the building to talk instead of using a simple chat application like Microsoft Teams. Another is instead of using a virtual fax machine like MyFax, someone must walk down the hallway to check for messages. Meeting a client face-to-face when they could easily transfer files through a client portal like Zapa Client Portal. These are small things, but they add up to become crippling costs and are easy to solve.
Look at your current operations and honestly evaluate where people are spending their time. Try not to focus on mission critical tasks. Look for frequent non-critical activities such as emails, accessing files and printing copies. Being paperless and having instant access to historical information can save tons of time.
Additionally, when looking at technology solutions be mindful of the hidden costs of maintenance. If your solution needs physical servers or to be installed IT experts, just be sure to factor in those hidden costs. Where possible, look for secure cloud solutions known as SaaS (Software as a Service).
I spend too much time ______________________.
My team spends too much time on _______________________.
From our performance review reports, team members claim they spend most time __________________.
For a deeper way to assess these inefficiencies, see Six Sigma.
Organization Chart As-Is, 1 Year, 5 Years
Good job! We've identified our core value, engaged with customers, defined our profitability, and implemented scalable technology. Next we will map out the hiring plan for our organization.
The best place to start is an absolutely honest as-is assessment of your organization. I can almost guarantee that you have many "jack-of-all-trades" in your business. We need to clearly identify every job title that every person has (probably more than 1).
For example, you are the CEO of your company, but you may also be the marketing department, the graphic artist, and the bookkeeper. Your client service coordinator may also be your social media manager.
List each person in your organization and every job title that they happen to be responsible for today.
Organization Chart with 1-year Outlook
With the current Organizational Chart containing multiple job titles we can then look 1 year into the future. Copy and paste your Organizational Chart and name it to represent your 1-year plan.
From people with multiple job titles or are overwhelmed, draw a green dashed arrow to new positions you where want to alleviate these strains.
For example: Let's say you are the CEO, CFO, and the bookkeeper. You might say in one year it is my goal to have a bookkeeper in place to take this off my plate. Take your person, keep the CEO and CFO titles, but draw a dashed green line to a ghost of a future person. Under that new person list the title bookkeeper. This way you're mapping all the core operational requirements that your business currently has into additional specific positions.
A business will grow naturally as some employees rise to the occasion and assume additional responsibilities.
Every person in your business should have a specific and focused purpose. Every employee should generally know what to do and what you expect of them every day they come into work.
Organization Chart with 5-year Outlook
Repeat this exercise, but now copy the one-year chart and paste it as the five-year chart.
What you would love to see your organization look like?
From all of these positions on the 1-year Organization Planning Chart, draw a dashed yellow line to your dream positions. This will give you a really effective long term vision of where you're headed versus your current needs.
Plan to Measure Success
You're doing great! Now we will define key performance metrics to make sure you stay on track over the next year.
Key Performance Metrics
A KPI or Key Performance Indication would state a measurable aspect of critical or optimal business function.
Some examples are:
- Number of new customers per x period of time
- Total sales per y period of time
- Number of returns filed per z
Start by defining a list of every critical task your business must perform in order to function. These metrics should only relate to your core critical operation. Then identify what type of frequency you would expect for those core operational actions to be considered successful.
For example: If you produce file tax forms, how many returns would you expect to file in a year to be considered on track?
How many new clients do you expect to engage per month in order for you to be on track?
How many emails have you answered per day to be on track on a core functionality? When a metric like this hits zero, you may have a critical business operational failure.
Growth Performance Metrics
It's important to be able to clearly measure these critical operational key performance indicators, then identify the key metrics for successful growth.
Successful growth metrics may be more like getting at least two new RFPs per month or making four new qualified hires per quarter.
Whatever the metric, you want some number of some results per period of time. These metrics should be produced by yourself or team leads on a weekly basis. Reports are aggregated into a key performance indicator report and routinely checked to make sure that the plan for your business remains on track.
Critical Function KPI
Answer: I need ____________ number of ____________ every _____________.
Growth Target KPI:
Answer: Let's target a goal to achieve ____________ number of ___________ every _______________.
We have now walked through "How do I write a business plan for a small business". By following this plan, you will grow into an amazing and successful business in 2021. Whether you're a startup or a long established business. This will help you today!