Why You Must Question Key Assumptions in Your Business Plan
Why you need to ask the tough questions.
Constructing a business plan is all about looking at and confronting assumptions. Consider the five following key assumptions, and you'll be well on the way to a more solid plan.
Assumption 1: Is There a Need for Your Product or Service?
It's an obvious question, but many entrepreneurs overlook it. Knowing that there's a need for your product is different than having a hunch or a feeling. How do you know the difference? You do the research to find out.
First, look at the competition. Are there others who have a similar offering and are they profitable?
Maybe you are breaking new ground -- that's no excuse for saying "there is no competition." Look around for evidence that your proposed business fulfills a concrete need.
Without evidence to validate the need for your business, your business plan will fail.
Assumption 2: Is There a Significant Customer Base?
The second assumption that's important to look at in your business planning preparation is whether or not there is a significant customer base for the business you are proposing. It can be a highly subjective question, as there are a number of successful niche businesses that serve small markets quite profitably. You are well served to look at the concrete size of a potential market and to assign real dollar values to its potential.
Assumption 3: Can This Business Turn a Profit?
Once you can decide that A) there is a need for your business and B) there is a sizable market for it, you are on solid ground to establish your business' potential profitability. But don't pluck numbers from the air. You'll need to figure out what your startup costs are, as well as ongoing business-related expenses. You'll need to figure out a pricing structure that your customers will pay and will generate enough cash flow to keep the business running. After generating a set of realistic financial projections, you'll have a solid picture of your business' profit potential.
Assumption 4: Are You the Right Person to Run This Business?
You believe in your business. You eat, sleep and breathe it. But you're still going to have to make the case why you are uniquely qualified to start and run the business. As CEO, you'll also need to demonstrate the ability to delegate and find employees to complement your weaker points. First, know yourself, and second, be able to find the right people to bring into your management structure.
Assumption 5: Is Your Business Funded Appropriately?
Financial projections are the place in the business plan that investors will flip to first. They want to know if you can understand the financial bottom line of running a business, or if your vision is unrealistic. Demonstrate in your business plan that you have a realistic startup budget, and you don't expect revenue to pour in within the first few months magically. Show that you have sufficient capitalization to run the business to break even.
A Great Tool for Questioning Assumptions: The SWOT Analysis
A SWOT analysis stands for Strengths, Weaknesses, Opportunities, and Threats and is a popular strategic framework for business planners.
The first two items refer to qualities that are internal to the business. The second two items are external factors.
Consider the following in questioning your assumptions in writing a business plan around your fledgling operation:
- What does this company do well?
- What are our assets?
- What expert or specialized knowledge does the company have?
- What advantages do we have over competitors?
- What makes us unique?
- What resources do we lack?
- Where can we improve?
- What parts of the business are not profitable?
- What costs us most time and money?
- What has the competition missed?
- What are the emerging needs of the customer?
- How can we use technology to cut costs and enhance reach?
- Are there new market segments to exploit?
- What are our competitors doing well?
- How do larger forces in the economy affecting our business?
- What is happening in the industry?