What is a business plan?
A business plan is a document (a literal document!) that describes why a business exists (i.e., what problem is it solving, what is the market opportunity) and how the business will capitalize on the opportunity (i.e., operational plan, key inter-dependencies, differentiation from competition). To say it even more simply, a business plan describes a business’s overarching objectives and describes a plan for how it will achieve those objectives.
Why is a Business Plan important?
Writing is thinking. To write well is to think clearly. That’s why it’s so hard. – David McCullough
Ask yourself if you’ve ever been in this situation: you have a clear perspective on a given issue in your head, you go to write it down on paper (or in an email, etc.), but realize that once you start writing it out that your perspective is actually much harder to formulate and articulate than you originally thought.
Well, if you’re like most people, that’s a very common experience. Writing is hard! It takes time, it takes practice, and good, persuasive writing also takes clarity of thought. And when you’re a business entrepreneur (or business manager, executive, etc.) – clarity of thought is paramount. If you haven’t taken the time to really, truly put down on paper why your business exits, what need its meeting, why the opportunity is exciting, and how your team is uniquely positioned to capitalize on it – and to then refine this message until it makes overwhelming sense – you run a steep risk of either missing something crucial in your business’s design or in being unable to convincingly communicate the value of your business to relevant stakeholders (customers, community, board, and staff).
That’s why REDF has long advocated for our social enterprise partners to take the time to write a good business plan. This is certainly the case when supporting the creation of a new business (see feasibility analysis for more information here), but it’s also something we strongly recommend even to fully established businesses if they haven’t done so already. In every case we have documented, the act of writing a business plan has yielded at least some promising, critical insight that has helped the social enterprise staff execute on their vision more effectively.
How is this topic different in an employment social enterprise context?
A typical for-profit business exists to generate profit and cash. An employment social enterprise exists to support the employment and development of its workers. When crafting a business plan you’ll still want to touch on all of the key elements that a normal for-profit-oriented plan would (e.g., market size, competition), but specifically when thinking through the operational side, you’ll want to consider how your social enterprise’s program elements will integrate and support business operations. E.g., if you are employing previously incarcerated individuals that need to see parole officers during 9-5 hours, you can use the business plan to think through and document how shift scheduling might work to accommodate the workers’ needs.
One of the hardest parts of developing a business plan is taking the plunge and starting to put pen to paper. A blank canvas can be daunting to fill out – even when trying to describe a business that already exists and has perhaps operated for some time. Our general advice is to NOT start by trying to fill out a canvas or any other template at first go, but rather to assemble a few higher-level questions, set a timer for perhaps an hour (doesn’t have to be very long), and just start writing down whatever comes in your head. The point of this first exercise isn’t to be perfect, but rather to make the first step manageable and accomplishable. Even in an hour you’ll start to get a feel for what parts of the story you know super well and which you don’t. And starting with a more free-flowing activity may also help unlock any ideas or associations you have that might get glossed over in an attempt to fill out any pre-formed template buckets.
Some of the higher-level questions you might consider asking yourself could include: why are we excited about this business? Who do we envision when we envision our customers? What are we set up to do uniquely well?
What to cover
There is no one set way to craft a business plan, but if you look at examples (just google “example business plan”…) you’ll see that there are a common set of topics that pop up on most. These topics align quite well to the topic areas REDF investigates during feasibility analyses. To get started, we’d suggest focusing on the following:
- Executive summary – as concisely as possible, lay out for a general audience what your social enterprise business is, what product or service the business sells, what you see as the market opportunity, and where you see the social enterprise heading.
- Team overview – include headshots and quick bios – highlighting relevant experience relating to both industry experience and experience working with the social enterprise’s target population – to describe why your team has the right combination of work history to execute well on the ESE’s vision.
- Market opportunity – this is a key section. Here, you are laying out the case for a business: that there is a real market, a real, unmet customer need, and that the current competition isn’t addressing that need. You can break the market opportunity section down into smaller parts:
- Market definition – describe in as clear language as possible what market your ESE is competing in. If possible, define the market also in terms of the segment of the general market you’re targeting, as well as any geographic restrictions. For example, “landscaping services for commercial clients in the Bay Area” is better than simply “landscaping” if the former applies.
- Market segments – if your market definition is more general, you may consider adding language to describe the different segments of the market (e.g., residential vs. commercial vs. government) to better encapsulate the different but related business opportunities.
- Market size and growth – if possible, describe the $ size of the market, forecasted growth, and why it’s an exciting opportunity to be competing in. Be careful here to showcase market size and growth figures that are applicable to the real market in which you compete (e.g., if you only provide landscaping services in the Bay Area, including figures on the national market will be less relevant).
- Customer segments and pain-points – highlight which type of customer or customer segments you are targeting and what specific need you are helping them to solve. If you can’t identify what customer need or pain point your business exists to solve, you run a serious risk of creating a business that never really gains traction.
- Competition – provide a brief overview of the other, most similar companies currently operating in the market. Detail to the best of your ability what makes each distinct, and highlight any areas or pain points that they are not currently addressing.
- ESE overview – this is the second key section. In the prior section, you’ve established why there should be a new business operating in the market to address an unmet need. In this section, you’re making the case as to why the ESE should be that new business.
- ESE snapshot – describe what you expect to be the ESE’s set of products or services. What are you planning to sell?
- ESE value proposition – make an explicit connection to the previous section. What is the unique value proposition of the ESE’s products and services; how are they addressing a specific customer unmet need; and how are they different enough from the competition as to have a real chance of taking some share of the market? Describe any key benefits, innovative features, etc. that will distinguish your ESE.
- Pricing – describe what or how you anticipate charging customers for your products and services. Describe (if possible) how your pricing structure compares to the competition.
- Sales channels – describe through which possible channels (e.g., direct to consumer vs. wholesale) you plan to sell your products and services through – and why you believe these channels to be the right forums in which to target your ideal customer segments.
- Branding and marketing – describe or showcase the ESE’s brand, and lay out a plan for how you anticipate getting word out about your product or service to the set of customers you want to target. Try to be as specific as possible, and include any rationale for why the marketing tactics you’re proposing will be useful in addressing the customers you seek.
- Financial opportunity – the financial section is important too…it’s just that whatever figures you come up with here (assuming you’re not referencing historicals) will likely end up being wrong. Perhaps not directionally wrong – hopefully directionally correct! – but as Niels Bohr famously put it, “Prediction is very difficult, especially if it’s about the future.” The value of this section lies primarily in that it will force you to think through all the elements that will eventually go into your revenue and cost structure. The act of thinking this through is what will likely be most important.
- Revenue projections – showcase the revenue targets you think are realistic for your ESE to hit over the next several years. What’s most persuasive is if you can explain your rationale. How does your mix of price and quantity sold build up to your revenue figures? What gives you confidence that this is realistic?
- Cost projections – describe in some level of detail the business’s unit economics (see XYZ for more information) – i.e., how much profit you generate for every unit of product or service sold. To understand your unit economics, you need to have a clear conception of what you anticipate as being variable costs (e.g., materials, direct labor hours). Understanding expected fixed costs will allow you to understand how much volume – at given prices and costs – you’ll need to sell in order to fully breakeven.
- Operational considerations – this section will be more tailored to the unique conditions in which your ESE operates. For example, the operational considerations will be very different for an ESE that is fully standalone vs. one that is a division of a larger parent agency. In this section you might consider including:
- Staffing requirements – what type of professional, full-time staff will fill whichever roles you’ll need to execute the business satisfactorily.
- In-house vs. outsourced services – detail around which business (or program) activities you’ll execute in-house, vs. where you plan to partner or pay for external support.
- Integration with programming – describe how the business will support programmatic objectives, and how business and program staff will work with one another.
In what format
- Business Model Canvas – one of the most straightforward ways to begin articulating your business plan is through a Business Model Canvas. It typically takes the form of a 1-2 page framework that asks the author to describe how different business functions will operate. In general we find that these canvases can be helpful starting points, but rarely serve much value if not followed by piecing together a more comprehensive report.
- Standard Business Plan Template – there are a bunch of useful websites out there with business plan templates. See here or here among many others. They typically take the format of a structured PDF or Word document with a table of contents breaking the document down into sections similar to what we describe above.
- Pitch Deck – REDF’s feasibility analysis decks often end up looking and feeling like a pitch deck (i.e., for the new business ideas we recommend!). We like pitch decks because they prioritize describing the market opportunity and why a startup’s business approach makes sense as the missing link. They are often also economical and look to show (with visuals, data, graphs) rather than tell (long word blocks with filler text – hopefully not like the blog you’re reading now!). Pitch.com has some great examples.
Tips & tricks
- Be specific – one of the most common mistakes we see in reviewing business plans is that the entrepreneur defines the market opportunity in a way that doesn’t make sense for the real opportunity at hand. For example, describing the landscaping opportunity in national terms doesn’t make a lot of sense if the opportunity is really specific to a certain city (or neighborhood within a city). This applies to other elements of the business plan as well.
- Mission and value proposition aren’t the same – another common trait we see in social enterprise business plans is explaining the value proposition to customers in terms of the social good or mission value the business will provide. An example of this is, “We will offer the only catering service in the city that is specifically led by opportunity youth.” This framing is usually not a recipe for long-term business success. In our experience, a business can sell a product or service based on its mission once to a customer – but in order to get a repeat purchase, you have to target a real need with a product or service that meets some quality threshold.
- Limit jargon – use language that your key stakeholders will understand. If you need to use industry jargon, acronyms, etc. – make sure to clearly define and label these.
- Experiment with formats – one reason we don’t like the canvas tool as much is that it (literally!) puts your thinking in a box. Not all businesses can be adequately expressed in a standard canvas. Take liberties to describe your business in the best way possible.
Standard success metrics make much less sense here, but there are still a few tests you can run to see if your business planning exercise was worthwhile:
- Did you walk away from the exercise with any new insight about your business? Did you make any new decisions in the wake of your business planning that you weren’t planning on previously?
- Have you ever referred to your business planning document since you first completed it?
- Have you wanted to share the business planning document with others? Are you using the business plan as part of new staff onboarding?
- Have you ever presented your business plan document publicly?
If you answer “yes” to one or more of those questions, then the exercise was likely successful. We hope that for the majority of you, you’ll answer “yes” many times over to each one of those.
- Example business plan: Review an example of a business plan to gain a perspective on the structure, format and language of a business plan.
- Business Model Canvas template and examples: Use this simple business model canvas template called “The Impact Canvas” that is tailored for social enterprises to lay out your business idea.