Everyone contemplating starting a business should be able to answer some basic questions about their new venture. At SCORE, we recommend the Business Model Canvas as a way to help aspiring entrepreneurs achieve their goal of starting a business.
Creating a written business plan greatly increases your chances of succeeding in your business. Doing this homework for your company forces you to think things through to determine, for example, if your assumptions are realistic.
The canvas is a simplified version of a business plan. Its one-page diagram has nine cells: Customer Segments, Value Proposition, Channels, Relationships and Revenue Model comprise the left, customer-facing side, of the canvas. The right side includes Key Resources, Key Activities, Key Partners and Cost Structure — the "behind the scenes" part of the operation.
In contrast, if you seek funding from an external source, then you will have to do a 40-page comprehensive business plan. It will help you answer many important questions but you'll have to do a lot of research — there's no way around that! But the more variables you consider, the greater your chance of success.
Many small businesses can get by with a simple one-page plan as they test their hypothesis to see if their business model makes sense. The Business Model Canvas is meant to be changed as you undoubtedly discover unanticipated twists and turns of your startup.
A simpler tool
Moving back a notch, there’s another, even simpler tool, the Zero-Draft Business Plan for Startups, developed by SCORE mentor Bob Theis Jr., who has a masters of business administration from the University of Pennsylvania's Wharton School.
Why is it called the Zero Draft? “Everyone knows what a first draft of a plan is, but a zero draft is even before a first draft,” Theis says.
“I developed this Zero-Draft plan as a roadmap to success for any business venture,” Theis says.
He has used the tool successfully with travel agencies, mortgage companies, real estate companies, engravers and restaurants. He also created a similar plan for clients who already have a business.
“If you can’t answer these basic questions, you probably should not start a business,” Theis says.
Zero-Draft Business Plan questions
1. Why are you starting this business? How did the idea start? Who’s involved? What’s your background? What’s your background in this field?
2. What is your product or service? What is your selling geography? How specifically does it work? Why is it necessary? Who says it’s necessary?
3. Who exactly is your customer? Have you done a face-to-face interview with potential customers?
4. Who specifically are your competitors? Where are they located? What do they charge? (Attach a competitive matrix.)
5. What three things make your product (service) really different from your competition's?
6. How are you going to sell your product (service)?
7. How are you going to market your product (service)?
8. How much are you going to charge? Why?
9. What are your projected total sales for the first year — best case and worse case?
10. Where will you source your products or materials? What are your product (service) costs?
11. For the first year, list your specific expenses (including salaries, rent, sales, marketing, accounting, legal and other administrative costs).
12. How much money are you going to invest? How are you going to get additional money if needed?
13. Have you looked at buying an existing business that does 70 percent of what you describe above? Have you considered licensing your product?
Less is more
“I have come to realize by working with clients, sometimes less is more, Theis says. "It’s important to have these basic questions answered before a business owner commits his or her personal funds. I have personally witnessed the same questions coming up repeatedly, regardless of whether someone is starting or buying a business.”
I asked Bob why he would use his Zero-Draft Business Plan instead of the Business Model Canvas.
“It gets the conversation started," he says. "This is really simple, really basic and it’s easier to do. These are the bare minimum questions that should be answered. If the entrepreneur can’t answer these, they should keep their money in the bank.”
Theis has seen several clients come to the conclusion that their initial plan's numbers don’t work. Often, they pivot and come up with a new plan that is workable.
The questions for clients who already have a business follow the same format as the ones for startups. Theis has used this tool successfully with many of his SCORE clients, both new and established in business.
The Zero-Draft plan culminates in asking the entrepreneur to list three immediate action items with a start date for each one.
Whether it’s the Zero-Draft Business Plan or the Business Model Canvas, Theis emphasizes, “It’s critical to have a written plan to help your business become successful.”
Dennis Zink is a volunteer, certified mentor and chapter chairman of Manasota SCORE. He is the creator and host of Been There, Done That! with Dennis Zink, a nationally syndicated business podcast series. He facilitates a CEO roundtable for the Manatee Chamber of Commerce, created a MeetUp group, Success Strategies for Business Owners and is a business consultant. Email him at centreofinfluence@gmail.com.