Some time back I had read somewhere an article on how to assess the health of a factory during a site visit, based on 8 factors. In this post, I propose to help assess how good a plan is, based on 8 salient features of a good business plan.
1. The Idea
What is the idea? What is different? A simple, un-obvious, easy-to-describe idea which a large number of people can repeat back without changing. That to me is the #1 requirement. Twitter's microblog and Subway's Foot-Long Sub are good examples.
2. The Opportunity
Does your idea solve a big problem? What is the market opportunity? What is the addressable market? It must be right-size and -more importantly- with a growth potential. That growth potential should be deduced from observable trends in the environment. The opportunity is at the core of external analysis. Nokia in the 1990s and Google in the 2000's identified such big and growing opportunities in mobile communication and online advertising respectively.
3. Why Us?
Why on earth should we be the best people to pursue the opportunity and the idea? What are our core competencies? Why can't someone else do it better? What's so special about us? This is the core of internal analysis. When Apple went after reorganizing the music industry with iPod, and Wolfram Alpha decided to be the #1 search engine for computable information, they leveraged their core strengths in consumer software/hardware and mathematical software respectively.
4. What Will it Take?
What resources will this take and where to get them from - what to give up, what to do less in order to do more of this. When Nokia decided to focus on Telecom in the early 1990's they gave up a bunch of other businesses. When ICICI decided to become a bank around the same time, they invested in a bunch of new capabilities related to retail banking.
5. Business Model
Who pays? How do we make money? That defines the business model. A musician may distribute the music absolutely free online and leverage the popularity to organize live concerts for a fee. A site like LinkedIn may provide free membership to a large number of professionals and essentially sell the use of their data to a select number of paid subscribers interested in recruiting. Zynga may choose to money on several small transactions, each involving buying of a virtual trinket meant as a gift. Tap2Talk is free for the user, but its customization requires subscription, and it is tempting to customize it to suit the voice of your kid.
6. Sustainability
How do we protect our business from competition? What barriers for competitor entry do we erect? Are these on supply side (patents, exclusive sourcing) or on demand side (customer captivity, channel exclusivity)? Or are their systemic barriers arising out of economies of scale, making it hard for competitors to produce for less? Microsoft, Garmin, Research in Motion all created barriers that allowed them some measure of sustainability.
7. Timeline
Okay, so what is the plan? What are the milestones? What is time critical? What are the dependencies? Companies like Electronic Arts -the game maker- and Intuit -the personal finance software maker- must take into account external factors (holiday season, tax year-end) to determine their timelines.
8. Cash Flows
It does, initially outward and then hopefully inward. A plan needs to visualize the flow of cash and figure out investments needed, RoI and other metrics.
In summary then the first 4 factors answer the "what" questions. What is the big idea? What is the big opportunity? What's special about us? What will it take? The next four factors answer the "how" questions. How do we make money? How do we sustain? How do we plan the timeline? How do we finance and get a return?
A good planner should pay sufficient attention to both types of questions and put together a winning plan.
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