What to look for in a business plan

As the recession deepens thousands of smart people are going to be out of work. They may sit at home whinging, maybe work at B&Q, but for many this is the time to use that redundancy package to start a business. They are going to need help, including a website and maybe an e-commerce site.

Last month I sugggested a way of analysing the prospects for an e-commerce site on the back of a napkin. Supposing that goes well, and your prospect needs help with the business plan. How do you start?

Now I am not a world expert on this, but I have been involved in a few business ideas and picked up a few tips.

What are investors looking for?

A successful business needs four things to succeed:

The Idea
A Market
Smart people
A way of delivering the product at a profit

If the idea is bad, the people are dumb, the market is not there, or the profitablility is not there then the business will fail. So the business plan is going to focus on these areas.

1/2 The idea and the market

You need to be able to explain the idea in non-technical terms and why you think there will be a demand. You guys are all marketing experts, so you understand that there must be something which no-one else claims to do - a Unique Selling Proposition.

Maybe there isn't a USP. Maybe you can succeed against competitors who sell the same thing at the same price and who are already established. If so you will be relying on massive marketing costs to overwhelm the competition. Plumbers don't need a USP but in the e-commerce world you need something, a niche, a benefit, to lift you above the competition.

3 Smart People

The CVs of the key staff are an essential part of the mix. If it is an internet-based business, do they understand how the internet works? If not, you had better teach them.

We are working with a startup in the logistics business that is going like a train. The senior staff are all senior ex DHL people, and they have the smarts, the industry knowledge and the contacts to drive the business forward. If you or I tried we would be lost.

4 Delivery and profit

This is where the number crunching comes in. As I said last month, the profit is the different between two large numbers, costs and sales. You can estimate costs to the penny, but sales are a wild guess. The marketing plan needs to somehow identify the cost of getting a specific number of sales.

An important part of the financial package is a cash flow forecast. Create a spreadsheet with months along the top and revenue and cost headings down the left. Add up the revenues for each month and add up the costs. The last line is the bank balance per month.

Think about modelling cash flow with different assumptions about things like conversion rate or marketing costs. You may be able to identify critical numbers which you may need to research further.

Last month I covered how to guesstimate PPC costs. Now it is time to get down to detail. A fairly simple website and a small PPC budget should give you a really good idea of costs. Find out from the Google tool what cost per click to expect from each keyword, then buy those keywords at a much lower price. Then ratchet the price upwards in small increments until you begin to see click-throughs. You may find that the Google estimate is a tad optimistic.

Conversion rates are available from a couple of places:

Interestingly the UK conversion rates tend to be higher than US but are heading downwards year on year. Generally if you get over 5% I would say you are doing quite well. You can buy more detailed conversion rate data for your industry from Coremetrics.

Unfortunately the modelling can turn into an exercise where you find the numbers that give the right answer. Beware - this is a trap. You have to be objective and conservative. I had a discussion recently where the entrepreneur insisted he was going to achieve 10% conversion - in fact his model depended on it. Hey, I have only been in the internet business for 14 years - what do I know?

Putting it together

When it comes to presentation I am not about to teach granny to suck eggs. You guys know all about that.

The Storm - what went wrong.

If you get David Pogue's email newsletter you will have laughed out loud at his description of the Blackberry Storm. Stephen Fry follows up with a storm warning of his own (no prizes for the most puns on Storm you can find). A Blackberryphile client of mine bought one and sent it straight back. It seems the Storm is a dud.

The interesting question though is: what happened? Vodaphone were hyping this like mad. Some engineer in Vodaphone must have told his boss not to touch this one. Did he/she get ignored? Was there a groupthink process that intimidated the engineer? Were they so desperate for an iphone competitor that they decided to over-rule our hero?

We shall never know.

From my Blog

Remember 600×480 screens - they are back

You may not have noticed, but the stores are starting to get shipments of netbooks. These are notebook computers that are small, light, and above all cheap. e.g. £170 each. They run Unix or Windows XP but have built in wi-fi and a web browser. So you can whip one out in Starbucks and surf the net, get your emails and so on with a real computer with a real keyboard and screen - albeit a small one. You can’t run Vista on most of these, but Windows 7 will apparently run on one of these devices.

What with cloud computing coming into its own, people are going to be using this sort of device to write documents, keep their diary and so on. Clearly a GOOD IDEA.

They are such a good idea, that I can see them becoming pretty ubiquitous. So ???

So - remember when you had to size your web pages for 600×480 screens. Well these little blighters are not much better. Maybe 800×480. These won’t count as mobile devices so a separate style sheet will not do the job. Most web pages are sized for much higher resolutions that this.

News from the web

Internet Explorer 8 is on its way. Release Candidate 1 is announced.

Does a Google search really require as much energy as boiling a kettle? The idea is so clearly ludicrous that it is hard to believe that this study came from Harvard University. I had to check that it was not April 1.

What were you doing on Christmas Day? Shopping? Four million of us were.

Internet Explorer is losing ground to Firefox, Safari and now Chrome. It is down to 68%, still high but nothing like its dominant position.

The Twitter account of Obama has been hacked and fake messages sent out. Obama has a Twitter account ? Good grief!

Now this is exciting. An HD Television from LG has YouTube and Netflix capabilitiy built-in. Users can stream movies direct from Netflix to their TV. This I must see. Yahoo has signed up major manufacturers such as Sony and Samsung to make HD Televisions which support Yahoo's online service. More about all this on my blog.