Innovation Challenge Advisory Committee member Larry Pate compared starting a business without a business plan to taking a cross-country trip without knowing how you’ll reach your destination. “The odds of success of just getting in the car and driving are slim. You might have a fun time, but it will take you a long time to get there.”
Students interested in entering the 2015 Innovation Challenge got a lesson Tuesday in a key part of the competition: creating the business plan. The contest offers $50,000 in seed funding and business services to the winning business idea.
“It’s one thing to have an idea—it’s another to say how you’re going to make money,” said Pate, chief learning officer at Decision Systems International.
Bruce Sparks, a senior business advisor for the Long Beach Small Business Development Center, told students that the “if you build it, they will come approach” is a recipe for failure. Instead, entrepreneurs must clearly understand their market, their customers, and how their product or service can add value or solve a problem.
“You have to understand your market. And it has to make financial sense,” said Sparks, who has helped start more than 100 businesses.
Although there’s a saying that business plans are often obsolete by the time they get to the printer, Sparks said the process of writing one forces entrepreneurs to explore questions that will increase chances of success.
It’s important to have a thorough understanding of all aspects of the business. Many small business owners have deep understanding of some facets, such as operations, but may not be as clear about finances or their market.
A business plan starts with an Executive Summary, which is written last. Other components include a description of the business, marketing and sales strategy, financial analysis, details of the products or services being produced, and information about the company’s organization and management.
Sparks suggests starting with the marketing plan, since that will help answer key questions such as: how large is the market, is it fragmented or dominated by a few companies, and growing or stable. A great deal of market research is necessary. Engineering librarian Hema Ramachandran suggested students take advantage of databases in the Engineering Library. Other business plan resources can be found on the Innovation Challenge website.
The makeup of the management team is critical, as is an advisory board filled with experienced professionals capable of stepping in if the business runs into trouble. “Even if you have an incredible idea, a bad team will mess it up every time,” said Sparks.
Business plans submitted by Innovation Challenge contestants will be reviewed by professionals. “We’re looking at these business plans like they’re real business plans,” Sparks said.
If companies are competing on price, their costs must be lower too. And if the company is offering a new product, there better be customers waiting to buy it. “If you don’t have a competitive advantage, don’t compete,” said Sparks, repeating the advice of legendary General Electric CEO Jack Welch.