Building a Better Business Plan

I'm often asked for my feedback on business plans, and there's a strong pattern in the advice I end up giving people. In general, entrepreneurs tend to gravitate towards two kinds of strategic opportunities -- either they're trying to improve on something that someone else is already doing, or they're chasing a new idea.  If it's the former, the path forward is relatively clear. It's not easy, but it's clear. For the most part, the challenge is to make sure you really can reliably deliver lower cost or better quality.

If it's the latter, it's a bit more complicated. Pursuing an open space in the competitive landscape requires close examination of the cause of the opening.  Is it that no one's been as clever as you? Has no one else been able to see the opportunity and devise a good strategy to fill it? The answer may very well be yes, as Steve Jobs reminds those of us living an iLifestyle.

The alternative, however, is that the space is open because it's not sustainable to close it. This is not an uncommon phenomenon. The classic example  is premium daycare.  Many people see a gap in the market for exquisitely high-end daycare services.  These are often entrepreneurial parents who have just finished surveying the options for their own children and are frustrated with the quality of their choices.  But after careful analysis, it becomes clear that high-end daycare costs about as much as a nanny.  There still might be a market for that type of offering -- until the second child comes along.  For a nanny, the incremental cost of a second child is much lower than for a childcare facility, where an additional child essentially doubles the cost.

I don't subscribe to the belief that there are no new ideas. But I do believe that many ideas that feel new have already been abandoned by other people for very good reasons. Many open spaces in the competitive landscape have earned the right to stay open.  A shortcut in the business planning process is to challenge its logic early on and ask yourself why other people haven't taken advantage of the opportunity. Yes, they may not know as much as you do -- and they may know even more.

Wednesday, March 18, 2009