Describing the Opportunity
You know your idea inside and out, so it can be easy to lose sight of the details that will matter to investors when you draft your business plan. Ensure that your plan explains how your offering will help customers and places that offering within the larger business context, too.
Presenting your idea
Win readers over with a description of your idea that addresses a clear and specific business need and provides details about the larger context within which your offering will thrive.
To add customer focus to your plan, consider these questions as you define your product or service: What customer pain are you easing with your offering? What special technology, new perspective, or unique concept will you offer customers that is better than what’s available now? And what will compel them to buy your product rather than your competitors’?
Even if you’re not trying to raise a round of venture funding and are instead trying to build a persuasive case for a new product or initiative within your company, you must make sure the business need is clear. If your investors and managers don’t agree with your explanation of the problem, they’re not going to support your venture. Let’s say, for instance, that you’re trying to solve the problem of low customer usage of your company’s mobile retail shopping app. You have an idea to redesign the app that could increase customer engagement. But what if the technologists at your company don’t think there’s anything wrong with the app? What if, instead, they believe that low customer usage is the result of poor marketing? To gain buy-in for your idea, you’d have to build a case for the technology group and other decision makers with evidence that proves that the root cause of low engagement is a design flaw, not a problem of branding or awareness.
Of course, you can’t really describe your plan and its customer focus clearly without addressing the “context” in which your business will flourish. We’ll explore that part later, in “Analyzing the business environment.”
Executive summary
The executive summary is a concise description of what your company is, where you want it to go, and why it will be successful. In just one page, it gives readers an understanding of your proposal and captures their interest in your new venture. In some cases, this is the only section your time-pressed audience may read, so the key is to present your concept passionately and lay out why you believe the business will be a resounding success, even as you acknowledge the risks and costs involved. A well-crafted executive summary will inspire your reviewers to read on.
SAMPLE COVER PAGE
To give you a better sense of how a business plan might look, this book offers a primary case. Meet TechnoExercise Corporation (“TechEx”), an imaginary, hypothetical online diet and exercise service based in Cambridge, MA. Woven throughout this book, you’ll find examples of certain sections of TechEx’s business plan that will help you understand how it fits together. This is just one sample—there are many variations, since a good business plan is always tailored to its audience.
Here is the material that goes on the cover page:
TECHNOEXERCISE CORPORATION
TechEx
559 Treburke St.
Cambridge, MA 02115
(617) 555-1234
Ping Huang
Founder and Chief Executive Officer
email: [email protected]
cell: (617) 555-8888
Anjali Banerjee
Chief Financial Officer
email: [email protected]
cell: (617) 555-2222
Mercedes Meceda
Chief Technology Officer
email: [email protected]
cell: (617) 555-7777
Plan prepared July 2014 by Corporate Officers
Sketching out your executive summary can give you a rough idea of what you plan to say, but rewrite and polish it once you’ve finished drafting your entire business plan, paying attention to those areas that may have changed during the writing process.
An executive summary typically includes the following elements:
• A mission statement: one or two sentences that describe what your business is about, its philosophy, and your vision for its future.
• A succinct description of the industry and market environment in which your new venture will develop and flourish.
• An explanation of the unique business opportunity you’ll be taking advantage of.
• A brief mention of the competitive advantages that differentiate your product or service from rivals’ offerings.
• A rundown of the financial potential of your new venture, as well as the anticipated risks.
• A description of the management team and their respective roles.
• Information about the stage of the business (on the drawing board, in start-up mode, ready to expand), its financial status (whether you’ve raised any money or have taken out any loans for the business thus far), and its structure (partnership, corporation, affiliate). Online resources such as the website of the Small Business Administration will be very helpful here.
• Details on the capital requested so that readers understand what you hope to gain from them, such as money, contacts in the industry, or other resources.
SAMPLE EXECUTIVE SUMMARY
TechEx’s mission: The driving principle of Techno-Exercise Corporation (“TechEx”) is to change the way women lose weight and tone their bodies using four key elements: customized data-driven metrics, personal psychology, access to certified health professionals, and emotional support from a community.
How it works: Customers wear a stylish monitor (fitfast) that tracks their eating and exercise patterns online. They also receive one-on-one weekly video chat sessions with a registered dietician, behavior coach, and trainer, all of whom monitor their weight loss and muscle gain via a customer-supplied wireless scale. Through message boards, instant messaging software, and moderated chat rooms, customers also have access to a community of fellow dieters who provide them with emotional support and encouragement.
Structure: TechEx, which was incorporated under the laws of the State of California on August 30, 2013, is headquartered in Cambridge, MA, in the heart of the US entrepreneurial community. The company has filed a petition with the Internal Revenue Service seeking to qualify as an “S Corporation.”
Market: The service appeals to busy professional women who don’t have time for traditional fitness and weight loss programs. These women may be overweight and in search of diet plans, or they may already be at a healthy weight and looking to mix up their fitness routines. TechEx will promote its service through targeted advertisements in diet and fitness magazines. The company will expand its marketing activities through strategic alliances with employers and insurance plans as well as partnerships with healthcare groups and gyms.
Management team: The company’s founder, Ping Huang, is a former operations manager at an online nutrition start-up. She met her business partners, Anjali Banerjee, who worked at Morgan Goldman investment bank in Dublin, Ireland, and Mercedes Meceda, a former Dain consultant, at MIT’s Sloan School of Management. Together, this management team is responsible for TechEx’s daily operations and owns 100% of the company.
Competitors: The weight loss industry is crowded and the market environment is highly competitive. TechEx’s primary rival is E-Fitfab, a full-service program similar to TechEx. However, E-Fitfab does not have any element of community and social support, which research indicates is very important to female dieters. Other large, well-known weight loss companies, such as Calorie Counters and Jenny Haig, tend to focus more on healthy eating rather than exercise; furthermore, they are so big that they cannot offer customized services. Other competitors include free apps like My-ExerciseBuddy and Lose Weight!, which help users track food and exercise while also networking with friends. These products are aimed at customers who take a DIY approach to diet and exercise, while TechEx is targeted at customers who prefer a tailor-made full-service program. In short, TechEx is the only company that offers customizable and convenient diet and exercise solutions combined with the social support critical to effective weight loss. Nonetheless, one of the biggest risks the company faces comes from potential me-too competitors who might exploit parts of TechEx’s business model.
Pricing strategy: TechEx is priced below E-Fitfab, which will put it in square competition with that company, but TechEx’s pricing still positions it as a first-class service provider.
Financial status: TechEx seeks funding of $250,000 that will add to the $84,000 of initial financing that was raised among friends and family. At this point, the biggest challenge that TechEx faces is cash flow. The company requires immediate funding for system development and technology programming as well as advances for contracts with dieticians, behavior coaches, and trainers. These represent TechEx’s biggest costs.
What is TechEx’s future? The company estimates first-year sales of $11.74 million, gross margins over 60%, and net margins of approximately 42% before taxes. The company expects to be profitable after the first six months of operations. After that, TechEx plans to embark on an international expansion plan in Europe. Ultimately, the management team would like to take the company public.
Business description
The business description is another summary, but it differs from the executive summary because it provides a high-level, forward-looking overview of your proposed venture. This is the section of the plan where you go into greater detail about your business. Think of it as an extended elevator pitch that helps readers and potential investors quickly grasp the concept of your business and its value proposition. The business description must also demonstrate how an opportunity can grow—in other words, how the new venture can increase its range of products or services, expand its customer base, or widen its geographic scope.
In some cases, your proposed product or service is so unusual or technical that it deserves its own separate section to explain what it is and how it functions. This will also highlight your venture’s special features and points of differentiation from the competition.
SAMPLE BUSINESS DESCRIPTION
TechEx offers a distinctive blend of exercise and diet monitoring that combines cognitive behavioral approaches to weight loss using cutting-edge technologies. It is aimed at time-crunched women who either travel extensively for their jobs or have little time to get to the gym because of other demands in their lives. It provides three important benefits that address the target end user’s needs: flexibility, support, and targeted weight loss.
The plan works like this: When a customer establishes an account, she receives a wearable and stylish fitfast monitor that tracks her eating and exercise patterns online. She is also granted access to a range of auxiliary services, including one-on-one weekly video chat sessions with a registered dietician, behavior coach, and trainer, each of whom keep track of her weight and progress via the fitfast monitor. (This increases the effectiveness of the program: According to a study in the Archives of Internal Medicine, patients in weight-loss treatment programs lost more weight when they coupled nutritional coaching and exercise with prompts from mobile apps.) The customer may also tap into a community of fellow dieters that provides her with social and emotional support through message boards, moderated chat rooms, and instant messaging software. The community also shares tips, including products, recipes, and ideas for how to keep fit while traveling.
TechEx’s interface is user-friendly, and the service allows the client to configure packages that will meet her unique needs. For instance, customers can easily:
• Register and activate the product using nothing more than a credit card and mobile phone.
• Specify weight loss and/or fitness goals, and modify those numbers at any time.
• Enjoy one-on-one weekly video chat sessions with a registered dietician and a behavior coach.
• Discover exercise opportunities unique to their specific location, such as running routes in a foreign city or the best yoga class near home.
• Receive low-calorie meal suggestions for restaurants in any major metropolitan area.
• Check community boards for notes on spots that are friendly for a “table for one.”
• Participate in weekly virtual personal workout sessions with a certified trainer, using small weights, bands, and other portable exercise tools.
• Customize exercise plans for targeted work on certain body parts, such as abdominals or arms.
• Review their weekly and monthly progress at any time.
• Engage with other members of the TechEx community as often as they choose.
TechEx also has plans to expand internationally. The first targets include Ireland and the United Kingdom, where obesity rates are on the rise and where a large number of professional women are in the workforce. There is additional long-term growth potential in other countries in Western Europe.
Analyzing the business environment
This section illustrates the potential of your idea within the context of its industry and market. We use the terms industry and market to describe separate but overlapping parts of the broader business environment. Industry refers to the group of companies that produce and sell products or services to the market. The market is where your product or service will be sold. The industry defines both your colleagues and your competitors; the market determines your opportunity and your customers. The area of intersection represents your business opportunity—that space in which the customer’s need meets the product or service you provide.
To clarify the context for your opportunity, address these two questions: Is the market for your new product or service big, growing fast, or—ideally—both? And: Is the industry now, or can it become, structurally attractive—that is, where sales or demographic trends are favorable? Why does this context matter? As William Sahlman notes, investors seek out large or rapidly growing markets because getting a share of an expanding market is often easier than competing with established players for a share of a mature or declining market. Indeed, savvy investors try to spot markets with high growth potential early in their development because that’s ultimately where the big payoffs are.
Start by demonstrating an awareness of your new venture’s environment and how it helps or hampers your particular proposal. You should include information on the macroeconomic situation, as well as background on the range of government rules and regulations that will affect your plans. Such information is readily available from official government websites, trade association sites, and published news articles from reputable magazines and newspapers. Next, show that you understand that the venture’s context will undoubtedly change and try to articulate how those changes might influence the business. Finally, describe how management will react if the context changes in an unfavorable way (see sidebar “Sample Industry Background”).
A tip: As you research the industry background, competitive analysis, and market analysis sections, document your sources. Support your claims about market growth and competitive strategies with verifiable information and expert sources such as a market research firm, trade association, or credible journalist. Good record keeping will pay off in the short and long term.
Industry background
The first element of the business environment analysis is industry background, which provides details about the shape and size, as well as other important features, of the industry. The following questions will help frame your thinking:
• What is the industry? What are the products or services currently produced by the industry? How big is it? What is its overall profitability? What characteristics define the industry? What are its special challenges? Is the industry spread out geographically, or is it concentrated?
• What is the industry’s outlook? What important trends are emerging? What is the industry’s predicted growth rate? What factors might contribute to future growth? What new patterns of growth are emerging?
• Who competes in this industry? Is the industry fragmented, consisting of many small participants? Or are there a few major competitors controlling it? Which companies have offerings that meet the same needs as your proposed product or service? What resources do they control?
• What are the industry’s barriers to entry? What is your window of opportunity to enter the market? What are the obstacles that could block you from entering this industry? What resources, knowledge, or skills does it take to enter this industry? Are there restrictive federal or international regulations, large capital requirements, or areas of sophisticated technical knowledge associated with providing the products or services?
SAMPLE INDUSTRY BACKGROUND
The global weight loss and obesity management market—which is estimated to be worth $265 billion—includes a wide variety of products and services in three main categories: over-the-counter consumer goods, such as diet beverages, low-calorie packaged meals, and nutritional supplements; weight loss services, such as structured diet plans; and fitness equipment and surgical procedures. Within this industry, TechEx competes as a weight loss service.
Market growth: Obesity rates are rising around the world, but the United States—which has the sixth highest rate of obesity in the world—remains the leading market for diet and exercise companies. The global increase in obesity and associated chronic diseases, namely diabetes and heart disease, are accelerating the growth of the industry. Other key factors driving growth include: rising disposable income, a pronounced stigma against excess weight, policy initiatives to raise awareness about the importance of health and fitness, and technological advancements that enable simple, expedient tracking of diet and exercise. In 2012, the weight loss industry as a whole grew at a steady 3% in the United States.
Industry landscape: The US diet and exercise industry is highly saturated; it includes several big, well-established players in addition to thousands of small competitors vying for a share. (See competitive analysis.) Most of these companies target female dieters, but thus far none have concentrated on the niche market of highly educated professional women. (See market analysis.)
Emerging trends: In the aftermath of the global financial crisis and the subsequent recession, dieters in the United States have recently gravitated toward free and/or inexpensive do-it-yourself diet plans. These include over-the-counter solutions such as diet pills and books, as well as online eating and exercise platforms and mobile apps. According to Marketdata Enterprises, the internet-based diet plan market is worth at least $1.1 billion and is growing at 8% per year. Customers seek online solutions because they’re convenient, easy-to-use, and cost effective, but most online weight loss solutions are one-size-fits-all programs that do not work for all customers.
TechEx’s unique selling point: The TechEx platform is highly attractive to professional women who are overweight as well as those who are in shape but looking to mix up their fitness routines. These women require personalized services tailored to their specific diet and exercise needs, and they want these services to be structured in a way that is convenient to their busy lives. This group tends to earn above-average incomes and demonstrate willingness to pay a premium for convenience. Such women are motivated and highly educated, and also predisposed to heed advice from experts. TechEx blends customized expertise with a straightforward interface that customers can access at any time they wish.
Barriers to entry: Generally speaking, there are very few natural barriers to entry (such as capital requirements or proprietary technology) that would prevent new market entrants. Consequently, prospective competitors will likely develop and promote competing products once they learn of TechEx’s success. Anticipating the threat of new market entrants, TechEx is forming strategic alliances with employer-based health and wellness programs to offer its services to employees who must travel frequently for their jobs. TechEx believes that these exclusive arrangements will effectively preclude potential competitors from reaching the target markets in a cost-competitive fashion. TechEx is seeking to establish a second barrier by creating a brand identity for its stylish fitfast wearable monitor so that clients will come to recognize the TechEx brand as a reliable, high-quality service.
Sources: The US Weight Loss & Diet Control Market (Tampa, FL: Market-data Enterprises, April 2013); Weight Loss and Obesity Management Market (Dublin, Ireland: Research and Markets, May 2013); and CIA World Fact Book.
Competitive analysis
The second part of evaluating the business environment is a competitive analysis. In this section, you identify any direct and future competitors of your venture and describe the threats they represent to your success. Whether your target audience is potential investors or a corporate leadership board, your readers require that you thoughtfully appraise your current and potential rivals in order to weigh the viability of your idea.
Here are some questions to consider:
• Who are your competitors? Think in terms of which companies solve the same problems for the customer that you intend to. What are their products and services? How much market share does each competitor control? Consider that rival companies could exist in another industry. For instance, a competitor to TechEx might be a shapewear company. Customers may forgo paying for a diet and workout service and instead buy better foundation garments to look good.
• What are your competitors’ strengths and weaknesses? Do they enjoy strong brand recognition of their products? What are their marketing strategies? What has been key to their profitability?
• What distinguishes your business from rivals? How are you responding to a customer need in a new and useful way? What differentiates your product or service from competitors’ offerings?
• What is the competitive outlook for the industry? How much of a threat are your competitors to your venture? Will they aggressively block the entrance of a new rival? Will they poach your ideas, appropriating them for their own business (killing your unique value proposition)? Who else might be able to observe and exploit the same opportunity?
Market analysis
The final part of assessing the business environment is the market analysis. In this section, you focus on your target market—the group of people or companies that will choose to purchase and remain loyal to your product or service because you solve a problem or meet a need for them better than your rivals do. This is where you demonstrate that there is indeed an opportunity within this market and that your new venture can capitalize on it.
SAMPLE COMPETITIVE ANALYSIS
Industry competition for TechEx comes in several forms. But while the companies listed below represent some threat to TechEx, none offers precisely the same cognitive behavioral approach to sensible eating and exercise, while also providing crucial emotional and community support.
1. E-Fitfab: TechEx’s closest rival is a full-service program in which customers wear a monitor that tracks their eating and exercise patterns. Its advantages are that customers have access to a registered dietician and a behavior coach. However, its biggest drawback is that E-Fitfab lacks any element of community, which research indicates is very important to women dieters. (Studies show that people derive satisfaction from an online weight loss community because it offers recognition for achievement, accountability, friendly competition, and humor. They also value non-judgmental interactions with others.) TechEx offers a wide range of online social support through its community of fellow dieters via message boards, chat rooms, and video conferencing software.
2. Calorie Counters: The 800-pound gorilla in the industry is perhaps the most recognized brand in the commercial weight loss world. The Calorie Counters program is based on accountability and community support, à la Alcoholics Anonymous. Its main strength is that members are weighed weekly and attend meetings where they find encouragement from a community of fellow dieters. The company uses a system that assigns points to every food and members get a daily target number so they easily know how much they should eat in order to lose weight safely. Calorie Counters’ biggest problem, however, is that it has been slow to adapt to new technologies. It does not, for instance, offer online meetings and provides limited internet-based support. Its system is very inconvenient for busy customers who are not able to make it to the meetings on a regular basis. Finally, Calorie Counters is so large that it cannot offer custom eating and exercise services, which is what many dieters so desperately need. By contrast, technology lies at the heart of the TechEx business model. TechEx’s cutting-edge system enables customers to engage when it’s easy and convenient for them.
3. Jenny Haig: Another industry powerhouse, Jenny Haig provides a program based on restricting calories, fat, and portions using prepackaged meals. Members also receive weekly one-on-one counseling sessions with a Jenny Haig consultant. The company’s strength lies in the fact that it makes eating well very easy for customers. However, the program is cost-prohibitive for many people, and it does not have enough variety for customers with special food allergies or dietary concerns. It’s also too narrowly focused on the food aspect of weight loss. TechEx takes a holistic approach that blends psychology and physiology into a sensible eating and exercise program.
4. Free apps: Other competitors include free apps such as MyExerciseBuddy and Lose Weight!, which help users track food and exercise while also networking with friends. These products are free and geared at customers who take a DIY approach to diet and exercise. TechEx, on the other hand, is targeted at customers who prefer a tailor-made full-service program and who wish to receive support from health and fitness experts rather than just advice from friends.
Sources: “Social support in an internet weight loss community,” NIH manuscript, January 2010, http://www.ncbi.nlm.nih.gov/pubmed/19945338 and “Dieting in the Digital Age,” Knowledge@Wharton, October 2013.
If you’re trying to start a new program or initiative at your company, you should begin by talking to colleagues who are directly affected by the problem and will consequently benefit from the solution. Ask them: When did the issue start? How does it manifest itself? Marshal relevant reports, surveys, and other evidence. This will help you develop a full picture of the issue so you can tweak your idea to better solve the problem.
Here are some other fundamental questions this section must address:
• Who are your target customers? How many of them are there? What is the forecasted growth for this group? Consider the target market from different perspectives, such as geographic location or segmentation (national, state, suburban, city, neighborhoods), demographic features (age, gender, race, income level, occupation, education, religion), and behavioral factors (customers’ attitudes and responses to types of products).
• What are your prospective customers’ critical needs? Are those needs being met? How does the customer make decisions about buying certain products or services? Are these purchase patterns affected by economic cycles or other seasonal factors? As Harvard Business School professor Clayton Christensen asks: What job is the customer hiring the product to do?
• Why will customers in your target market purchase your product or service? What are your solutions to customer problems? What customer discomfort will your product or service ease? How will your customers differentiate your product from those of your competitors?
SAMPLE MARKET ANALYSIS
Size of the US market: At any given time, there are approximately 108 million Americans on a diet. Typically, these people make four to five attempts per year to lose weight, spending $40 billion a year on weight-loss programs and products. Within the US weight loss industry—which will reach $66.5 billion in revenue this year—women are a special category, comprising 85% of customers. Women who purchase weight loss programs and products represent a large and growing demographic group with above-average income and a higher than average level of education. The number of women in the labor force is projected to be more than 78 million by 2018. Today, about 73% of those women have white-collar occupations, a percentage that is expected to increase.
Potential international market: As obesity rates climb internationally, diet programs are becoming more popular overseas. This is particularly true in Europe, where TechEx plans to expand. For instance, one recent study shows that some British women spend £25,233 on diets over the course of their lives.
Target customers: While Calorie Counters, which relies on a group meetings model, and Jenny Haig, which relies on meal replacement, have long been go-to companies for most women, they are steadily losing their appeal. Increasingly, many women are turning to technology-based diet plans, including diet websites and exercise apps, because they are more convenient for their busy lives.
Against this backdrop, TechEx offers a uniquely effective experience for two target end users:
Busy professional women who are overweight: A general characteristic of this group is that they lack time to make it to regular group meetings, let alone the gym. They are knowledgeable about, and have experimented with, most of the popular diet plans, but find them impractical for the realities of their lives. These women seek a solution that is convenient and has a measurable impact on their weight. As a group, they tend to be highly motivated and tech-savvy; when faced with a decision, they are moved by hard data and scientific evidence. They trust health professionals and regularly seek expert opinions. (For example, they trust fitness advice from a reputable and well-researched magazine rather than a late-night infomercial.) Because of their hectic work and home lives, they have experienced a sense of isolation because they don’t have a community with which to share their struggles. They crave emotional support.
Busy women who are of a healthy weight but want to mix up their routines: These women are looking for ways to maintain their weight, but also improve their bodies and level of nutrition. They are highly motivated to make adjustments to their routines for the benefit of their health. They may work long hours or take time out of the workforce to care for young children or aging parents. Either way, they are unable to make it to the gym and instead need a program they can do at home or on the road. They are looking for a program that will tailor a fitness and nutrition regimen to their specific concerns (such as a flabby stomach or un-toned biceps), and one that will produce real results.
TechEx, with its emphasis on customization (based on personal data), expert support (from dieticians, psychologists, and trainers), convenience (all programs are delivered online/mobile), and emotional support (from a sisterhood of women who also struggle to create and maintain healthy lifestyles on the go) is a natural choice for these two groups.
Sources: US Department of Labor; MarketData Enterprises; National Weight Control Registry; Bloomberg Businessweek; Center for Disease Control; and Engage Mutual: http://www.engagemutual.com/about-us/media-centre/all-news/2010-press-releases/cost-of-dieting/.