When working on a strategic marketing or business plan, you need to step back every so often and take a reality check. Is your plan feasible? And will it be attractive to bankers, lenders and investors?
Naturally, this depends on your goals. The first checkpoint is that your plan must achieve your goals, or at least complete a first major phase towards your ultimate goal (after all, a new venture probably can’t start from scratch and overtake industry leaders like Cisco, Toyota or Walmart within the usual three-year planning horizon). But if your plan doesn’t achieve your goals, go back and think it through again.
Once it does, how do you know what others will think?
Jeffry Timmons, a former professor at Harvard Business School, Babson College and Northeast University (Dr. Timmons recently passed away), believed that there are three important questions which entrepreneurs must consider in their planning.
- What is the opportunity? Distinguish between good ideas and real opportunities. In assessing opportunities, Timmons emphasized catching the “window of opportunity,” assessing the long-term financial rewards, and addressing the nature of the risks.
- How good is the founding team? Timmons stressed the importance of a skilled and experienced management team versus a lone wolf. He was also concerned that entrepreneurs have the toughness for the long haul, and a philosophical makeup that would keep them ethical.
- Does the venture have access to the necessary resources? Financing is obviously key. And aside from financing, the management team needs to be able to access outside experts. Ownership of the venture should be fair so that everyone involved has an incentive.
Timmons teamed up with another expert on entrepreneurship, Stephen Sinelli, the co-founder of Jiffy Lube who later earned a Ph.D. in economics and went on to become a business professor and director of the Arthur M. Blank Center for Entrepreneurship at Babson College. Together they wrote a popular textbook widely used at business schools called “New Venture Creation” in which they defined the following characteristics of a high-potential new venture:
- The product/service creates or adds significant value for a customer or end-user; that means it solves a significant problem and/or meets a significant need for which someone will pay a premium.
- The market for your product/service is robust, with sufficient margin and money-making characteristics. Specifically, the target market is large enough ($50 million or more) and exhibits a high growth rate (20% or more).
- The new venture will generate strong and early free cash flow through a combination of recurring revenue, low assets and low working capital.
- There is a high profit potential of 10% to 15% after tax.
- There are attractive returns for investors of 25% to 30% IRR.
- The venture fits well with the existing founder and management team at the time of start-up, in the market, and balances risk/reward.
- The venture can scale with an eye to sustainability and impacts.
Comparing your business plan to these criteria is a worthwhile exercise that will give you a good indication of its real-world feasibility.