Cooking up business success requires grasp of basics
As the nation is recovering from another successful season of the Great British Bake Off, it seems appropriate to look at one of the most important parts of creating a successful start-up company – cooking up a business plan.
The business plan is a selling document, it explains clearly and concisely what the company is going to do, how will it operate and make money. It also describes who are the customers, and demonstrates that the team has the right skills and experience to deliver.
From my own business experience and involvement in the Converge Challenge, one of the key challenges for budding entrepreneurs is to clearly define how big the market opportunity is: is it a £1 million, tens or hundred of millions or, several billions. And it is simply not sufficient to provide a basic statement. Instead, founders are required to validate their thoughts with practical evidence.
Many business plans tend to rely on generic market information drawn from a range of sources and market studies with an assumption that, because the new company would be offering something novel and unique, it must gain a percentage of the total market.
To give an example, I recently read a plan that described in detail what the product could offer, however a section covering the market opportunity, simply contained tables showing that the market globally was worth several billion pounds. This team made the assumption that due to the level of innovation in their product they could capture 5 per cent of the global market. Five per cent does not sound like a lot but for a start-up that is yet to secure a first sale, one would need to describe in great detail how this would be achieved.
In contrast, one of the best examples of market validation that I saw recently was in a business plan prepared by a new start-up. The team had invested in researching the market scale but also in seeking independent validation. They had broken their market opportunity into three distinct sectors, security, defence and digital media.
Having then identified and secured a strategic partner in each sector, they obtained a firm confirmation that their product offering provided the solution that the market required. This resulted in their plan having a fully comprehensive understanding of each market segment and how priorities and interest can be different depending on what the solution could offer.
While everyone recognises there are no guarantees that this approach will lead to sales clearly the benefit of having an end user to challenge and inform the discussion as part of the business planning process makes a lot of sense.
l Tom Ogilvie is enterprise manager staff at Edinburgh Research and Innovation