When I started my first business, I heard that you need to have a business plan. So, I took a long…long time to create a business plan for a business, I quickly learned wasn't something I wanted to build. It was called Exemplary Editing and I loved the logo, loved the name but wasn't crazy about the business.
There's a concept known as sunk cost that entrepreneurs and business owners should know. We are familiar with it but it's important I think to at least have an understanding of what it means. According to Account Tools, sunk cost or stranded costs “is a cost that an entity has incurred, and which it can no longer recover. Sunk costs should not be considered when making the decision to continue investing in an ongoing project since these costs cannot be recovered. Instead, only relevant costs should be considered.”
A lot of times we as entrepreneurs and business owners make investments in terms of time and money for certain projects and once we make them, we don't want to “lose” and even when it's the right move to stop our project or “cut our losses.”
This was me for Exemplary Editing. It wasn't the right business for me. I did pivot a few times before I was even aware of what it was but I wrote a long…long 30 plus page business plan for this business. After researching and reading books on exactly how to do it.
I think this was a mistake. Because I had invested so much (or what I thought was so much) at that time. I didn't want to let it go or even be seen as a failure. Even though mistakes are part of running a business and part of the process. It's important to keep in mind that there was a better way for me to plan the steps I would take for my business and in my opinion, it was right in line with the “Lean Startup” philosophy.
Enter The One-Paragraph Business Plan
I picked up a book called Never Get a Real Job by Scott Gerber and it was when I read this book that I realized that I had the “cheat code” for writing a business model. While there is still a debate around whether business plans are necessary, I'm a big proponent of saying it depends. If you are looking for funding, you may have to write an in-depth business model but if you are testing out an idea or creating an MVP, maybe you just create an actionable business plan around the One-Paragraph Business plan.
The biggest thing you want to remember about this business plan is that it's structured to force you to be action-oriented, it's not a perfect plan. It's a fast plan that allows you to reduce the amount of sunk costs so you can actually test out ideas and pivot quickly if necessary.
Here's how you do it:
- Answer these questions about your business in less than 2 sentences
- What product or service does your business provide today?
- How does your business produce or provide the product or service right now?
- How will customers use your product or service as it exists right now?
- How will your business generate immediate revenue?
- Who are the primary clients your business will target immediately?
- How will you market your startup to prospective clients with the resources currently at your disposal?
- How are you different than your competitors right now?
- What secondary and tertiary client bases you will target once you've achieved success with your primary base?
- Create checklists – This is the opportunity to check out assumptions and biases. Take each sentence from the draft plan you created and break it down into 5 steps you can do TODAY. These steps should create momentum for your business and they should look like a checklist with deadlines and potential expenses.
- Execute your plan – Rollup your sleeves and start working. After tasks are completed, ask yourself the following:
- What worked and what didn't?
- What was the result of each action step?
- Was the overall experience positive or negative? Why?
- What did you learn during the process?
- Which steps can be modified or improved for better results? How?
- Which need to be deleted altogether?
- Revise your draft plan – Keep working on the draft plan that you have. Maybe you need to adjust your target market or your product or service altogether.
- Continue to update your plan – Test, adjust and pivot your plan until you reach success.
Anytime that I'm thinking of a new product or services, I usually go back to this document to think through it. I won't say the long-form business plan is dead but it's important to know there is an alternative. This works very well to test out ideas and to move and move quickly. Also, don't forget to download our Business Plan 101 eBook.