A POEM Business Plan

After putting up the POEM Framework series on my site, a lot of people have asked me the question "Where do I start?" especially if I really want to get my start-up funded. Even though I love the work Eric Ries has done with Lean Startup and I am warming up to its use, I still believe you really should start the old fashioned way - by developing a business plan! However, I don't mean a one-off document to woo investors in the archaic classical style of the MBA school I went but a process recognising that when you're preparing to start managing a business (and that's exactly what your startup is!), it is critical to begin with a think-through of all aspects of the journey you are about to embark on - something you won't have the luxury of doing once you start the train moving towards achieving your vision.

So what exactly do I mean then by business plan? Put simply, in my world, a business plan is a living set of documents created from desk research, field research, discussions and thinking you have done about your startup and the industry segment it will be playing in, showing the current market (as you best understand it through the eyes of those that know), and how you intend to fund and run your business.

Using my POEM framework, your plan should consist of at least these five sections:

Executive Summary

Every business starts with a vision! In this section you want to share that vision in a way that shows how you are solving a problem, creating economic value and making an impact on the market you have chosen. You need to give an outline of your overall plan including the objectives and how you intend to achieve them. It is very important that the summary clearly states what you're asking for be it funding, mentoring or partnership.

Business Proposition

Start by setting the context for your business proposition describing the industry and where appropriate, segment you intend to operate in, what's happening in it today (i.e. key trends and issues), its outlook including any new products and developments, what the prospects are and how all these will benefit or adversely affect your startup business. You then describe in as much detail as you can (that's why your readers sign an NDA!) your product or service offering including its features, functions and the customer experience you intend to deliver with it. Be sure to identify any regulatory compliance requirements that will affect your business as well as dependencies on others for input.

Next you want to provide a market analysis of all the different aspects of the market segment that your startup is targeting including an in-depth analysis of the different customer profiles you intend to attract and retain for your revenues. Be sure to also include a competitor analysis, demonstrating the strengths and weaknesses of identified competitors and how you intend to differentiate against them to build your business. If you have thought about them (an you should) include strategies that you have devised to give you clear advantage, build barriers to entry for new entrants, and exploit the weaknesses you identified in the incumbents.

Operational Organisation

In this section, you should start with the details of how you intend to organise the company beginning with the ownership and corporate governance of your company. You should also address the relationship you envision between the owners, Board of Directors, Management and Staff as this is the human value-creation chain (or DNA helix strand) of your business. Be sure to address how the business will function from a process standpoint describing the buy-side (i.e. procurement, vendor management etc), inside (i.e. human capital, design, development, production etc) and sell-side (i.e. marketing, sales, customer relations etc) of your operations.

It is important to demonstrate your mastery (and as appropriate lack of knowledge) of your desired organisation in this section showing potential investors, partners or employees how you see it all working. You should describe just how you expect the the business to work highlighting key roles and responsibilities of the different units that will make up the company. You should also (if possible) identify the main activities that will make up the daily operations of the business and any issues you foresee. Your approach to addressing corporate policies on matters such as asset acquisition, employee remuneration and customer retention will help or hinder your progress in bringing your vision to life. It is therefore worth spending the time to think through, find knowledgeable people to discuss with and address them in this section recognising that your plan at the end of the day is just that - a plan! Reality will by necessity be different thereby subjecting it to change.

Economic Factors

Every target segment and customer profile should be a source of revenue! Your job in the plan is to identify the revenue levels that will accrue from each, at what rate and the resources required to attract, convert, service and retain them as customers. This section should clearly state all your underlying assumptions and demonstrate the capital and operational expenses required to enable your company achieve its revenue and profitability objectives. I have never seen a business plan where the financials do not show revenue growth over time with most demonstrating rapid growth funded by generating profits. However, the cash flow conundrum created by the fact that suppliers are usually paid before your customers pay you means rapid-growth start-ups literally grow faster than they can afford and therefore always need funding.

Keeping this need for funding in mind you should clearly identify how much you believe you will need, what you're expecting to pay for it and which kind of financing (debt or equity) you are willing to accept noting that the amount of funding required will be a key consideration of what options are available to you. Co-founders, family and friends usually provide initial funding which Angel investors complement up to a few hundred thousand dollars. Beyond that Venture capital investors are likely to invest amounts of $250,000 to $5 million. As the world is slowly but steadily moving towards IFRS as a standard, you should prepare actual (if you are already up an running) and forecast estimates of your Statement of Financial Position (which shows the company's Assets, Liability and Equity), Statement of Comprehensive Income (which shows the Revenues and Expenses), Statement of Changes in Equity (especially if you are anticipating funding using equity) and Statement of Cash Flows showing your expected operating, investing and financing cash flows.

Milestone Management

While I have focused on start-ups, business plans are a living document and should be updated regularly to reflect the current state of any business. One of the key roles of the owners of the company is "keeper of the vision" which they needs to ensure the company is bringing to life. The plan must describe the strategy by which this will be achieved overall including the key goals and objectives deriving from the ensuing mission and the major milestones that will occur along the way as progress is made. For a startup at ideation, no doubt the first customer is a major milestone as should be the first investor. Break-even and becoming cash positive are others that an investor would expect to see.

There is no one size fits all approach to building, growing and managing a company but if you agree that the purpose of a commercial entity is to profitably attract and retain customers by creating value then the method of achieving this objective with limited resources as is always the case may lend itself to sound project management techniques even though it is an ongoing concern.

I hope this helps and thank you for reading. As usual, please feel free to share giving credit as due.

H. Tomi Davies

May 2014

Posted