By Bennett Loudon
When Stephanie Mills first got the idea to open a dog day care she imagined a huge12,000-square-foot facility with a large staff caring for all kinds of dogs.
But when A Dog’s Dream opened in April 2010, Mills catered only to small dogs in a cozier 2,500-square-foot space in Pittsford with just six employees.
Fortunately for Mills, she recognized potential problems with her original idea when she developed a business plan and modified it, long before ever opening a shop.
“Doing that research gave me my niche. This definitely helped focus my attention in the right direction and gave us something that makes us stand out,” she said.
Experts say writing a business plan is the first, and possibly most important, step in creating a company. It can bring ideas into focus and help others understand why they should support you financially.
In a 2010 study, University of Oregon researchers found evidence that a business plan increases the chances of success. They surveyed 2,887 business owners. For the 996 who created a business plan, 36 percent obtained a loan, 36 percent got investment capital, and 64 percent grew their business.
For the 1,556 who did not complete a business plan, only 18 percent secured a loan, 18 percent got investment capital and 43 percent grew their business.
A business plan is usually 15 to 20 pages long and lays out what you’re going to do and how you’re going to do it. It’s divided into sections, highlighting things like location, hours of operation, suppliers, pricing, competition and market analysis.
“It’s pretty straightforward stuff. There’s no rocket science in it,” said Richard Notargiacomo, director of new ventures and commercialization for the Venture Creations incubator at Rochester Institute of Technology, where he also is an adjunct professor at the E. Philip Saunders College of Business.
It ain't happening
The plan explains what problem you are solving, who your customers are, why your solution is better than others and how you will sustain that advantage. The plan also describes how will you find customers, sell to them, and make your product. It will explain your supply chain, how you will transform raw materials into your end product and deliver it to customers.
Not only does a business plan clarify the entrepreneur’s vision and sort out all the details of the enterprise, but it hopefully will address any questions bank lenders and possible investors might have.
“You’re not getting money from an institution, investor, or angel without the plan. It just ain’t happening,” said Dennis Kessler, the Edward and Agnes Ackley clinical professor of entrepreneurship at the University of Rochester’s Simon Graduate School of Business.
Banks usually only lend to companies that have a history of profitability to show they can repay a loan,
“That’s the number one thing we’re looking at,” said Jeff Barker, senior vice president, commercial services, at Canandaigua National Bank and Trust.
“If we’re going to look at somebody who’s a startup, we want to know what is their plan, primarily, to pay us back, and is their idea or company that they’re coming up with, is there substance behind it and does it make sense to us,” said Barker, who reviews about 200 business plans a year.
When a customer applies for a loan without a business plan, banks often refer them to small business assistance organizations, such as the New York State Small Business Development Center at The College at Brockport, SCORE, a nonprofit organization of volunteer retired business people, or the Urban League of Rochester’s state-funded Business Development Center.
A tedious process
Mills took a workshop with Greater Rochester SCORE that helped her develop a business plan.
“I had to figure out the market that I wanted to be in and who can afford the service and is this really going to succeed in Rochester,” said Mills, 29, of Brighton.
“I did it for myself to make sure I was on the right path, but of course I also did it so that I could take it to a bank and successfully get a loan,” said Mills, who borrowed $20,000, and used personal savings to get started.
Michael Xillas, a SCORE mentor and chairman of SCORE’s marketing committee, said clients view the creation of a business plan as a “tedious process and something to be avoided.”
To entrepreneurs, the most daunting portion of the plan, and the most critical, is the financial projection section, he said. The plan must explain sales volume, prices, revenue, and costs.
“One of the biggest benefits of having a business plan is the planning it takes to get there. It’s that act and discipline of planning. It’s the discipline of writing things down,” Notargiacomo said.
Don't bet the ranch
Kessler, co-owner of Kessler Restaurants LLC, which owns and operates 21 Burger King and 47 Friendly’s restaurants, said business plans often reveal two key issues for startups: Exaggerated revenue expectations and a lack of adequate funding.
“People are surprised to see how much money they will need, or how long it will take to grow the business,” he said.
In some cases, a business plan will help an entrepreneur avoid a financial disaster by exposing the futility of an idea. Consider a recent SUNY Brockport Small Business Development Center client with an idea for a new business.
“He was ready to bet the ranch on it and he was ready to hock the house, the kids’ education funds, everything. He was going into his 401(k). He was so sure this business was going to fly the way he anticipated. We sat down and had him work through the plan,” said Jan Pisanczyn, director of the Brockport Center.
After a few weeks the client visited Pisanczyn.
“He looked at me with a straight face and said, ‘Jan, I’m wondering why I want to do this. I can make more money bagging groceries at Wegmans than I’m going to be making in this business.’ And he was absolutely right,” Pisanczyn said.
But a business plan also can find unexpected alternate routes to success, Notargiacomo said. Student entrepreneurs at RIT had a business idea based on selling a product that already existed, but they hoped to attract customers with improved quality. Their business plan research found there actually was no significant difference in quality, but they unexpectedly learned their product worked faster and therefore was still viable.
“Can you start without it? Yes, absolutely you can. Are you going to get very far without it? I would say, in most cases, not,” said Pisanczyn.