Business Planning: The Five Steps of Business Planning
Business planning isn't actually all that complicated--at least in theory. When you boil business planning down to its very essence, the planning consists of five discrete steps:
The First Step of Business Planning: Determining Technical Feasibility
The first step of business planning is to ascertain whether the product that will be produced or whether the service that will be provided is technically feasible. In order words, if a business planning exercise looks at the idea of building and then selling a better mousetrap, is this better mousetrap really technically feasible.
The Second Step of Business Planning: Gauging Market Demand
The second step of business planning is gauging market demand. This second step revolves around answering the question, "Do people really want this product or service bad enough to pay money for it?" In other words, a business planning professional may know people should want a particular product--such as highly portable oscilloscopes--but if people won't actually buy the product, no demand exists. No demand, no market. No market, no business.
The Third Step of Business Planning: Profitability
The third step of business planning is calculating if a product or service can be profitably sold. This business planning step perhaps sounds silly. But consider this perspective: Presumably a business would be able to generate huge sales volumes by selling luxury automobiles for, say, $1,000. But if those luxury cars must be purchased for $100,000 each, the business is not and will not ever be profitable.
The Fourth Step of Business Planning: Testing for an Acceptable Return on Investment
The fourth step of business is testing for an acceptable return on investment. This step is sometimes confusing to new business planners and even to seasoned planners who aren't financial, but here's the deal: In order for a business that you're planning to make sense, the business planning process needs to verify that the business will earn an acceptable return on the capital invested in the business. Restated slightly differently, the people who invest in a business planning opportunity (if half intelligent) will want to confirm that the business delivers a return on investment at least equal to what they could earn if they invested their capital someplace else.
The Fifth Step of Business Planning: Recruiting competent Management
The fifth and final step of business planning is locating and then recruiting key managers and employees who can do what the business planning model calls for. In other words, if the business requires that a new product be developed--a cure for some disease--the firm needs to find and keep talented scientists. If the business planning process requires that the new product be sold to particular customers at a specified price, the first needs to find and keep talented sales and marketing people. Finally, the business planning process verifies that financial managers are available (since they'll be needed for raising investor funds) and that top executives are available (since they'll make sure that the outcomes promised by the business plan are in fact achieved).
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