Being an entrepreneur is more about possessing a growth mindset over anything else. While they hate to fail, they also are not afraid to fail. On the one hand, they are remarkably focused on their idea while on the other hand remaining powerfully in tune with the problems of their customers. How an entrepreneur plans for success can look very different from one individual to another.
However, all effective entrepreneurs zero in on a few key elements in their business planning. At all times, they are concerned with their customers’ ability to feel empowered to tackle a unique set of problems. Entrepreneurs use trial and error to crate a great product, as well as to produce an effective process for delivering that product.
As a self-made entrepreneur, Pedro David Espinoza understands the hours of planning that go into success. Here are his recommendations for making one’s business plans profitable.
Proof of Concept
Even if the product or service has existed for some time, the entrepreneur should be able to demonstrate a unique take on that product or service. On the other hand, if the product/service is brand new, then that entrepreneur should have built the product or process into a working business idea.
This is known as the proof of concept, or, if the idea is a product, the prototype. The entrepreneur has not only visualized their business idea in their head; they’ve actually put it to use and returned remarkable results. Pedro David Espinoza says that once the proof of concept has been established, entrepreneurs will be able to get more of a sense of the demand for their business or product.
The Business Plan
Many argue that it is utterly irresponsible to attempt a business launch without a business plan. The business plan is an exhaustive, start-to-finish plan for success. Entrepreneurs do their homework to accurately display the totality of their business idea into a single document.
Explaining the Business Model
Several parts to the business plan peel back the layers of how the business will operate, produce, and distribute the product/service. It begins with a summary (the executive summary) and continues with a company description, organizational approach, and service/product description. The business model should demonstrate a reasonable approach to product/service creation and distribution. Lastly, the entrepreneur should define the business structure (LLC, S Corporation, C Corporation, etc.).
Examining the Competition
The business plan should identify market and industry trends, as well as direct and indirect competitors. According to Pedro David Espinoza, the new business should clearly fill a void in an existing market and offer something unique over the competition.
Identifying the Marketing Approach
While many consider marketing to be advertising, it actually encompasses far more. Marketing also includes sales, customer service, and referral business. No business wants to have to chase new clients all the time. It is much better to retain customers for as long as possible. Therefore, the marketing approach should clearly demonstrate how the business will attract new customers, satisfy them, and then protect them against buyer’s remorse, that is, resolving conflict with customers as soon as possible and in best way possible.
Introducing Key Personnel
Entrepreneurs rarely launch a business on their own. As such, the business plan identifies all the business’ major players. This includes any partners and current and future team members. If the entrepreneur plans to hire a handful of employees right away, the business plan should have a human resources department or manager to keep the business compliant.
Building Pro Forma Statements
Perhaps the most important part of the business plan is the forecasted financial statements. The Pro Forma portion of the business plan usually contains a statement of cash flows, income statement, and balance sheet. Many entrepreneurs that are not handy with financial statements seek help from an expert like an accountant.
Funding: Where Will the Money Come From?
The top concern of entrepreneurs everywhere is figuring out where they will get the next level of funding to grow their business idea. Entrepreneurs that self-fund are usually financially drained once they’ve completed their proof of concept. So, the next stage of funding has got to come from somewhere else.
While constructing a business plan is always a great exercise for the entrepreneur to get his/her “ducks in a row,” most build their business plan in order to seek investor capital or an SBA loan.
Investor capital can be challenging to acquire, especially for business ideas that need to scale quickly. The ability to get investor capital often comes down to the entrepreneur’s business plan and presentation skills. Thankfully, both are acquirable through practice and effort. Pedro David Espinoza enjoys investing in these up-and-coming entrepreneurs that have put work into their proof of concept and business plan.
It’s All About the Numbers: Company Financials
At the end of the day, the success of a business comes down to the numbers. The business concept must be sustainable and profitable. The time frame in which the business breaks-even and eventually becomes profitable should be reasonable. On average, a successful business takes two to three years to become profitable.
Entrepreneurs often define sustainability as a plan that can last indefinitely and provide a solid foundation for growth and stability over time. In strictly financial terms, this is often expressed in the break-even analysis.
In short, the break-even analysis is a calculator that helps the business know exactly how much in sales, or how many transactions it takes to cover all business expenses. It is usually a good idea for entrepreneurs to feel handy with the break-even calculator. They are simple to build in Excel or with the help of a friend.
Naturally, everyone wants their business idea to be a great success. That success results in the kind of profitability where the entrepreneur and his/her partners make good money for their hard work. Entrepreneurs focus on key iterations of their product or service so that financial success begins to steamroll over time.
Pedro David Espinoza is a serial entrepreneur, investor, author, and public speaker. He seeks to raise awareness for the power of diversity, particularly as more and more immigrants to the United States are successfully launching new products and services. He is the founder of SmileyGo and is a speaker for TEDx.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.